AM: Selling continues

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
The market stumbled lower and undercut recent support at 1620.  The next major level for bulls to defend is 1600.

MARKET SENTIMENT
We slide as buyers stay away and stop-losses trigger under widely followed support levels.   The pain trade is clearly on for late buyers of the recent rally.  There is no obvious headline driving the decline, but we know headlines are only loosely related to market moves.  Traders are afraid to buy and the continued slide is forcing out weaker holders.  When that happens, it doesn’t matter what the headlines say.

Recent weakness shows the value of selling into strength and taking profits.  We are in this to make money and the only way to do that is selling our winners.  It also highlights the risks of chasing a strong market.  The best trade is often the hardest trade.  That means selling an invincible stock and buying when everyone is convinced things are collapsing.

TRADING OPPORTUNITIES
Expected Outcome:
I still don’t believe in the selloff, but that’s what stops are for.  At some point the rally will bounce because they always do, the only  question is if it is a real rebound or bull-trap.  As we discussed through May, a pullback following such strength is normal and healthy.  1600 has long been the line in the sand and retreating to this level is not alarming.    How the market responds here lets us know what comes next.

The market is down nearly 5% from recent highs and that qualifies as a refreshing pullback.  It is reasonable for the market to enter a trading range for the remainder of summer.

Alternate Outcome:
No matter what we think, we must respect and follow our stops.  It is better to be out of the market wishing we were in, than in the market wishing we were out.  Buyers remain reluctant to jump in and buy the dip.  The longer they withhold their support, the further we slide.

Trading Plan:
Assume the rally is intact until we violate 1600.  If the market falls under our stops, we must sell, no questions asked.  It is easier to buy back in if we get out prematurely than it is to recover mounting losses by sticking around too long.  As always, if we don’t feel comfortable, stay out of the market.  It is easy to make money in the markets, the hard part is keeping it.  Don’t force bad trades.

Plan your trade; trade your plan

PM: What bulls?

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks closed in the red, but held yesterday’s low of 1622 and finished above the intraday lows. Volume was above average, but off of the elevated levels seen on Friday and yesterday.

MARKET SENTIMENT
Holding 1620 through Wednesday’s close shows sellers just don’t have what it takes to push this market any lower.  No matter what anyone says about too-far, too-fast, overbought, overly-bullish, etc, this market remains cautious, hesitant, even bearish.  The most common mistake people make is assuming the trend represents popular sentiment, but in fact they have it exactly backwards.  Sustained trends are only possible when the crowd expects the opposite will happen; overly-bearish markets rally and overly-bullish markets slide.

The only reason the current market rallied this long and far is because of how overly-bearish it was following Obama’s reelection and the impending Fiscal Cliff.  Even seven-months and 350-points later it refuses to breakdown because people still don’t trust it.  StockTwits maintains a sentiment indicator and right now users are 68% bearish and only 32% bullish.  That is anything but overly-bullish.  Over the last two-months the indicator has only been above 50% for a couple of days, yet the market rallied 150-points in that same period.  This market rallies because it is overly-bearish and as long as the cynics continue fighting it, it will keep going.

The silver lining to all this volatility due to speculation over the future of QE is this selling is removing that overhang.  The more scared the market is now, the less of a big deal it will be when it finally happens.  Everyone who fears QE ending is selling to buyers unafraid of it.  When QE finally ends the fraidy cats will be on the sidelines and the confident will continue holding.  Just another time to sell the rumor and buy the news.

TRADING OPPORTUNITIES
Expected Outcome:
Everything I see shows this market remains overly-bearish and the recent selling chased out weak holders.  With most of them out of the way, selling will dry up and the market will bounce.  Strength on Wednesday is buyable with a stop under 1620.

Alternate Outcome:
I’ve been wrong before and without a doubt I’ll be wrong again.  The goal isn’t to be right all the time, but to minimize the cost of being wrong.  If the market slips under 1620, expect a dip to support at 1600.  While we will assume every dip is buyable, failing to hold 1600 shows we need to reconsider the viability of the rally.

Plan your trade; trade your plan

AM: Another round of selling

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks retreated following early strength.

MARKET SENTIMENT
In spite of this weakness the market is still above recent lows and is maintaining its composure.  With so many calling for a correction and claiming recent price action was the top, support at these levels for the third day is constructive and bullish.  Many of those that could be shaken out are getting shaken out, eventually leading to selling exhaustion and price recovery.

Understand what people think, how they are positioned, and what moves they have available to them.  Most expect a pullback after such a strong rally, sold recent weakness, and the only thing they can do is buy back into the market.  As for the bears, many shorted recent weakness and will be forced to cover when prices bounce.

TRADING OPPORTUNITY
Expected Outcome:
Continued support here is a warning for bears to cover shorts before they get squeezed out.  There is nothing wrong with making an aggressive trade, but recognizing when the trade is not working as planed is a key part of surviving the market.  Market collapses are scary fast, yet this selloff is two-weeks old tomorrow and hasn’t even fallen 4%.  Trading against the trend requires nimbleness and a deft hand. Take profits early and often; don’t get greedy and hold too long, allowing profits to turn into losses.

When we finally bounce, don’t expect the strong rally to resume.  The market moves in three directions; up, down, and sideways.  We did a lot of up recently, everyone expects down, so sideways it is.  Sell the breakout and buy the breakdown.

Alternate Outcome:
One of these days bears will be right and the market will correct when no one expects it.  It will start like any other dip, except this one doesn’t find a bottom and continues lower.  The best defense is keeping an open mind when the market doesn’t behave as expected, and when all else fails, hard stops.

Trading Plan:
Swing traders can buy the market with a stop under yesterday’s 1622 low.  Look for a move up to recent highs.  Breaking through 1622 likely means a retest of support at 1600 and represents another dip buying opportunity.  Slipping under 1600 will trigger a wave of stop-loss selling. At this point it is anyone’s guess if that will lead to a multi-day selloff or quickly find a bottom, but we will worry about that when we get there.  At this point assume every dip is buyable until we come across one that isn’t.

INDIVIDUAL STOCKS
AAPL continues holding above the 50dma and $440.  Seeing the eight-month selloff take a break is encouraging.  The big fundamental catalyst comes next week at AAPL’s developer conference.  In the past AAPL used this platform to announce new products and services.  Given the huge price decline since the iPhone5’s release, pressure is on Cook and Co to wow developers, the media, customers, and the market.  The fear for an AAPL bull failing to unveil anything more than software tweaks.  Without a big announcement, expect the slide to continue as investors assume AAPL is out of ideas.

Plan your trade; trade your plan

PM: A bullish reversal

By Jani Ziedins | Intraday Analysis

PM Update

MARKET BEHAVIOR
The market staged a positive reversal after falling to 1622 in early trade.  Volume was well above average as the morning dip flushed out another round of stop-losses.

MARKET SENTIMENT
While it is premature to say this bounce is the real deal, it clearly overcame early weakness and prevented it from cascading into wider selling.  Bears had the perfect setup and failed to deliver for the umpteenth time.  Early stop-loss selling quickly fizzled and didn’t spread because most of the potential sellers sold last week.

Success in the market is not found in the charts or the fundamentals, but understanding what people think and how they are positioned.  Many traders anticipated a correction and bailed at the first signs of weakness.  This lead to steep declines on the 22nd and last Friday, but all that selling consumed the bulk of available supply, meaning there was little downside left.  When we run out of sellers there is nowhere to go but up.

TRADING OPPORTUNITIES
Expected Outcome:
Most of the nervous selling is behind us, so expect the market to continue rallying on tight supply.  This will lead to a near-term short-squeeze as aggressive bears are forced to cover, but the wider pool of buyers remain nervous, so don’t expect them to climb over each other to continue pushing this market higher.  Buy strength and sell weakness until the market indicates it is ready for the next directional move.

Alternate Outcome
Further weakness and undercutting 1622 invalidates the thesis most weak hands are already out of the market.   The next key level is 1600 and failing to hold that puts the rally in jeopardy.

Trading Plan:
The dip is buyable with a stop under 1622.  Look to take profits near the previous highs as the market stays range bound through summer.  Seeing the market break 1600 on the low side or 1700 on the high side means the market is ready for its next directional move and we will trade that when we get there.

Plan your trade; trade your plan

AM: Buy the dip

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks are modestly lower in early trade as last week’s selling continues.  We are still well above major support at 1600 and the 50dma, but violated minor lows at 1635 last week and undercut Friday’s lows this morning.

MARKET SENTIMENT
The Sell in May folks are now promoting Sell in June.  It doesn’t have the same ring to it, but we shouldn’t let semantics get in the way of stubbornness.  Bears also point to the Hindenburg Omen, a scary warning of imminent calamity.  Add to this the already pervasive claims this market is extended, over-bought, and overly-bullish.  No one trusts this market and people invent new reasons to stay away each week.

We all want to buy and hold the next big move, but it is our innate fear of heights that keeps most out of the biggest winners.  We are natural cynics and distrust anything that moved too far, too fast.  This is a mixture of disbelief and regret we missed the big move everyone is talking about.  We want to join the party, but insist on waiting for the inevitable pullback so we don’t look foolish chasing a hot stock, or in this case market.  But typically the market either never pulls back, or when it does, we chicken out because it looks like it is breaking down.

Fear and indecision is what keeps most out of the best, easiest, and safest moves.  This market rallied over 300-points since the November lows and people still don’t trust it.  This has been one of the easiest times in market history to hold stocks as we marched higher week after week with no real pullbacks along the way, yet most are still afraid of it.  There will eventually be a time when everyone finally embraces this market and is truly over-bought, but when traders and headlines scream this is the top every time we dip 20-points, we know we are not there yet.

This market will top, but only after everyone stops expecting it.  Supply and demand dictates when everyone fears a correction, they sell proactively and aggressively at the first signs of weakness.  With so many people watching this market with an itchy finger, much of the defensive selling is already behind us as many blew their load early.  That premature selling takes supply out of the market and makes it easier for the market to bounce.  Further, these early sellers are the next buyers as they chase the market higher.

Many traders are waiting for the monthly employment report on Friday, but it has been a year since the market reacted strongly to an employment report.  It was a big deal when we transitioned from job losses to gains,but the market expects modest gains and as long as we keep getting them, this report is simply talking-head fodder.

TRADING OPPORTUNITIES
Expected Outcome:
Friday’s weak close did not lead to an avalanche of selling today, and while we are modestly lower, the market is calm and rational.  Unfortunately for us, markets cannot go up every day, so selling of 10, 20, and even 50-points is normal and expected.    Resist the urge to jump out the window every time the market doesn’t go up.

The market is likely transitioning to a flat trading range for the remainder of the summer.  I’m just spitballing things here, but expect the market to stay between 1600 and 1700 over the next couple months.  The best trade is buying weakness and selling strength.  Savvy and experienced investors can sell option premium.

Alternate Outcome:
While it doesn’t happen often, sometimes the crowd gets it right.  This market could implode Hindenburg style and we cannot stick stubbornly to our original thesis once the market moves convincingly against us.  We came a long way and at some point we will run out of buyers.  Once that happens it doesn’t matter what the headlines are or what the Fed does, without demand markets tank.  Assume the uptrend is intact until it proves otherwise, but once it does, be flexible and quick enough to profit from the new trend.

Trading Plan:
Look for a bounce to buy the dip and use the recent lows as a stop.  Assume the market is stuck in a range and take profits as we approach recent highs.  The aggressive can then reverse and short the subsequent weakness.  A break below 1600 or break above 1700 means we need to watch for the next directional move.

INDIVIDUAL STOCKS
AAPL continues finding buyers above the 50dma and shows legitimate support for the first time since the selloff began.  I suspect most new buyers are coming for the recently raised dividend and these investors are notoriously price sensitive.  Growth investors are shying away from this name and it is unlikely we will see them push this stock any time soon.  A trader can make money here, but it takes a different strategy than the easy buy-and-hold days of years past.

GLD‘s volatility continues as we jump 2% today following Friday’s 2% decline.  Speculators and day-traders are gaming the metal trying to scalp a profit here and there.  The loser is the cautious investors seeking safety and security.  It will take a while for the commodity to regain its safe-haven status and expect recent volatility to continue.

Plan your trade; trade your plan

WR: Brace for the plunge?

By Jani Ziedins | Weekly Analysis

Weekly Review and Look Ahead

MARKET BEHAVIOR
Stocks closed lower for the second week in a row, but still finished May with impressive monthly gains.  Weekly trade was off due to the holiday shortened week and is not directly comparable.  Of note is the first back-to-back weekly decline since November’s lows 300-points ago.

MARKET SENTIMENT
No one disputes the rate of gains since the April lows is unsustainable, the argument centers on if we consolidate or rollover.

Markets decline one of two ways: they plunge when everyone is caught off guard by unexpected news and under appreciated risks, or grinding lower when everyone is fat, dumb, and happy; the proverbial boiling an oblivious lobster one degree at a time.  Our job is deciding which, if any, these scenarios apply.

Lets test the first one, plunge on unexpected news and under appreciated risks.  Recent examples are the 2008 Financial Crisis and the first bout of Euro Contagion fears three-years ago.  The market is blindsided and collapses as the new risk factors are priced in.  Over the last two-weeks did we uncover something new and unexpected?  Are there risks the market under appreciated?

Following financial press headlines covering this two-week selloff, it appears the headline worry is QE ending a couple of quarters early.  First, the Fed has given zero indication this will happen, and second, everyone already knows QE is going to end.  Where is the new risk factor worthy of a steep selloff?  We don’t have one and is why the market didn’t fall into a 5-day, 10% slide following the Fed minutes two-weeks ago.  Panicked selling is unbridled and impulsive; if it hasn’t happened yet, it is unlikely to start without a new catalyst

The second option is grinding lower.  These are the tops at the conclusion of long bull moves where we finally run out of buyers.  These typically end on good news, not bad, as demand exhausts itself in one last push higher.  AAPL’s 40% haircut following the strong iPhone5 launch is a perfect recent example of this.  The market top in 2007 is another.  In situations like this everyone is excited about the future and buying every dip, worries are few and far between.  Those calling for a big decline are labeled extremists.

Currently it seems everyone is bracing for the inevitable pullback/selloff/meltdown.  The market is on edge following recent selling, not complacent.  Even bulls are unsure and lightening up their exposure on the fear the market might be topping.

Now we ask, do we have new and unexpected news followed by a sharp correction?  No.  How about a complacent market topping on good news?  Some will debate me on this, but the fact that there are so many people promoting the bear case makes this also a no.  What does it mean when neither of these topping scenarios apply?  The bull is resting, not dying.

TRADING OPPORTUNITIES
Expected Outcome:
When everyone calls for a continuation or a breakdown, maybe answer is we trade sideways and consolidate recent gains.  We came a long way since the April lows and further upside at this pace is unlikely.  On the other side, everyone is waiting for the obvious selloff, so that won’t happen either.  All the nervous sold the recent weakness and we are running out of new sellers to keep the declines going.  That means we likely fall into a trading range for the next couple months.  Buy the dips and sell the rallies.

Alternate Outcome:
The market can fall apart at a moment’s notice and selling often triggers more selling.  I don’t expect a major correction here, but I’ve been wrong before and without a doubt I’ll be wrong again.  We use stop-losses to get us out of a bad trade and when the market doesn’t act as expected we must reevaluate our original thesis.  This market will violate material support if it fails to hold 1600, until then this is a normal pullback following a strong run.

Trading Plan:
The assumption is dips are buyable until they aren’t.  While new strength is buyable, but don’t get greedy and take profits as we approach recent highs since it is likely we are moving into a range bound market.  The risks for a market meltdown are always with us and use stop losses to control our risk.  If the market bounces on Monday, Friday’s low of 1630 is a decent stop for a dip-buyer.

Plan your trade; trade your plan

PM: Where are the buyers?

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
It was a dramatic close on Friday.  We went from flat to down 1.4% in the last three-hours with losses accelerating into the close.  It was a 2% plunge from the morning highs and reminiscent of last Wednesday’s selloff.  Volume was above average between end of the month window-dressing and stops getting triggered as the selloff picked up speed.

MARKET SENTIMENT
Buying opportunity or continuation of last week’s selloff?  You’ll get different answers depending on who you talk to.

On the surface this looks like the selloff everyone’s been talking about and waiting for, but since when does the market do what everyone expects?  Clearly price has been on the bear’s side as we slipped nearly 60-points from recent highs.  This market rallied 150-points over five-weeks and everyone knows that is too-far, too-fast, so this correction is long overdue.  Hard to argue with the logic and subsequent price-action, but I’ll try.

This was a boring, holiday-week where the market hardly moved.  Trading floors were lightly staffed going into Friday’s close as those that actually worked this week cut out early.  Why stick around when nothing is happening, you are not going to buy anything, and automatic stop-losses will cover you incase the market breaks down?  Junior traders and computers have the authority to sell when the prices cross stops, but are not allowed to initiate new or add to existing positions.  This leads to moves like today’s close where stop-losses get triggered and no one is left to buy the dip.  There was no real news to justify the afternoon selling and it was simply a structural due to a cascade of stops getting triggered.

But we don’t have to speculate for very long.  If this was simply a matter of lightly staffed trading floors and auto-pilot selling, the market will effortlessly rebound next week.  If selling continues, there is more to this and the crowd might actually be right this time.

TRADING PLAN
Expected Outcome:
No matter what people say, we are still in a bull market and the odds are better trading with the trend than against it.  A day and swing-trader can take advantage of this volatility, but take profits quickly when going against the trend.  The uptrend remains intact even if we fall to 1600 and the 50dma and a bounce anytime between here and there is buyable.  If we fail to find support and continue under 1600 then we have to reevaluate our bullish thesis.

Alternate Outcome:
Every rally comes to a painful end and this one will be no different.  It is premature to call a top, but failing to make new highs and violating key support at 1600 shows buyers are scarce and further selling is likely.

Trading Plan:
Assume the market will bounce until proven otherwise.  Shorts should be taking profits, not initiating new positions.  Any rebound is buyable with a tight stop under the bounce’s low.  1600 is the key support and failing to hold this will force us to reevaluate our outlook.

INDIVIDUAL STOCKS
AAPL finished modestly in the red and is still solidly above the 50dma and $440 support.  I’m not sure how much upside there is but the stock acts like it wants to go higher in the near-term.

GLD had a poor close as the volatile trade continues.  It is not behaving like the lows are in and expect further declines in the near future.  Once upon a time gold would surge on market uncertainty, but it quickly shifted from safety to speculation and gets lumped in with every other asset dumped when people hit the panic button.

Plan your trade; trade your plan

AM: Sideways it is

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
The sideways trade continues as the market bounces around break-even this morning.

MARKET SENTIMENT
The window for a panic driven crash came and went.  We had one dramatic down-day last week, but trade has been unremarkable, even boring since then.  Traders are an opinionated bunch and we all think the market is either undervalued or overvalued, that’s just how we are wired.  But reality is the market trades sideways far more often than it breaks out or breaks down.  No one wants to listen to an analyst say this will be a boring, quiet, and dull summer.  We want promises of drama and excitement.  We want horses to bet on.  But what we want and what we get are often different things.

Bears are right when they say the current rate of gains is unsustainable, but they are wrong when they claim we need to pullback from these overbought levels.  Sideways trade is another tool markets use to rest and refresh.  This is exactly what happened in March and April and it could easily happen here to0.

Don’t despair, there are plenty of ways to profit from sideways markets, we just need to use different tools.  Instead of buying breakouts and selling breakdowns, we buy weakness and sell strength.  Selling options is another effective tool for savvy and experienced derivative traders to profit from time-decay.

TRADING OPPORTUNITIES
Expected Outcome:
Staying in a tight range following the “obvious” top last Wednesday means that selloff is dead and buried.  Everyone who wanted to sell, or could be scared out of the market, sold days ago and there is very little supply left to shake out of the market.  We can still selloff, but it will take all new and unexpectedly bad news to drive that weakness.  This market already decided it no longer fears recycled headlines about QE ending or any of the other concerns constantly circulated by the financial press and bears.

Market go up, down, or sideways.  The stalled selloff shows there is little potential for greater declines, so that is the least likely outcome.  That doesn’t mean impossible, just less likely than the other two possibilities.  The recent rate of gains have been impressive and common sense tells us they cannot continue indefinitely.  Markets rally in steps and our step from 1550 to 1650 was a good one.  Another short squeeze could continue the drive higher, but the most likely outcome is the one on one is talking about, trading sideways for the remainder of the summer.

Alternate Outcome:
The longer we hold these levels, the less likely a panic driven selloff becomes.  But less likely is not the same as impossible.  The most important part of sustainable success in the markets is good defense.  No matter how we feel about the market and our positions, guarding our profits is always our top priority.  Look for a series of lower-highs and violating support to show buying is drying up and we need to get out.

Trading Plan:
Buy weakness and sell strength until the market shows it is ready for the next directional move.  The current range is 1635 to 1675 and swing-trade around these levels.  More meaningful support and resistance is 1600 and 1700.  Penetrating either of these indicates the market is ready for its next directional move.

INDIVIDUAL STOCKS
Much like the rest of the market AAPL is trading sideways and consolidating.  It is encouraging to see selling take a break and buyers actually continue buying these levels.  In reality the sideway trade stretches back to January and many of the weak holders and hope left the stock over this stretch.  The real test will be breaking and holding the previous high of $465.  This will be the first higher-high since last September and will be a major development of the recovery.  Failing to do this likely means the lows are not in yet.

GLD continues its volatile trade.  Today’s selloff is giving back most of yesterday’s pop.  No doubt hedge funds are scrambling between AAPL, GLD, and now the over crowded and plunging Nikkei/Yen trade.  Hedge funds are supposed to be smart money, but their results beg to differ.

Plan your trade; trade your plan

PM: Flat trade?

By Jani Ziedins | Intraday Analysis

PM Update

MARKET BEHAVIOR
Stocks settled down following last Wednesday’s massive reversal.  While we’ve witnessed intraday volatility, closes have all been within 6-points of where the selloff dumped us.  It certainly doesn’t feel like it, but the market has been stuck in a trading range between 1635 and 1675 for over two-weeks.

MARKET SENTIMENT
Stability so quickly following an alarming selloff is a big red flag for bears.  Everyone knows the market came too far, too fast and is grossly overbought, but why didn’t we continue imploding following the obvious top last?  Bears will mumble something about irrational exuberance, gullible dip-buyers, complacency, or some other bearish buzzword, but the truth is far simpler than that, the plunge abruptly ended because we ran out of sellers.

When traders expect something, they trade ahead of it.  If the crowd anticipates a pullback, they take profits and short the market, they don’t stick around and wait for floor to fall out from underneath them.  When people share a similar outlook and sell proactively, they take supply out of the market, leaving fewer to actually sell the breakdown.

Why this stability is a warning flag for bears is it shows there are no sellers left.  The few sellers left leading up to Wednesday’s reversal all bailed out in the subsequent down days   Everyone who continued holding through the obvious top or confidently bought the dip is not going to flinch at a little more weakness.  Their willingness to hold steady keeps supply tight and there is nowhere for the market to go but up.

There is nothing wrong with making an aggressive trade, but we must pull the plug when it doesn’t work as expected.  There was a strong case for a wider correction, but when it didn’t happen as expected, we have to reevaluate our assumptions.  It is okay to be wrong, it is fatal to stay wrong.

TRADING OPPORTUNITIES
Expected Outcome:
The market had the perfect setup to selloff, yet here we stand practically flat for the fifth day in a row.  This strength and stability proves the market is not willing to give everyone the selloff they are waiting and hoping for.  The rate of recent gains cannot continue indefinitely so consolidation and sideways trade here is normal and expected.

Alternate Outcome:
The best way to know the market is ready to breakdown is to see it breakdown.  Rallies always end and this one is no different.  A series of lower-highs and violating support shows buying is drying up and the inevitable pullback is taking hold.

Trading Plan:
Everyone wants to trade breakouts and breakdowns, but the truth is the most frequent move is sideways.  Recent support shows the market doesn’t want to breakdown and continued gains at the previous pace is unsustainable.  Until the market proves it is ready for the next leg higher or lower, assume we are in a trading range and buy weakness and sell strength.  Near-term levels to watch and trade are 1635 and 1675.  More significant levels signaling a potential continuation or breakdown are 1600 and 1700.

Plan your trade; trade your plan

AM: Fear QE ending?

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
The zig-zag continues as we rebound from yesterday’s selloff.

MARKET SENTIMENT
It’s becoming clear neither side has control over this market as each directional move stalls and reverses.  Markets only rise and fall when people buy and sell stocks, and people only buy or sell stocks when they change their mind.  Right now bulls are confident in their positions, bears know we are over-valued, and everyone is waiting for the market to do what they think it should.  When everyone stands around, markets trade sideways because no one is changing their mind.  To get things moving again we need to spook bulls out of their positions or make bears fear being left out of a risking market.  Will this stubborn standoff continue through summer?  Only time will tell.

All this talk of QE ending is diminishing the impact of the actual announcement and eventual money tightening.  Everyone remembers what a disaster Y2K was, right?  While we can joke about it now, it was a serious matter at the time, but the reason it was a non-event is because everyone talked about it, feared it, and ultimately prepared for it.  When everyone is adequately prepared for something, it passes without an issue.  The more people talk about and fear the ending QE, the sooner we can ignore it.  People trade their outlook and expectations.  If traders fear the end of QE, they will move out of the market and that QE driven selling will be long behind us by the time it is actually announced.  In fact it will likely lead to a sell the rumor, buy the news event.  How crazy will it be if markets rally on the ending of QE?  Crazy enough to work.

TRADING OPPORTUNITIES
Expected Outcome:
Until one side changes its mind, expect stocks to trade sideways as both bulls and bears stubbornly stick to their outlook.  The market is incapable of standing perfectly still, so expect some up and down gyrations, but this is a swing-trader’s paradise; buy weakness and sell strength.

Alternate Outcome:
No one knows what the market will do and we simply trade probabilities.  To protect ourselves we will watch for breakouts or breakdowns that show the market is ready for its next directional move.

Trading Plan:
Markets move sideways most of the time and that is what we should expect here.  We need a rest after a strong directional move and the widespread expectation of a pullback mean mutes the downside risk.  At this point, plan on buying weakness and selling strength until we make a decisive break either direction.  Lower support is back at 1600 and sticking with round numbers, expect 1700 to act as overhead resistance.  Breaking either of these levels forces us to evaluate the potential of a new directional move.

Plan your trade; trade your plan

PM: Expect the unexpected

By Jani Ziedins | Intraday Analysis

PM Update

MARKET BEHAVIOR
Stocks gave back yesterday’s gains, but stayed above recent lows at 1635.  Volume was modestly higher and greater than Tuesday’s bounce.

MARKET SENTIMENT
Last week’s obvious breakdown ended in a short-squeeze on Tuesday, that ended in a retreat back to the lows today.  In spite of all the drama and excitement, the market simply traded sideways the last two-weeks.

Both bulls and bears are beating their chest and convinced the market is clearly on their side.  While it is easy to find bulls and bears, where are the ones saying we will settle into a trading for the rest of the summer?  Why is that not a possibility people are considering, especially since the market goes sideways far more often than it goes up or down?

Everyone expects the market to breakdown after such a strong run, but people trade their outlook, meaning most of the cautious are already out of the market.  Declines in six of the last nine sessions also cleared most of the weak owners and replaced them with confident buyers willing to hold in the face of this uncertainty.  This market had every chance to break wide-open but here we stand, just 2% from all-time highs.  Between the recent selling and pervasive negative outlook, further selling seems unlikely since most have already sold.  The key to understanding the market is not found in charts, economic reports, or complex formulas, but understanding what other traders think, how they are positioned, and what moves they have available to them.   Recent selling is more bullish than bearish because it is building the next pool of buyers.

TRADING OPPORTUNITIES
Expected Outcome:
From a pure contrarian viewpoint a trading range seems the most likely outcome because no one is talking about it, but that is not unusual.  Most traders are opinionated by nature and expect the market to move one way or the other.   Stepping higher is the next most likely outcome due to the recent wave of selling and pervasive negativity.  And finally collapsing is least likely because it is the obvious trade everyone is waiting for.

Alternate Outcome:
Markets work exclusively on supply and demand.  It makes no difference what anyone thinks or how they are positioned, if we run out of buyers there is nowhere to go but down.  The uptrend is not broken yet, but we need to watch for real signs of weakness and get out before everyone else.  Lower-highs and violating major support shows the widely expected selloff is finally upon us.

Trading Plan:
1635 is the level to watch.  As long as we hold it, the market remains buyable.  Violating this level makes us more cautious, but the more meaningful support is at 1600.  Since the market is entering a consolidation following recent gains, the best profits will come from swing-trading weakness and strength.

Plan your trade; trade your plan

AM: Another pause

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Today’s trade is a mirror image of yesterdays.  We gapped lower at the open, selling continued until it found a floor by  mid-morning, and rebounded into midday trade.  After a large directional move through most of May, it is normal to consolidate those gains.  At this point there are no indication recent weakness is anything more worrisome than typical consolidation.

MARKET SENTIMENT
Today is another obvious short entry for the doubters and bears.  I am sympathetic to their point of view given how long and far this market came without pausing, but doubting this rally is still the popular thing to do and is why more upside remains.

Recent volatility is shaking out weak holders and late buyers, as well as seducing bears to go short.  The problem is much of this selling is already behind us.  When everyone expects something nasty, they are either already out, or act quickly when they see the first cracks.  Their trigger finger lead to last week’s stunning 2% intraday reversal.  Even bulls are afraid of this market and are waiting for a pullback before buying more.

We must not confuse trend with sentiment.  Just because the trend is higher doesn’t mean the market is overly-bullish.  In fact the reason the market keeps going higher is because it was overly-bearish and there was an ample supply of traders out of the market available to chase it higher.  At some point we will run out of buyers, but the supply remains plentiful as long as people keep doubting the sustainability of this market.  The trend is strongly higher, but we are still not overly-bullish.

TRADING OPPORTUNITIES
Expected Outcome:
Rallies take breaks and after four-weeks of nearly straight up, this one is entitled to some rest and relaxation.  There is no reason to jump on the bear bandwagon just because we are not going higher every single day.  There is a time and a place to be bearish, but a couple percent from all time highs is a tad premature.  We don’t need to own this market here and the cautious can wait for the next high probability trade, but  until proven otherwise assume the rally remains intact and dips are still buyable.  “Sell in May” is quickly running out of time and expect similar strength to cary through summer.

Alternate Outcome:
This rally will breakdown just like all the ones before it.  No one know when or where, so we must keep a careful eye on it and look for material violations of the up trend.  Failing to make higher-highs and breaking support are signs buyers are no longer standing behind this market and the widely expected pullback is finally here.

Trading Plan:
Last week’s bounce is still intact as long as we continue holding 1635 and this is a reasonable stop for aggressive dip buyers.  More meaningful support is back at 1600 and the 50dma.  Break these levels and we have to question the viability of the rally.  Bouncing off this level creates another attractive dip-buying opportunity.  After such a strong move, look for more sideways trade here and be willing to buy weakness and sell strength as the mare consolidates recent gains.

INDIVIDUAL STOCKS
AAPL is still holding the 50dma, but failing to continue the rebound.  The longer we maintain these levels, the more meaningful this support level becomes, but this is a double-edged sword.  It shows big money is buying shares at these levels, but it also means a large pile of stop-losses are accumulating under this widely followed technical level.  A dip under support could trigger another wave of selling.

In an interview yesterday Cook talked about the potential of wearable technology, but also the hurdles.  Without a doubt there is a market for a smart-watch, but realistically it will be the modern equivalent of the calculator watch.  Smartphones have largely displaced wristwatches as timepieces, but watches remain popular as pieces of jewelry.  The biggest opportunity for a smart-watch is not some geeky piece of hardware, but for existing jewelry watches to incorporate smart displays showing text messages and caller ID.  Cook pooh-poohed Google Glass, and I agree the technology is premature, but if we look out 20-years from now what will be the preferred method of interacting with our devices?  Will it be a pack-of-cards sized device in our pocket?  A one-inch display on our wrist?  Or a virtual reality display that supplements our existing view of the world?  Fighter pilots already use HUDs extensively because of the ease of displaying complex information and some future iteration of Google Glass is clearly the way of the future.  GOOG is still at least 5-years ahead of the curve on this and it is not a reason to own the stock, but they will be the best poised to exploit this technology when it becomes viable.

Speculators are losing their stomach for speculative names like LNKD and NFLX.  It is best to sell momentum stocks into strength because the floor falls out from under them quickly.  I don’t think the top is in for either of these companies, but they will feel the weight of market uncertainty over the near-term.  Once the rally resumes, look for new highs.  Remember, buy low, sell high.

Plan your trade; trade your plan

PM: Buy the dip or short the bounce

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks bounced after three-days of selling.  Volume was average, but respectable following a three-day weekend.

MARKET SENTIMENT
A large chunk of Tuesday’s buying was driven by short covering as aggressive bears were forced to buy stock when the market bounced.    Short covering climaxed mid-morning and we retreated from the daily highs when follow-on buying failed to materialize.  The rally is sustainable if buyers remain nervous and hesitant, but is in trouble if we can’t find buyers because everyone is already in.

I posted Yahoo Finance surveys before and for the most part they were overwhelmingly bearish.  Today’s survey is the first cautiously bullish one I’ve seen in a while.  It shows 42% are buying stocks, but the majority, 58%, remain wary of this market.  If we are concerned about overly bullish markets, we are not there yet, but the recent rally continues eroding doubt and fear.

Success doesn’t come from always being right, but recognizing and fixing mistakes early.  We can recover and even make money if we change sides soon after our original thesis proves invalid.  We lose a little initially, but after recognizing our mistake and updating our outlook, we start profiting from new information.  I grew cautious as we pushed to new highs in March and was bearish in April.  On April 18th when the market failed to break wide-open as expected, I was forced to throw my original thesis out the window because the bounce invalidated everything I believed.  It took a couple of days to work up the courage to buy the market in the 1570s, but that was the right call given the way the market was behaving.   It is okay to be wrong, but it is fatal to stay wrong.

TRADING OPPORTUNITIES
Expected Outcome:
Bears will use the retreat from the day’s highs to justify holding their shorts, but one thing is clear, downside momentum stalled and selling dried up.  We cannot sustain the rate of gains seen over the last few weeks indefinitely and a pause here is expected and healthy, not bearish.  Resist the seduction of  “too far, too fast” and learn to trust embrace an easy and highly profitable rally.

Alternate Outcome:
While the market looks good here, it is getting old and we need to prepare for the inevitable correction.  The higher these things go the harder they fall.  Signs we are running out of buyers is stalling short of recent highs and breaking support.  Until then stick with the rally.

Trading Plan:
As long as this market holds recent support at 1635 it remains buyable/holdable.  Shorter-term traders should use this as a trailing-stop.  More material support is back at 1600 and the 50dma.  Fail to hold either of these levels and the rally’s viability is in doubt.

INDIVIDUAL STOCKS
AAPL lost ground, but is still above $440 and the 50dma.  It struggles finding buyers willing to push the stock higher, but these same buyers are willing to step in and prevent a further slide.  Support here is half-full/half-empty for bulls.  On one hand the stock is attracting value buyers willing to put a floor under $440, on the other it is attracting value buyers unwilling to buy above $440.  The increased dividend opens the stock up to a wider pool of income investors, but these buyers are notoriously price sensitive and will not push the price up the way growth investors do.  There is room to swing-trade this name, but the days of easy buy-and-hold gains are behind us.

GLD is stuck in the lower $130s as the supply of dip-buyers is drying up and new lows seem likely.  Everyone who wants Gold already has some and it will be a challenge to attract new buyers at current levels.

TSLA  annihilated shorts yet again.  The market can stay irrational longer than we can remain solvent and that is clearly the case here.  Climax tops reverse quickly and the sideways trade over the last couple weeks showed the top was not in yet.  At this point there is no trade because the only thing crazier than buying it at these levels is shorting it.

Plan your trade; trade your plan

AM: Another short squeeze

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
The market gapped higher at the open and continued up to 1674 before pulling back by midday.

MARKET SENTIMENT
Another obvious top ends in a short-squeeze.  When everyone says “this is it”, we know it isn’t.  The selloff stalling Thursday and Friday showed the next move was higher and a time for shorts to take profits, not initiate new shorts.  Wednesday’s frantic plunge on recycled headlines of QE ending never had a chance.  What everyone knows and is talking about is already priced in.  Once the initial knee-jerk selling ran its course, supply dried up, laying the foundation for today’s bounce.  This market will top at some point, but it won’t be for any of the reasons people are constantly talking about.

TRADING OPPORTUNITIES
Expected Outcome:
Most of the nervous jumped ship last week and shorts piled on the weakness.  All that selling took the excess supply out of the market.  Buyers stepping in front of the volatility demonstrated comfort holding here and are less likely to sell modest weakness or headline fear-mongering.  Their confidence and resolve will return stability to the market.  The selloff stalling on Thursday and Friday was the sign we could buy the dip and was a poor place to add shorts.

Alternate Outcome:
Today’s bounce could be nothing more than short-lived dip-buying prior to the next leg lower.  While it seems less likely, we must defend against it.  It is okay to be wrong, but it is fatal to stay wrong.  We found support at 1635 and breaking this level shows the selling is not done.  Every rally ends and so will this one.  Maybe we will see it coming, or maybe it will catch us by surprise, but stops will protect us either way.

Trading Plan:
Owning the market here with a stop under the recent dip to 1635 is reasonable trade given how the market is acting, but this rally is elderly and we need to watch for stalling.  Failing to make new highs shows buying is drying up and that could finally lead to the widely expected selloff.

INDIVIDUAL STOCKS
AAPL is down on a day when the market is higher, but the silver lining is it is still holding above the 50dma.  The other notable technical development is the 50dma is heading higher for the first time since the selloff began, showing near-term prices have stabilized around the $430 level.  Technical traders have stop-losses under the 50dma and $420.  Selling could pick up if we break either of these levels, but so far the stock remains a cautious buy.

LNKD and NFLX are struggling amid the market uncertainty.  Speculative stocks react to volatility and weakness far more than the market averages.  The rewards are huge, but so are the risks.  Everyone wants to hit home runs and hold the next monster stock for a 5x gains, but realistically we are better off taking profits after strong runs.

Plan your trade; trade your plan

AM: Sanity returns

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks opened modestly lower, but are stable as the selling is contained, at least for the moment.

MARKET SENTIMENT
The market is quite because no one is doing anything.  We ran out of new sellers, so we stopped falling.  Prospective buyers are nervous and staying on the sidelines.  And holders keep holding.  All that adds up to a flat market, but this is good given the size of the reversal a couple of days ago and the turmoil in Japan.

TRADING OPPORTUNITIES
Expected Outcome:
Spooked markets often succumbs to an emotional reaction of sell first, ask questions later.  The sideways trade over the last two days gives people the opportunity to evaluate conditions and make deliberate and rational decisions.  This is always good for market stability.  We could slip a little more before this is all done, but contained selling today and on Monday means the rally is still strong and the dip is buyable.  This turmoil is bullish because it flushed out many weak kneed traders, taking much of the supply out of the market.  Those that bought in the face of this drama are more confident and willing to hold through further weakness, ironically making further weakness less likely.

Alternate Outcome:
Dip buying can prop up a market for a couple of days, but without real money standing behind it, the slide will resume.  Remain cautious around this market for the next couple days, but if we don’t breakdown soon, the selling exhausted itself.  The next key to watch is how the market bounces.  Stalling short of the previous high shows the supply of buyers is drying up and is finally creating an interesting shorting opportunity.

Trading Plan:
Support above 1635 is encouraging and this stability is more conducive to a bounce than further selling.  We don’t always need to have trades on, so if someone is nervous, take a break and wait for the next trade.  It is easy to make money in the markets, the hard part is keeping it.  Staying out of the market when we don’t feel comfortable is one of the best ways to stop giving back our hard-earned profits.  A lot can happen over the weekend, but sanity is returning.  Buying with a stop under 1635 is an interesting entry for those with an itchy trigger finger.

INDIVIDUAL STOCKS
AAPL  continues holding the 50dma.  This is a positive change in character as holders keep holding and buying is coming from more than just speculative dip-buyers.  Personally I don’t think the bottom is in yet, but we trade what we are given and right now the stock is acting well.  But remember this is a trading stock now, so buy weakness and sell strength.

Recent volatility hit stocks like LNKD, AMZN, and NFLX.  It shouldn’t surprise anyone high-beta, speculative trades fall the most during market uncertainty.  Take profits and use stops to keep from giving back all those hard-earned gains.

Plan your trade; trade your plan

AM: Selling stalls

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks gapped lower at the open, but recovered a big chunk of the losses by midday.

MARKET SENTIMENT
The Japanese market was slaughtered 7% overnight, but most of the panic tapered by the open in New York.  It is encouraging to see our market find a floor following the impulsive rush of selling over the last 24-hours.  This pause gives holders a chance to assess the situation and decide if new information materially affected their economic outlook.

Yesterday’s selling was setoff by the Fed’s discussion of when and how to end monetary easing.  Just the mention of trimming easy money triggered a selloff from paranoid holders and aggressive bears.  But was this really news?  Hardly, and is why the market found a floor after fear-based selling exhausted itself.  Most owners already anticipate the end of QE and are holding based on the recovering economy, not money printing.  This did nothing to change their views on the economic recovery and once the panic induced selling ran its course, supply dried up and we found a bottom.

It is difficult to make money trading what everyone knows and expects because it is already priced in.  Without a doubt this bull will end at some point, but it will not be because of the reasons people are currently talking about.   An encouraging development for bulls is last 24-hours flushed the “QE-crash” crowd out of the market and this preemptive selling will make the eventual ending of QE less of a problem.  A couple more scares like this and the end of QE will be fully priced in and could actually be the start of the next leg higher as all the QE bears are forced to chase the market higher.

TRADING OPPORTUNITIES
Expected Outcome:
It is premature to say the weakness has ended and we could easily return to 1600.  We came a long way over the last month and a consolidation here is expected, healthy, and part of a sustainable continuation.  We could see more volatility in coming days, but as long as we hold 1600, the rally is still alive and well.  We didn’t learn anything new yesterday and anxious traders were simply looking for an excuse to sell.  Now the rally is in the hands of more deliberate and thoughtful holders. If they still believe in the economic recovery, expect them to continue holding and the rally will resume on this tight supply.

Alternate Outcome:
The best way to know this market is breaking down is to see it actually breakdown.  We could see a couple more days of selling, but  every dip has been buyable and we should assume this one is too.  We need to see a series of lower-highs and lower-lows before we can say this rally is ending.

Trading Plan:
The rally remains intact, but there is no reason we need to sit through this volatility.  We are in this to make money and can only do that by selling our winners.  If anyone feels uneasy, take some profits and wait for the next trade.  We violated trailing stops at 1650 and those defensive tools only work if we use them.  Maybe this was only a 24-hour selloff and we were shaken out unnecessarily, but I would rather be out of the market wishing I was in, than in the market wishing I was out.  Longer-term holders can keep stops at 1600, but they have more money at risk if this selloff continues.  Reclaiming 1670 over the next couple days shows this was a false alarm, but be highly suspicious if we stall and cannot make new highs.

INDIVIDUAL STOCKS
AAPL continues holding the 50dma and shows a larger group of buyers is willing to step in and defend the stock.  Previous rebound attempts failed quickly and this stability shows a shifting character.  There are many headwinds in front of this stock, but it is acting like it wants to go higher in the near-term.  As always, protect yourself with a stop under the 50dma.

GLD found a bid after the dramatic events over the last 24-hours, but look for the price to sag when calm and complacency returns in coming days.

Plan your trade; trade your plan

PM: Is this the obvious top?

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
One of the most interesting days in quite some time.  We made new highs following Bernanke’s remarks to Congress, but came crashing down following the release of the latest Fed minutes.  Volume was well above average and the highest since April’s dip to the 50dma.

MARKET SENTIMENT
Did we learn anything new today?  Bernanke and the Fed minutes confirmed easy money would continue, but not last forever.  Did this really surprise everyone enough to justify a 2% intraday reversal???  This was not the first time Fed members discussed ending monetary easing, but nervous traders were looking for an excuse to dump and short shares as modest selling swelled into a stampede.

TRADING OPPORTUNITIES
Expected Outcome:
We came a long way from April’s test of the 50dma and pullbacks are part of every advance.  Will this be a one-day dip before finding support?  Will we bounce off of 1600?  Or is this the end of good times and we are on the verge of a bear market?

Bear markets happen when reality is worse than expected, but this rally is based on reality being better than expected.  There is a fair amount of bearishness already priced in so don’t expect a major crash any time soon.  The global economy is weak, but improving and even though we’ve seen dramatic gains, we are a long way from euphoric highs.  Most of these gains are recovering from over-bearishness and returning to normal levels.

To trigger a moderate correction, we need a new and unexpected risk.  The Fed has always discussed ending monetary easing, so major selling on what is know and widely expected is unlikely.  Selling can always beget selling, but that simply presents us with another buying opportunity.  Someone else’s loss is our gain.

Alternate Outcome:
Every bear begins with one down day and this could be that day.  We will assume the rally remains intact until proven otherwise, but it is prudent to trade defensively after such a strong rally.

Trading Plan:
No matter which way this market breaks, expect a near-term bounce.  Maybe it will happen at 1650 or 1600, but this market will bounce.  The bigger question is if we rebound to new highs, or the bounce fizzles and we continue lower.  Cautious traders can sell proactively.  Optimistic traders can hold as long as their trailing stops don’t get triggered.  We have no idea how far this weakness will go, so the easy solution is to take our profits and wait for the next trade.  It is possible for a nimble day or swing-trader to snag some short profits with a stop above recent highs, but be prepared for a near-term bounce and take worthwhile profits.

Plan your trade; trade your plan

AM: Easy money keeps flowing

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
A volatile morning following Bernanke’s testimony before Congress.  A 20-point surge followed by a 15-point selloff and then a 10-point rebound.

MARKET SENTIMENT
Trade is calming down by midday, but we are clearly higher as the market liked what Bernanke said.  Easy money keeps flowing and equity investors continue buying.  There is this widely held view that easy money means stocks continue higher, but everyone is also waiting for the other shoe to drop when the Fed finally withdraws monetary stimulus.  Most expect this to end the rally.  While the logic makes a lot of sense, the majority is rarely right in the markets.  If the crowd expects us to tank when Bernanke takes away the punchbowl, it will likely do something else.  Our job as traders is to figure out what that will be.

The least expected outcome is continue strength after the Fed stops printing money and interest rates return to normal levels.  Since everyone expects the selloff, it is already priced in and will be a nonissue.  The offset is he will only do this when the economy is strong enough to stand on its own and revenues and earnings will justify higher levels.  The US will likely be the first to fully recover and end easy money policy, strengthening the US Dollar.  This is bad for US-based manufacturers, but good for consumers and companies that produce goods overseas, so plan your trades accordingly.

The other alternative is the markets collapse before Bernanke turns off the spigot.  He has zero control over the equities market and we are only headed higher because equity investors believe in the Fed.  In this instance perception is reality.  This could end one of two ways.  The first we run out of equity buyers willing to buy these levels and the market naturally rolls over due to lack of demand.  Major tops occur when everyone expects the good times to continue.  That was the case in 2000 and 2007; it will also be the case leading up to the next bear market.  The alternative is investors pullback the curtain and realize Bernanke is not as powerful as we are giving him credit for.  Stocks only rally on easy money because equity investors convinced themselves it should be so.  At some point the spell will break and selling will cascade as everyone rushes for the exit as the same time.  Nothing can stop herd buying and nothing can stop herd selling.  Just ask a longtime AAPL holder.

I have no idea what will happen, but I do know what everyone expects is the least likely outcome because it is already priced in.  To profit we need to see what other people don’t.  My guess is we will see a little of both.  A twenty-percent selloff in coming quarters that rebounds after Bernanke finally ends easy money.  Sell the rumor, buy the news.

TRADING OPPORTUNITIES
Expected Outcome:
There are a million reasons the market should top here, but it keeps going and we must respect that.  We don’t profit from the truth or common sense, we profit from price.  As long as the price continues higher, there is only one trade to make.

Alternate Outcome:
What goes up must come down.  The higher we go, the harder we fall.  Yada, yada, yada.  We all know this market will rollover at some point, but all the money is made figuring out when.  This market needs to fall a whopping 140-points before we can make a lower-low and threaten the viability of the up-trend.  We came a long way in a short amount of time, caution is prudent, even required, but calling this a top is clearly premature.  We will go down at some point but the market will reveal its intentions through weakening price-action first.

Trading Plan:
Stick with what is working.  An optimist should keep a trailing stop at 1650 to protect recent gains.  The nervous can sell proactively and wait for the next high-probability trade.  Please don’t short this market because its “gone too far”.  We heard that the last 200-points and while the short will eventually be right, early is the same thing as wrong.  A day-trader could short weakness, but take profits quickly because we must assume every dip will bounce until we see clear signs the market’s character is changing.

INDIVIDUAL STOCKS
AAPL is treading water above the 50dma.  Seeing buyers defend this level is encouraging and we actually have a chance at ending the streak of lower-highs.  I still believe sentiment is too bullish, but recent strength is setting up for a swing-trade.  Use the 50dma as a stop-loss and take profits shortly after the stock clears $465.  The buy and hold story behind AAPL is dead and the best way to make money on AAPL is swing-trading.  The big negative catalyst will be a warmed over iPhone5s.  If AAPL has something cool, they are going to release it to reclaim their reputation as a pioneer and innovator.  If we get more of the same, expect the stock to continue its slide as it loses market share to Android devices.  MSFT was flat for a decade with an impenetrable monopoly and strong pricing power.  What will happen to AAPL as its market share falls to single digits and profit margins come in?

GLD surged on Bernanke’s comments, but has given up most of those gains.  Like AAPL, GLD is a crowded trade and everyone who wants some already has some. meaning there is no one left to buy.  At some point the dip buying will dry up and we will see new lows.

Plan your trade; trade your plan

PM: Yet another new high

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks closed above 1665 for the third time in a row as buyers keep buying and holders keep holding.  Volume was slightly above average as we support record highs.

MARKET SENTIMENT
As “overvalued” and “over-bought” as this market is supposed to be, it sure isn’t acting like it.  Most people know prices rise on strong demand, but they also rise on tight supply.  Many are afraid of this market but we keep pushing to new highs because current holders don’t want to sell and that keeps supply scarce.  Under those conditions we don’t need a lot of demand to continue rallying.

Fiscal Cliff, Sequester, Cyprus, Socialists in Italy, weak hiring, and all the rest were reasons this market was going to collapse.  Everyone knew it was a dangerous and they stood on the sidelines waiting for the inevitable crash.  Yet here we are at all time highs.  What happened?  Why was everyone so wrong?  The market fully priced in these risks and when events turned out less bad than feared, the market rallied strongly in relief.  One of the most difficult things to do is ignore what everyone else is concerned about, but clearly that was the right trade this year.

TRADING OPPORTUNITIES
Expected Outcome:
No one knows where this is going.  I was bullish since the November lows, but this rally easily beat my wildest expectations by over 100-points.  Successful traders recognize their mistakes and adapt to the market we are given.  It is okay to be wrong, it is fatal to stay wrong.  No matter what we think, the trend remains higher and is the only trade to make here.

Alternate Outcome:
I have no idea how long this rally will last.  It’s been a painfully easy rally to ride, but at some point the music will stop and we don’t want to be left holding the bag when that happens.  Given the speed of recent gains and breaking above the upper trend-line, we need to be increasingly alert for a pullback.  There is a difference between a modest pause that refreshes and one that starts a major correction.  We have key support levels to watch and trade, but until we violate them, assume every dip is buyable.

Trading Plan:
Holding 1665 through Wednesday shows buyers believe in this market and new-high profit-taking is winding down.  Medium demand and tight supply equal higher prices.  Baring a stumble on Wednesday, that is where we are headed.  There is no reason we need to be in this market and locking in gains is a prudent move given the strength of recent gains, but shorting remains a fool’s game as this market shows no signs of letting up or breaking down.  Key support is way back at 1600, but the defensive optimist will move his stop up to 1650.

INDIVIDUAL STOCKS
AAPL closed modestly in the red following Cook’s grilling on Capitol Hill.  No fundamental news was revealed during the hearings and this was just an excuse for the cautious and bearish to sell stock.  Completely unrelated to this appearance, all the calls for Cook’s head are ridiculous.  Cook is running a great company with strong revenues and historic earnings.  What more can we ask of a CEO?  He has zero control over the popularity contest also known as the stock market.  Steve Jobs was a great visionary, but most people unrealistically view him as a superhero.  They think AAPL would be $1000 if Jobs were still a the helm and inventing the next must have device, but what most forget is innovation was already drying up under Jobs tenure.

The brilliant and groundbreaking decision was a building the iPod.  From there everything has been evolutionary.  The iPod’s dominance was threatened by phones with built-in MP3 players, so in reality the iPhone was a defensive product.  The genius came from ditching a keyboard and buttons to maximize screen space for web surfing.  The next great idea was the App Store, but that was driven by hackers who were jail-breaking early iPhones.  Jobs fought stubbornly to lock down the iPhone for as long as he could, but his eventually giving into the hackers is one of the best things that happened to the iPhone because it made it a truly useful and must have device.  That was in 2008 and since then everything out of Apple has been incremental and easily predictable.  The iPad is just a large iPhone, without the phone, and the iPad Mini is just a smaller iPad.  iTV and iWatch will never be more than niche products because they lack the innovative and utility break thoughts that made the iPod and iPhone sensational and fabulously successful products.    Even though the stock prices climbed through 2012, the innovation at Apple peaked under Steve Jobs back in 2008.

Cook is a great CEO and he is not responsible for the stock’s price decline.  Even Jobs would have been helpless to prevent the euphoric run-up and subsequent selloff.  That’s the way crowds work and is not a reason to remove a perfectly competent CEO.

Plan your trade; trade your plan

AM: Holding near highs

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks are holding recent highs for a third day as the improbable rally keeps defying skeptics.

MARKET SENTIMENT
When markets run out of buyers, prices collapse fairly quickly.  Holding these levels for multiple days shows a large number of investors remain willing buy these new highs.  Just as important, holders continue holding, keeping supply out of the market.  The rate of gains makes people nervous, but this cautiousness is why this rally has been sustainable.  As long as buyers and holders remain comfortable up here, expect the uptrend to continue.

TRADING OPPORTUNITIES
Expected Outcome:
Stay cautious, but holding these levels through Wednesday shows demand is strong and the next move is likely higher.  It is late in the move to be rushing in because the chances of a pullback are elevated, but the risks decline the longer we hold near these highs.  A strong afternoon on Wednesday presents a buying opportunity.

Alternate Outcome:
While every dip has been buyable thus far, we have a date with a dip that should be sold, not bought.  No one knows when that will be, but it is coming and we need to remain vigilant when everyone else becomes complacent.  Disciplined uses of stops will keep us out of trouble.  The harder question is when the market becomes shortable and now is clearly not that time.

Trading Plan:
Stick with what is working.  1650 is a decent trailing-stop.  If a traders sold into strength or missed this rally, a small consolidation here presents an interesting entry point. Buying this late in the move brings larger risks with it, but there is no such thing as a safe trade in the equities market and our long-term success depends on prudent risk management.     New money or old profits, both traders need to be increasingly cautious and nimble.  While the trend is higher, we cannot let the market take back our hard earned profits.

INDIVIDUAL STOCKS
AAPL is finding a bid at the 50dma for a second straight day and shows recent selling exhausted itself, at least temporarily.  The level to watch is $466, where the previous rebound failed.  The market typically moves in waves, so the recent weakness was expected.  The harder question to answer is if the selloff is over and the stock is finally buyable or if this strength is one last chance to get out before the next leg lower.  A stop at the 50dma is prudent risk management and would have saved many traders a lot of money over the last seven months.  It is better to be out of the market wishing you were in, than in the market wishing you were out.  We can trade the expected bounce, but there is no excuse for sitting through another $70 decline.

GLD gave back half of yesterday’s short-squeeze as the volatile, speculative trade continues.  The recent plunge did a lot of psychological damage and it is hard to say if the selloff is done since Gold lost its credibility as conservative hedge against volatility.

LNKD  continues finding support above the 50dma and makes a better buy than short.  There is no reason we need to own this speculative stock, but it is suicidal to short it.

Plan your trade; trade your plan