Dec 12

PM: New high, but finish flat

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR

Stocks notched the highest levels in almost 2 months after the Fed announced it would keep rates near zero until unemployment dropped to 6.5%.  But the enthusiasm was short-lived as the markets gave back all those gains and closed flat for the day.  Volume was higher between short-covering and momentum trading, but those buyers quickly ran out of money and the market couldn’t entice anyone else to jump in at the new highs.

MARKET SENTIMENT

We got another shot-squeeze today, the 7th by my count since the November lows.  I’m surprised bears are still solvent after all that bloodletting.  Chances are many bears have grown tired of shorting the market and conceding defeat.  It is okay to be wrong, it is fatal to stay wrong.  But the ironic thing is as soon as most give up, we will finally get that selloff.  The market is cruel that way.

TRADING OPPORTUNITIES

Stocks are getting a little rich up here and it would be a good time to trim profits.  The market is not setup for a major fall, just a retest of the 50dma or 1400.  The two reasons we won’t have a major correction, 1) the market is pessimistic, not complacent and 2) the market is obsessing about negative news, not oblivious to it.  The fuel for major selloffs is unexpected bad news.  Anything that has been talked about ad nauseam is not going to surprise anyone.

For a trading plan, lighten up on longs and wait for better prices to buy back in.  The extremely aggressive could look to put on a quick short, but don’t stay short more than a couple of days and close your position near the 50dma.  But honestly there isn’t a lot of profit to make a short trade worth the risk.

INDIVIDUAL STOCK

AAPL seems to be firming up around the $540 level.  This isn’t an absolute floor for the stock, but some sideways consolidation here is part of the basing process.  We will probably see one more dip lower due to broad market weakness that flushes out the last of the hopeful, but after that the stock will be better poised to climb out of this hole.

Stay safe

Dec 12

AM: The oblivious rally

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 1:09 EDT

AM Update

MARKET BEHAVIOR

The market is trading higher after yesterday’s breakout.  We are just above of resistance in the low 1430s after the market popped on the Fed’s announcement.  It’s been one heck of a ride over the last 5 trading days as we bounced off 1400 and had 5 consecutive up-days, now looking at our 6th.  It wouldn’t be surprising to see a down in the near future.  In fact a little consolidation here would be healthy because going too-far, too-fast is unsustainable and leads to larger snap-backs.

There is some volatility surrounding the Fed announcements with the initial reaction being higher and breaking former resistance at 1434 is triggering some stop-loss/auto-buying.  This is the oblivious rally that just keeps on going no matter how many reasons it shouldn’t

MARKET SENTIMENT

Many traders are suspicious of this rally and unsure what to do.  They joined the crowd and sold stock after Obama’s reelection.  They continue fretting over the Fiscal Cliff headlines and still worry about developments in Europe that everyone has seemingly forgotten about.  Yet the market is oblivious to these concerns.  What is a trader to do?  Most rationalized it as a temporary bounce and it would come back down, but it’s been nearly a month and 85+ S&P points and the market is still going up.

In the markets, price is truth and many cynical traders reconsidering their views.  This is a perfect example of what happens when too many traders opinion’s cluster together.  Efficient markets depend on independent opinions.  Surprisingly it doesn’t matter if individuals in are rational or not, just as long as they are independent.  Even when participants are irrational, if the irrationality is independent, the extremes on one side counteract extreme views on the other side.  In an independent environment the irrationality cancels itself out and we are left we an efficient market.  But what we had in the post-election selloff was a clustering of opinions.  Rational or not, when groupthink hits the market, it skews prices and makes the market inefficient.  But this isn’t bad for trader because this is our bread and butter.  Inefficient markets create profit opportunities and without cracks to exploit, beating the market would not be possible.

The situation we have now is pessimists suffering from doubt and an identity crisis.  These turncoats are the new buyers that are pushing us higher, as both as short-covering and afraid of being left behind chasers.

TRADING OPPORTUNITIES

Up six days in a row might make the market vulnerable to a pullback, so anyone tempted to chase this market might wait a couple of days to find better prices.  As we have seen time and time again, it is ruinous for your trading account’s health to be short this market.  The trend is clearly higher and the easy trade is owning the market.  We should expect a pullback to the 50dma, but that will be a buying opportunity.  The one snag to watch for is an emotional trade surrounding the Fiscal Cliff negotiations.  Much like the Obama reelection, we could see some irrational selling, but that will be short-lived and create a buying opportunity.

INDIVIDUAL STOCKS

AAPL is again following the indexes, albeit with a lot more beta.  The irrational selling seems to have abated.  Most of the pre-tax increase selling has probably already happened too. Anyone contemplating locking in AAPL gains for tax purposes was likely pushed over the edge watching the stock nose over like it did.  Most of the commentary surrounding AAPL is focusing on their weaknesses and what they are doing wrong and no doubt there is truth to these points.  The iPhone finally has real competition from Samsung and is losing market share in the US, but lets not forget AAPL is an international story and how they perform overseas is what will drive the stock.

Stay safe

Dec 11

PM: Can’t hold this bull down

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

Markets surged higher and is flaunting strength in the face of widespread pessimism   We make our money off of the market, not fundamentals, so listen to what the market is saying and here is wants to go higher.  We could see some near-term consolidation of the recent gains, but the trend is clearly higher.

MARKET BEHAVIOR

The market surged past resistance at 1420 and burst above 1430 before settling back to 1427.  There was a late selloff after all the short-squeeze buying tapered off, but the market still finished in the top half of the day’s range.  Volume was slightly above average.  The next level of overhead resistance dates from before the election at 1430 and support is now 1420.

MARKET SENTIMENT

The market was caught off guard when word came out of Washington that Fiscal Cliff talks were making progress.  Lately the assumption has been both sides are digging in and unwilling to compromise, but today’s tone was far more conciliatory.

The resulting price-action reveals how bearish the markets were and how many traders were either under-invested or short the market.  A lot of today’s move was a short-squeeze and as we saw this afternoon, the air often lets out of those after reaching the point of maximum pain for bears.  But even with the modest letdown, the market still closed in the top half of the range.

TRADING OPPORTUNITIES

The market is becoming more hopeful a Fiscal Cliff deal will be reached and is rallying in anticipation.  But this early move shows the market is ahead of the news and all the upside will already be priced in by the time something is agreed to.  We might even see a sell the news if the eventual compromise isn’t everything the market is hoping for.

The market clearly wants to rally here as all the bears are helpless to hold down the market.  We might even see under-invested money managers chase into yearend if this strength keeps up.  The important technical levels are 1420 underneath and 1430 above.  We coud easily retest and even dip through 1420 on a routine, healthy, and productive pullback, but anything larger shows major flaws in this rally.  1430 is the new line in the sand for bears and we’ll get another surge of buying if we can break above this level.  Recent price action shows it is time to be long the market.  We will watch for downside weakness tomorrow, but barring a major breakdown, this market wants to go higher and any dips should be used as entry/add-on points.

INDIVIDUAL STOCKS

APPL rallied with the market and finished higher by 2.1%.  As I shared in the AM update, seeing AAPL follow the market’s price moves is a good sign the selloff fever is breaking.  The irrational and emotional selling will need to dry up before any kind of sustainable rebound can happen.  Often this comes after most have given the name up for dead.  The failed bounce off of $500 a couple of weeks ago did a lot of demoralize the hopeful crowd.  A double bottom with a new low would go a long way to completely demoralizing the last holdouts and ironically put a floor under the stock.  Much like the broad market, we need skittish holders to sell to longer-viewed value investors who are comfortable sitting through volatility.  Once there is a critical mass of stable value investors, the volatility will subside and the name will begin its climb higher.  The big catalyst will be earnings in January and with the newly lowered expectations, it will be easier for AAPL to exceed the vastly lowered bar.

Stay safe

Dec 11

AM: New highs

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 1:09 EST

AM Update

MARKET BEHAVIOR

Markets surged past resistance at 1420 and are now in line with pre-election resistance near 1430.  All of the Obama reelection selloff has been recovered and the market continues flaunting strength in the face of pervasive negativity.

MARKET SENTIMENT

It is a bad time to be short the market and bears are feeling more pain today as the market refuses to acknowledge their view of the world.  But as we know, markets operate on supply and demand, not fundamentals.  Fundamentals and sentiment can influence supply and demand, but price is exclusively driven by supply and demand and all other factors are secondary.

Because the pessimism is fairly widespread, that view is already priced in.  People trade their views and if everyone is telling you how bad the world is, then they have already traded those opinions.   After they sell, these people are simply cheerleaders since they can no longer dump more supply on the market.  But here is the interesting thing, while the current bears are unable to further pressure prices, they can boost prices if they start buying back into the market.  And that is the heart of contrarian trading.  The crowd cannot push the market any further in their direction, but they can move markets if they change their mind and push the prices the other way    And this rally is doing just that.

TRADING OPPORTUNITIES

Don’t expect the market to go straight up and their will be some turbulence, but we should hold above the 1420 going forward.  If there is material a violation of 1420 that likely means the rally is fizzling.  But a test of 1420 and modest penetration will just be part of digesting these new gains.  Today’s pop is largely driven by shorts getting blow out of the water and their frenzied buying will climax soon and we should expect a little retrenchment.

Stocks rallied on encouraging words out of Washington on progress toward averting the Fiscal Cliff.  Maybe they will actually get something done before the deadline, but you have to wonder if this is a buy-the-rumor, sell-the-news setup forming.  But either way I expect this rally will continue into next year as the economy continues growing slowly and headline events turn out better than trader’s worst fears.

INDIVIDUAL STOCKS

AAPL popped along with the broad market today.  It is getting late in the game for AAPL to announce a special dividend, so anyone hoping for that should adjust their expectations accordingly.  Today AAPL’s price-action is mirroring that of the indexes.  That is progress as the stock is weaning the emotion out of its trade.  Emotion is not an on-off switch, so we can expect more wild swings, but this is part of getting back to more normal trade.

Stay safe

Dec 10

PM: A win for the bulls

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR

Markets traded mostly flat on light volume.  Neither sellers nor buyers showed up in force and while it looks like a draw, holding above the 50dma is a win for bulls.  We are within a couple of points of a post-election high and breaking above that would be a technical accomplishment.  Of course we need to wait for the breakout to stick because it could just as easily turn into a double top, dropping us back to the 200dma.

MARKET BEHAVIOR

The market is holding up well giving further hints owners are not ready to sell shares even with all the counterproductive rhetoric in Washington.  Another support day here and it will be time to take a serous look at going long this market.  The real test will come when we break above Dec 3rd’s high of 1424.  If we don’t selloff in a double top, it will be extremely constructive action and we have to take notice no matter what is going on in the headlines or how light the volume is.  Markets rally in the face of pessimism and that could be what is happening here.  All the pessimists already sold to new holders who are comfortable sitting through the Fiscal Cliff volatility.  This attitude creates a self-defeating prophecy where the holders willingness to ride out volatility actually eliminates the expected volatility.   If everyone is holding, supply dries up and the market heads higher.

TRADING OPPORTUNITIES

Another close above the 50dma and this market will show more strength than most give it credit for.  No doubt there is a lot of pessimism around the Fiscal Cliff, Europe, and China, but the only times I can recall when everything was great was just before a major bear market.  This fear of impending doom is also creating a self-defeating prophecy as it holds prices in check keeps the bear in his cage.

My recent bias was for a modest pullback after the recent 75 point rally, but I am reconsidering that near-term expectation.  There is probably a 50/50 chance we’ll avoid a selloff and instead use this sideways consolidation to reset the clock.  Headlines are always a risk in this market, but everyone is expecting us to go over the fiscal cliff so that is already largely priced in. We could see a couple of days of emotional selling, but nothing like what happened after the election.  There was far more hope of a Romney win than a Fiscal Cliff resolution, so that means any Fiscal Cliff selloff to be more modest.  Hope is the fuel of declines and right now hope is scarce.

AAPL daily at end of day

INDIVIDUAL STOCKS

AAPL had another down day.  At this point the stock is so emotional it is largely a coin flip if it will be up or down.  It has completely disconnected from the broad market and is marching to the beat of its own drummer.  It has become a trading stock and is completely divorced any market or company fundamentals.  If it feels too risky to buy AAPL here, then it is probably a good buy for anyone willing to hold through more volatility.

Stay safe

Dec 10

AM: Supporting the 50dma

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 1:12 EDT

AM Update

MARKET BEHAVIOR

The markets rallied modestly in early trade.  There are not many sellers at this level and they are being matched with more than enough willing buyers to support prices.  We are also close to making a new post-election high 1424.  Volume is light, but that is normal for this time of the year.  For as much concern as there is over headlines, the price-action doesn’t reflect this sentiment.

MARKET SENTIMENT

Owners are willing to hold here and the swing-trade is not putting much of a dent in these higher levels.  The recent pullback to 1443 changed the makeup of stock owners as weak-kneed owners sold out to more long-term opportunists willing to buy at a discount and hold through some volatility.  The stability of these new owners is supporting prices so far and we haven’t seen the volatile ups-and-downs that followed past declines in 2010 and 2011 and this summer.

There has not been much progress in Fiscal Cliff talks, but the market seems to be rallying in anticipation of the inevitable deal.  This is pretty standard buy-the-rumor, sell-the-news kind of stuff.  Given the recent rally in the face of stubborn posturing by both sides, it seems the market is okay with us heading off the cliff for a short amount of time.  But even if the majority of smart-money is expecting it, the actual event could spook retail investors and they start selling by the fistful because of media hype.  This could create another profit opportunity like we saw following the election.

TRADING OPPORTUNITIES

Holding above the 50dma is encouraging, but we need to maintain this level for another day to prove there is real buying behind this move and it isn’t just short-term traders propping us up.  Breaking 1424 without selling off will be a strong indication current owners are perfectly content holding and that lack of supply will support of prices.

On the other side, breaking under the 50dma could trigger a wave of selling and that could shake the confidence of many content owners.  Nothing undermines resolve like red splashed across a trading screen.

AAPL daily @ 1:12 EST

INDIVIDUAL STOCKS

AAPL is showing its divergence from the rest of the market with it down while the broad market is higher.  It is now trading in a world of its own as everyone is trying to guess the next move.  This stock has completely separated from the fundamentals and is just a dice game at this point.  Everyone is in the markets for their own reasons, some want to make money and support their families with others are looking for a gambling-like thrill.  All the gamblers are flocking to AAPL and if that is your thing, there is no better place to be.

The supportive thing for the market is while AAPL carried the market on it’s back in the early part of this year, the collapse of AAPL has not weighted on the broader markets as much as expected.  At the time it seems to be a single stock story that is not spreading.

Stay safe

Dec 09

LA: Look for 50dma support

By Jani Ziedins | Intraday Analysis

S&P500 weekly at end of week

Look Ahead

Here is what we can look forward to this week and strategies to trade it.

MARKET BEHAVIOR

The market regained the 50dma late Friday.  Finding new buyers to support prices above the 50dma will be a key component of continuing the current rally.  We are in the middle of the holiday lul and should expect volume to continue slacking off.  Lower volume means more volatility since it is easier for smaller traders to move the market, so expect head-fakes to continue.

MARKET SENTIMENT

The 50dma and 200dma are a key psychological levels for no other reason than so many people follow them.  Congestion around a price level creates more powerful support and resistance because this is where a lot traders actually bought and sold shares.  Emotions of fear and regret will cluster here because this is the point where many traders accounts will move between profit and loss.  Moving averages and round numbers make for noteworthy mile markers but don’t generate the same levels of pain and pleasure for traders who didn’t enter or exit trades at these levels    But the secondary indicators can affect the market’s mood and influence exceptions about what lies ahead.  In many ways these secondary technical levels are self-fulfilling prophecies.

A lot of traders are going to watch how we trade around the 50dma.  If we hold above it, they will buy the market.  If we fall under it they will sell and short.  And if that is what people are going to do, then we want to get out in front of this so we profit from the crowds buying and selling.  We don’t want to be the first one on the bandwagon, but we want to jump on before it is obvious to everyone else.

The market is currently ignoring the Fiscal Cliff debate and is not showing concern about the growing political deadlock.  Both Republican and Democratic leadership have thrown out ultimatums  and I wouldn’t expect either side to back down any time soon.  And the market knows this too, but it doesn’t seem concerned.  While this might be perplexing to the fundamental trader, we trade the market, not the news.

The thing we have to decide is if traders are buying for non-fundamental reasons here and that is creating this support here.  Are shorts buying this market because they cannot stomach further losses?  Are bandwagon traders buying because everyone else is?  If either of those traders are leading the charge higher, we will head lower quickly after their limited buying power dries up.  But if big money vale investors are attracted to these prices, then we will likely continue higher.

TRADING OPPORTUNITIES

The big difference between short-squeezes and momentum traders and value investors is the size of their trading accounts.  Short-term traders drive a lot of the daily volatility we see, but only the large mutual funds can sustain major market moves.  And so the most obvious way to tell who is leading this market is to wait a few days.  If big money is in charge, we’ll hold these levels going forward.  But if the short-term traders are propping up the market without the support of larger traders, this rebound will fizzle and collapse under its own weight.

If the market choses to ignore the Fiscal Cliff and thinks a pullback to 1400 is the only rest it needs, we have to respect that because the market is larger than we are.  It isn’t about what the market should do, but what the market does that puts profits in our accounts.

AAPL weekly at end of week

INDIVIDUAL STOCKS

How can we not talk about AAPL?  Not only is it one of the most widely held stocks, but it also makes up the largest portion of the indexes.  AAPL’s $50 decline wiped out more market cap than most of the companies in the S&P500.

The first thing we need to recognize that AAPL the stock is a lot different from Apple Inc.  Apple Inc. is one of the most profitable companies in the world and growing like gangbusters.  There is nothing wrong with Apple Inc., but AAPL the stock on the other hand has run into significant headwinds.  Call it unrealistic expectations or over-owned,  but whatever it is, the stock is off 25% from its $700 high just a couple of months ago.  Is this stock done selling off?  Is it headed to $400?  Honestly I have no idea.  Has sentiment peaked, or is this just a shakeout?  I think AAPL is getting hit by all these people trading for tax reasons and the stock might liven up closer to the new year when this artificial pressure goes away.  But there are no guarantees because emotional trades go further and longer than most expect.  And lets be honest, at this point AAPL has turned into an emotional trade because it what everyone is talking about.  If you are a gambler, try to pick a bottom.  But if you are in this to make money, wait for the stock to find a bottom before buying in.  Most often we will see a couple false bottoms before the real rebound starts.  One false bottom down, one more to go.

Stay safe.

Dec 08

WR: Recovered early losses

By Jani Ziedins | Intraday Analysis

S&P500 weekly at end of week

Weekly Review

It is important to periodically take a step back and look at the bigger picture because too often the daily noise can be confusing and misleading.  That is the intent of these weekly reviews.

MARKET BEHAVIOR

The market sold off early in the week as Monday and Tuesday finished in the red, but the market rebounded Wednesday, recovering all of those losses.  Interestingly enough, we opened the week by gapping above the 50dma, couldn’t hold that level and traded down to 1398 before bouncing back, ending the week above the 50dma.  Wednesday was the low point in the week and had the highest daily volume in quite some time.  Was this the capitulation point of a modest pullback?    Certainly could be looked at that way.

MARKET SENTIMENT

How a week closes is similar in importance to how a day closes.  Often big money makes their trades later in the week after they had a chance to evaluate market conditions and new fundamental data.  Pros throw their weight around near the end of week and it is important to keep tabs on what they are up to because they have all the money.

The most bullish thing from last week is buyers were willing buy Wednesday’s dip under 1400 and kept pushing the market all the way back above the 50dma.  On the other side we should be asking if this was the last short-squeeze before correcting lower.

The single the most challenging aspects of trading the market is both sides always have extremely compelling arguments for their positions.  The market price is the exact balance point between these two opposing viewpoints and you end up with exactly half the money on each side of the trade.  One side is buying because they think it will go higher, the other side is selling because they think it is time to get out before prices decline.  (there are other reasons to sell, but lets keep this simple)  To be successful, we need to spot group think and exploit opportunities where the crowd is getting it wrong.  For the near-term trade that is hard to do here because it seems both sides are equally matched.  A bad headline could trigger an emotional selloff, or the pervasive pessimism could continue fueling a rally that discounts every piece of bad news thrown at it.

TRADING OPPORTUNITIES

Right now it is hard to get ahead of this market because there is no obvious group-think skewing the crowd one way or the other.  From here the best play is waiting for the market to reveal its hand and then jumping along for the ride.  Holding above the 50dma for a couple more days makes this a buyable rally.  Dipping under the 50dma shows buyers are unwilling to support these prices.

And of course lets remember we don’t always have to be in the markets.  Don’t trade just for the sake of trading.  If you don’t have an edge on the market, take some time off and come back when there are better profit opportunities.  Volume for the rest of the year will trend lower and volatility will pick up as smaller players will be able to push the market around.  That could be enough of an excuse to take a break and come back in January with a rested mind.

AAPL weekly at end of week

INDIVIDUAL STOCKS

AAPL had its worst week in a years.  Resistance at the 200dma turned the stock back down and most of the traders who piled in on the recent rebound from $500 are now under water.  Funny how the market manages to turn the easy trade into the wrong trade.  There are a dozen psychological and economic reasons this happens, but it boils down to if it is easy to buy, it is probably a bad idea.  AAPL’s bounce off $500 sucked in a lot of people and this second pullback barbecued them.  AAPL is quickly going from a buy-and-hold stock to one that should be sold any time you have a profit because two days later it will reverse hard and you’ll be in the red.  The shocking thing is how volatile such a large company is when there is no real news to speak of.  There is no scandal at the top, no PR disaster, no major accident, strike, or disruption, AAPL is making these dramatic swings just because.  You’ll get a dozen reasons out of the financial press and analysts, but the truth is the stock was over-owned and ran out of buyers.  Without buyers, fundamentals don’t matter.

Sunday we’ll look forward to what we might happen next week.

Stay safe

Dec 07

PM: What short-squeeze

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

What happened to today’s short-squeeze.  We closed higher, but it should have been a lot higher.  Did this give us a clue about how this market is positioned and where it is headed?

MARKET BEHAVIOR

Markets closed above the 50dma for the first time in nearly two months.  This would be considered a big win except it came on the heels of a strong employment report that failed to excite traders.  Volume was well below average and it seems many traders have cutout for the rest of the year.  Low volumes can lead to increased volatility as it becomes easier for smaller trades to move the market, so we might expect more unpredictability from the markets in coming weeks.

MARKET SENTIMENT

It was surprising to see the market’s underwhelmed reaction to an unexpectedly good jobs report and drop in unemployment to 7.7%.  The market even traded in the red for part of the day.  It was encouraging to see the market rally into the close and finish near the highs, but it is still curious the market failed to rally strongly on good news given how negative sentiment seems.  In times of extreme pessimism, the markets will vault higher on something as little as less-bad news, yet here we have good news and the market shrugs it off and only squeezes out a 0.3% rally on light volume.

We might infer from the lack of a meaningful short-squeeze the markets are not overly pessimistic.  This is good news for bears and bad news for bulls.  The last few short-squeezes sent bears into hibernation and that lack of shorts in the market is why we didn’t see more upside from today’s news.  The apathetic rally also means there are not a lot of buyers on the bull side left to push us higher either.  Earlier in the week I was reconsidering my thoughts regarding a pullback because of the seemingly widespread negative sentiment, but today’s price action shows bearish positioning is not as prevalent as it sounds.

TRADING OPPORTUNITIES

While we finished the day strong and closed above the 50dma, I’m not sold on this rally just yet.  It still has to prove other buyers are willing to step-in at these levels and we won’t slip back under the 50dma due to lack of follow-on support.  Today’s price action nudged me slightly more negative than I was coming into the day.  I don’t have a lot of conviction in this bearish view, but today’s moves seeded to indicate there is not a lot of upside left the markets right now.  But just to clarify I only expect a brief pullback relating to emotional Fiscal Cliff worries and this will create a buying opportunity once the Fiscal Cliff is in the rear view mirror.

For a near-term trade, look to short the market if we break under the 50dma again and consider buying the market or at least covering shorts if we hang above the 50dma for three days.  Of coures all bets are off if our politicians surprise us all and come up with an agreeable compromise next week.

AAPL daily at end of day

INDIVIDUAL STOCKS

AAPL continues acting like a drama-queen swinging between bouts of enthusiasm and despair.  Everything was great on Thursday and it was all broken again on Friday.  While it doesn’t feel helpful, this price-action is necessary to cleanse an over-owned stock.  Analysts will point to this or that for why we are selling off, but they are overlooking the simple and more accurate reason of supply and demand.  AAPL was perceived as the safest stock in the world and it was flooded with overly optimistic and slightly naive owners who assumed it was a sure thing.  But once everyone and their grandmother had as many shares as they could fit in their mattress, there was no one left to buy and gravity took over.  Now all these late comers are selling for a loss and gladly selling their stock for a steep discount just so they don’t have to endure any more pain.  But their pain is someone else’s gain.

Stay safe

Dec 07

AM: Employment Surprise

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:05 EST

Surprise employment numbers fails to excite the market.  Is this giving us valuable insight into the market’s biases and disposition?

MARKET BEHAVIOR

Interesting price action this morning as the market shrugged off a far better than expected employment report.  It is noteworthy when the market fails to respond to positive news and can be a red flag signaling near-term weakness.  If good news can’t lift the market, what will bad news do?

We opened above the 50dma, but fell back under this psychological level within the first hour of trade.  Failing to hold this level for the second time in just over a week is not encouraging.

MARKET SENTIMENT

The market popped at the open, but quickly fizzled.  The gap was quite modest and short-lived, so it doesn’t count as a short-squeeze because it never put much pressure on shorts.  Most likely early gains were people rushing out to buy the headline and follow-on buying never materialized.  The early rally could be a victim of lack of buying rather than hit by a wave of selling.

People are tearing apart the employment report looking for reasons to doubt the headline number, but that is their cynical bias showing through.  They don’t want to buy this market and are looking for an excuse to ignore an otherwise positive result.  Remember, news doesn’t move markets, people’s reaction to the news does.  This is a subtle, but important distinction.  No piece of news is 100% positive or 100% negative.  There are always nuances to every story and depending on the mood of the market, it can grab on to either side.  With today’s employment report it would be extremely easy for traders to focus on to the headline number and run with it.  But it takes a bullish bias to ignore the negative aspects of part-time work and discouraged job hunters leaving the labor force.  We fell on the other side where the market ignored the headline and sold off due to the negative nuggets contained in the report.  This shows a bearish bias toward the news as traders fretted over details buried in the story.

The employment report is now in the rearview mirror and the market’s attention has already shifted to the next thing.  But we can use this result to gauge the market’s sentiment going forward.  Today’s early price action shows a lot of bearish cynicism and could set the tone for the coming weeks.  If good news cannot lift the market what will?

TRADING OPPORTUNITIES

The unexpected surprise from the employment report didn’t produce the bounce it could have.  That is a very ominous warning.   Of course we need to watch how the market trades through the rest of the day.  Cynics could have taken hold early on but might lose control this afternoon.  This is a volatile market and often the initial reaction to a major story has been wrong.  Which will turn out to be the head fake, this morning’s pop, or the subsequent selloff?  One of them is wrong but it is too early to say.  In recent history, the wrong move corrected within hours.  Will we see the same here?  How the day closes will give us more information.  A weak close could be bad news for the markets as we get closer to the Fiscal Cliff.  A strong close will show traders are already looking ahead and less worried about what is in front of us.

AAPL daily @ 1:06 EDT

INDIVIDUAL STOCKS

AAPL is giving back some of yesterday’s big pop, but still well above yesterday’s lows.  This is turning into a highly emotional stock as it whips around.  Every moment of relief has been followed by another bout of terror.  And this isn’t a one way story, both bulls and bears are getting shredded by this volatility.  This has become a great swing trading story where you sell the rallies and buy the dips.  It will probably keep this up for some time to come as the stock turns over its core ownership base from complacent speculators to steadfast value investors.  Unlike spectacular breakdowns in NFLX and GMCR, AAPL has the fundamentals to back up its valuation.  Heck it is undervalued as compared to the broad market given its dividend and growth.  This is one of the most successful companies in the world and it is trading at a legacy company valuation.  But that doesn’t mean prices can’t continue to decline as emotion overtakes reason.

Stay safe