Challenging 1,890

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:04 EDT

Intraday Update

MARKET BEHAVIOR
The S&P500 is flirting with 1,890, setting record highs in midday trade before pulling back a few points.  In the absence of prior levels to reference, traders are naturally drawn to round numbers and today 1,890 is providing overhead resistance.

MARKET SENTIMENT
Defying skeptics, this market is off and running yet again.  So far it is only poking its head into new territory and shorts are not scrambling to cover their positions.  Either they are sitting on their bearish positions, hoping this upward move stalls, or there are so few pessimists left to cover we are not seeing the typical short-squeeze.

But here is the thing, bears should be hoping for a swift surge higher.  Trading sideways is constructive and supports a continuation.  Exploding higher on one last dying gasp is the most bearish thing this market could do.  There are no such things as triple-tops, so bears needs us to race to new highs if they want the market breakdown.  And the opposite is true for bulls, they should root for modest and sustainable gains.

There is little headline fear left in this market, meaning we are not weighed down by some overhyped risk.  This negates the profitable upside of something coming in less bad than feared.  Taper, Crimea, interest rate hikes, the market is taking it all in stride and owners are unwilling to dump shares at a discount no matter what the headlines are screaming.  Price moves often overreact on both the high and low side.  Over reacting to uncertainty creates buying opportunities, but just as often we get too high and fall under their own weight when everyone is holding on for higher prices.

Then we complicate the situation by throwing timeframe in the mix.  Sometimes the market is short-term bullish, medium-term bearish, and long-term bullish.  We can go up for two-weeks, slip to 1,700 by mid-summer, and close next year above 2,100.  Timeframe is what lets both bulls and bears be right at the same time (or both wrong if they impulsively react to the inevitable head fakes).

TRADING OPPORTUNITIES
Expected Outcome: One last surge higher before stalling into the summer doldrums.
While this rebound could stall at any time, that would be a little too easy for bears.  Often the market convinces us we are wrong just before proving us right.  Once last short-squeeze would send bears running for cover, but the market would rollover not long after if buyers fail to rush in and buy record highs.  Markets trade sideways around 60% of the time and being near the upper end of the trading range suggests we should be cautious since typical odds suggest we are more likely to fall back into the trading than race to 2,000.

Alternate Outcome:
Trading flat for the first quarter of the year took some froth out of last year’s hot market and allowed us to catch our breath.  Sideways is an important part of moving higher and sometimes three months of consolidation is all we need.

Trading Plan:
This has been a “buy weakness, sell strength” market and there is no reason to think it has changed.  As we break above old highs, we should be more inclined to sell the strength than chase the breakout.  Longer viewed holders should keep holding, but the patient will likely find better prices in coming months if they are looking to add to their favorite positions.

Plan your trade; trade your plan

Challenging old highs

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

Intraday Update

MARKET BEHAVIOR
Stocks are higher on the first day of the second quarter and the S&P500 set a new intraday record.  We are at the upper end of the 1,840/1,885 range that stretches back to early February.

MARKET SENTIMENT
Early highs did not set off an avalanche of short-covering, but we only poked above the old record by less than one-point.  Either shorts are sitting tight, or there are few shorts left to cover.  While not a scientific sample, Stocktwits’ SPY sentiment gauge reads 57% bearish, not a level suggesting we are running out of shorts.  The most likely scenario is shorts who were previously shaken out in the last month of whipsaws moved their stops a little further out.  This means we need to push closer toward 1,890 for a short squeeze to begin in earnest.

But short-squeeze or not, the future of this move to new highs depends on the appetite of the masses sitting on piles of cash.  Will they embrace the breakout, or continue waiting for lower prices?  While short-term traders on Stocktwits are wary of this market, most owners are content sitting on their profits and are reluctant to sell regardless of scary headlines like political and military conflict with Russia.  If that doesn’t spook owners into selling, I’m not sure what will.

TRADING OPPORTUNITIES
Expected Outcome: Push to new highs before stalling on lack of follow-up buying.
There is no such thing as a triple top, so it seems likely we are destined to bust through 1,885 in the near-term.  Markets typically collapse from unsustainable levels in quickly, so holding these levels for multiple weeks suggests we are not yet at unsustainable levels.  We will push toward 1,900 in coming days, but unless those with cash embrace this breakout, expect it to stall and fall back under 1,850 on weak demand.

Alternate Outcome:
The S&P500 was up a trivial 1% in the first quarter of the year and this sideways trade helped consolidate recent gains and cool a hot market off.  This pause makes it easier for the market to resume the previous uptrend.  If we break above 1,900 and hold those levels, this bull is ready to rip.

Trading Plan:
The best trade of 2014 has been buying weakness and selling strength and it is unlikely to be any different here.  We will likely challenge 1,900, but that creates a better selling/shorting opportunity than buying one.

Plan your trade; trade your plan

Waiting for new highs

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Analysis

MARKET BEHAVIOR|
Stocks are just shy of all-time highs as the sideways trade continues.  Today was the last day of the quarter and volume was well under average yet again.  The market has largely traded between 1,840 and 1,885 since mid-February and Monday’s strength pushes us back into the upper half of that range.

MARKET SENTIMENT
Owners don’t want to sell and those with cash don’t want to buy.  This standoff leaves us trading sideways on low volume.  Holding these levels for several weeks gives the edge to bulls since markets tend to roll over from unsustainable levels fairly quickly.  Bears keep predicting an imminent sell off and while we might be approaching one, we need a material catalyst to kick it off, something that has so far been MIA.  To this point owners have ignored any and all bad news as they continue holding stocks and that reluctance to sell keeps supply tight, allowing this market to maintain current levels even on low demand.

While many shorts were chased out of the market in February’s rebound,  this sideways trade seduced many of them back in.  They shorted every dip to 1,840, but since many have stop-losses above recent highs near 1,885, that means many of these shorts have not been shaken out by recent volatility.  While those in cash might be reluctant to buy stock, shorts with automatic stop-losses above 1,885 will fuel a short squeeze and provide the lift needed to push us to new highs.

Whether this breakout is ultimately sustainable is in the hands of those sitting on cash.  Will they buy the breakout, or will they patiently wait for more attractive prices?  It seems like many of those that believe in this market are already in, leaving fewer left to chase a breakout higher.  Larger selloffs in recent years occurred in the low-volume summer months and sitting near all-time highs leaves us vulnerable to the inevitable bout of periodic selling.

TRADING OPPORTUNITIES
Expected Outcome:
The market is poised to hit all-time highs in coming days, but demand will likely dry up following the primarily short-squeeze driven gains.

Alternate Outcome:
The market is only up a handful of points since the start of the year and this sideways consolidation could be setting the stage for the next round of bull market gains.

Trading Plan:
As always, it comes down to timeframe.  Long-term investors can and should ignore these near-term fluctuations.  The one exception is deciding when to add new positions.  We are near all-time highs and patient, long-term investors will likely see better prices at some point over the next six-months.  There is no reason for these long-term investors to try to time the market with their existing positions, but they can hold off on making new purchases.

Intermediate investors can consider proactively locking in profits in anticipation of a pullback into the 1,750/1,850 trading range, or at the very least employ a trailing stop to protect recent profits.  More nimble traders can wait for the short-squeeze to all-time highs and short the market if it stalls shortly after.

Plan your trade; trade your plan 

Choppy trade continues

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update

MARKET BEHAVIOR
Stocks retreated from early gains and finished just above 1,850 support as they continue bouncing around between 1,850 and 1,880.  Volatility is increasing as intraday ranges span more than one percent, but the market is not moving higher or lower as each gain or loss is quickly unwound the next day.

MARKET SENTIMENT
Owners don’t want to sell and those with cash don’t want to buy.  This standoff leaves us trading sideways as both demand and supply remain balanced.  Volume has been light, probably due to big money managers taking their kids skiing for spring break.  The big questions is what will happen when they come back to work.  Will they start locking in profits or bidding up the price of stocks?

Complacency is the rule as geopolitical conflict between Western Europe and the world’s largest oil producer largely goes unnoticed.  The best profit opportunities arise when the market overreacts to some fear mongering and owners give away their stock at steep discounts.  Those reduced prices compensate dip buyers for taking the risk, but near record highs there is little reason to own the risk since no one is willing to pay us for it.  While momentum is still higher, making money in the markets comes from balancing risk and reward.

TRADING OPPORTUNITIES
Expected Outcome: At the upper end of a trading range
Stocks have either stalled above 1,850 and are on the verge of reversing, or they are resting before making their next move higher.  And to be honest, I could easily see either outcome happening.  Sometimes we don’t have an edge on the market and it is best to wait for the next trade with better odds.  Everyone can make money in the markets, the hard part is keeping it.  The number one way people give back profits is forcing trades when there isn’t one.

Plan you trade; trade your plan

Yellen spooks the market

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Analysis

MARKET BEHAVIOR
It was a quiet day up until Janet Yellen rattled the markets with her first press conference.  Stocks plunged dramatically to 1,850, but found support at this key level and bounced off the lows by the close.  The intraday range stretched nearly 25-points, but the market finished down just 11.5 points.

MARKET SENTIMENT
Yellen was supposed to be more dovish than Bernanke, but her revelation that interest rates could be raised within six-months of the end of QE was faster than many expected.  This means we could see short-term interest rates increased as soon as a year from now.  But most likely the market overreacted to this news.  Number one, the Fed would only make this move if the economy is improving enough to withstand higher rates.  And two, going from zero percent to one percent still counts as stupid low rates by historic standards.  This is nowhere near the four and five percent rates that are used to throw cold water on overheated economies.

TRADING OPPORTUNITIES
Expected Outcome: Stocks are at the upper end of the recent range and vulnerable to falling back into it
As traders we should embrace market overreactions because that is what profit opportunities are made of.   If stocks were always priced appropriately, then we couldn’t make money except through dumb luck.  The question now becomes if the overreaction will be to the upside or the downside.  Will the market continue ignoring risk as it pushes to new highs?  Or will traders develop an irrational fear of Yellen and run for cover every time she steps near a microphone?  Given how quickly traders brushed off conflict with the world’s largest oil producer, I don’t expect the market to panic over Yellen’s comments either.  But rather than think for the market, we will let it decide for itself.  If the selloff builds momentum, we could see another Taper Tantrum like selloff.  If we hold these levels tomorrow, then the Fed meeting is already old news.  When the market gets upset, it is painfully obvious and it won’t take long to tell what the market is thinking.

Trading Plan:
If the market holds these levels tomorrow, we’ll probably drift up to 1,900 before demand becomes an issue.  Crash through 1,850 and previously confident owners might not remain so confident.  Be careful with long positions here since the upside is far more limited than the downside.

Plan your trade; trade your plan

Back near record highs

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Analysis

MARKET BEHAVIOR
Stocks added to yesterday’s gains and recovered most of last week’s modest Crimea selloff.  Volume was  light for a second day as many buyers take a wait-and-see attitude toward this rebound.

MARKET SENTIMENT
Owners remain confident while everyone else stays cautious.  Last week’s selloff came on unusually restrained volume given the volatility and headline risk.  This week’s rebound continues the suspiciously light volume.  What this tells us is most owners are perfectly content holding on to what they have regardless of the price action or headlines.  This is a dramatic shift in sentiment from 2013 where the market was constantly spooked by an endless stream of bearish headlines.  Last year many were afraid to own stocks, this year they are afraid to sell them.

While many will claim complacency is a sign we are at a top, by itself complacency is bullish.  When no one wants to sell, supply becomes tight, making it easy for markets to rally on low volume.  Complacency doesn’t kill bull markets, lack of new buyers does.  Rather than focus on owner’s confidence, we need to look at who is buying record highs.  Last year’s bond market selloff flushed many long time bond owners out of that market and their shift to equities propped up stocks.  But we’ve seen a rally in bonds in recent months, taking pressure off bond owners.  This means there are fewer bond sellers and less money to reallocate to equities.  Other investors fled volatility and uncertainty overseas, causing them to seek the safety and security of US equity markets, but those that are still in foreign markets are probably in it for the long haul and we should expect the flow of international investment in our markets to slow.  While it doesn’t take much demand to prop up prices when confident owners keep supply tight, we need to see new money continue flowing into our markets to extend this bull market.

TRADING OPPORTUNITIES
Expected Outcome: Near record highs, but vulnerable to a pullback into the trading range
Stocks are rebounding on light volume, showing low participation on the buy-side.  We can continue heading higher as long as owners stubbornly hold on to their positions, but waning demand threatens to let us slip back into the 1,750-1,850 trading range.

Alternate Outcome:
Nothing gets people excited about stocks like rising prices.  Those left out of the rebound from the 2009 lows are starting to warm up to stocks again as they hear about all the money their neighbors and coworkers are making in the market.  While this can keep pushing us higher for months, these buyers are usually the last to show up before prices roll over so be careful.

Trading Plan:
While it feels like the market wants to challenge 1,900, this is the later stages of this rally leg and we should be taking profits, not establishing new positions.  While we are in a decade long secular bull market and buy and hold investors can sit tight, expect intermediate dips along the way.  Shorter timeframe traders should continue buying weakness and selling strength.

Plan your trade; trade your plan

Relief rally

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update

MARKET BEHAVIOR
Stocks recovered a portion of last week’s losses in one of the lowest volume sessions of the year.  We reclaimed 1,850 support and remain above the 50dma.

MARKET SENTIMENT
The market didn’t bounce Monday because dip buyers flooded the market, but because existing owners were uninterested in selling and the resulting tight supply supported prices.  While nothing improved over the weekend, things didn’t get worse either.  Sometimes no new bad news is enough to calm nerves.  Given the low volume rebound, this only reassured owners and kept them from selling while most prospective buyers continue waiting for more clarity before rushing in to buy.  Even though tight supply can slow the slide, we need conviction from buyers to push us back to new highs.  So far buyers are not feeling it and we need to be suspicious of this rebound.

TRADING OPPORTUNITIES
Expected Outcome: At the upper end of the range and vulnerable to a pullback as geopolitical risks loom large
Sometimes the market blows risks out of proportion, others it under appreciates the dangers.  Given the market is 1.3% from record highs, the market is many things, but panicked over current events is not one of them.  While this situation could play out exactly as the market predicts, we are vulnerable to a selloff if anything unexpected comes up.  We only get paid to own risk when we buy at a discount and it is hard to justify owning here for a measly 1.3% discount.

Alternate Outcome:
Selloff or not, if people are talking about something, it is priced in.  While we are barely off the highs despite this geopolitical risks, we could be significantly higher without them.  Once the market moves past this headline cycle, it could easily pop as we catch up to where we should have been.  We don’t need to selloff in order for there to be attractive values.

Trading Plan:
While the situation will most likely resolve itself as the market expects, we are not getting paid to own the risks near all-time highs.  We could go higher from here, but the risk/reward is not in our favor and doesn’t setup a favorable trade.

Plan your trade; trade your plan

Breaking support

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Analysis

MARKET BEHAVIOR
Stocks opened higher, but plummeted into the red, crashing through prior support at 1,850.  Volume was barely above average, suggesting the selling was not nearly as dramatic as the price-action made it appear.

MARKET SENTIMENT
We closed a few points under 1,850 and triggered a wave of automatic stop-loss selling under this support level, but this where the selling stalled, not accelerated.  Flushing out any and all with an itchy trigger finger makes it easier for the market to find a floor on Friday.

Last week we rallied in the face of weak Chinese data and political confrontation in Ukraine, but this week we sold off on the same headlines.  Rather than attribute this strength and weakness to headlines, it appears to simply be typical market gyrations.  Modestly above average volume on such a “shockingly large” decline suggest this weakness was more due to a lack of demand than heard based selling.  We’ve come a long way on all timescales and after running out of momentum chasers and short-covering, a wider pool of prospective buyers seems uninterested in paying record highs for stocks.

While weak demand is weighing on stocks here, we need to see previously confident owners change their minds and sell if this weakness is to accelerate lower.  Through multiple dips, most owners showed they are comfortable holding headline risk and seem unphased by weakness here and there.  That confidence in the future keeps supply off the market and make it easier to find a bottom.  This rally will end like every one before it, but first we need a catalyst to shatter owners’ confidence.  So far that still seems missing.

TRADING OPPORTUNITIES
Expected Outcome: Stalling near upper end of trading range.  Vulnerable to a larger selloff, but need a catalyst.
Markets slipped today, but this 1% dip is unlikely to concern many owners who have confidently sat through bigger selloffs in recent months.  As long as they keep holding, it will be hard to enter a downward spiral of selling.  For that we need something to interject a large amount of uncertainty into the market.  While Ukraine could be that catalyst, the market’s ambivalence last week shows most traders are not buying Obama’s and Putin’s bluffs.  While the market is vulnerable to a bigger selloff, look for it to find a floor soon unless headlines take a significant turn for the worse.

Alternate Outcome:
Sometimes markets fall for no other reason than herd driven selling.  If the market crashes through the 50dma, expect many traders to adopt a sell first, ask questions later approach to risk management.

Trading Plan:
If the selloff stalls on Friday, we could be in the mist of another buyable dip.  For the short thesis to work, we need far more scary headlines to shatter the market’s confidence.

Plan your trade; trade your plan

Testing 1,850 support

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:35 EDT

Intraday Update

MARKET BEHAVIOR
Stocks slipped in early trade, but bounced off 1,855 by midday.  1,850 was resistance over the first couple months of the year and appears to be providing support here.  Currently we find ourselves in the middle of the trading channel that dates back to November 2012.

MARKET SENTIMENT
There are few explanations to justify the last couple days of weakness and many in the media are chalking it up to “profit-taking”.  Volume has been below average, showing this dip is more a product of weak demand than active selling.  Owners are comfortable and confident.  While many contrarians say that is a sign of bad things to come, in the near-term, that confidence keeps supply tight as few owners are willing to sell.  For the market to rollover, we either need a fearful headline to shatter this complacency, or to run out of buyers willing to pay top-dollar for stocks.

TRADING OPPORTUNITIES
Expected Outcome: Momentum is higher, but gains are getting harder to come by
The run since the November 2008 lows is nearly 17-months old.  It is not unusual to see gains taper off as the market prices in future expectations and then waits for the confirming fundamentals to catch up.  The market needs to consolidate recent gains and will likely trade sideways until the 3rd Quarter.  That doesn’t mean we cannot hit 1,900 in the near-term, but it suggests the upside potential is far more limited than the downside risk.

Alternate Outcome:
Momentum is clearly higher and history has examples of rally legs lasting multiple years.  As long as there is new money ready to chase this market higher, there is nothing that will stop it.

Trading Plan:
Long-term investors can continue sitting on their investments, but they should hold off on adding to their favorite positions since we will likely see better prices in coming months.  Short-term traders should take profits proactively or use trailing stops to protect recent gains.  With so little fear priced into the market, there are few headlines that could trigger a surge higher, but one bad headline could send us tumbling.  That doesn’t set up a favorable risk/reward.

AAPL daily at 1:18 EDT

INDIVIDUAL STOCKS
AAPL is retook the 50dma after struggling with this level since 4th quarter earnings.  It is widely expected the iPhone6 will have a larger screen to stem the market share losses to Android competitors, so that is unlikely to be an upside catalyst for the stock.  We haven’t had anything new and exciting out of AAPL since Steve Jobs resigned as CEO and is why the stock is well off the highs.  Can Tim Cook pull something out of the hat this year?  AAPL bulls are certainly hoping so.

TSLA is bouncing today following recent weakness, but it wouldn’t be surprising to see the stock close the gap and allow the 50dma to catch up before resuming the up-trend.

P is reclaiming the 50dma on above average volume, signaling a potential buy-point.  Since so few traders love this stock, it means there is upside if it continues to defy the skeptics as it successfully fights off competition from AAPL and others.

Plan your trade; trade your plan

Dipping under 1,870

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update

MARKET BEHAVIOR
Stocks gave up early gains and finished in the red for the second consecutive day.  We broke under recent support at 1,870, but the “free-fall” only pushed us down a few more points before bouncing off 1,865.  Volume was higher than yesterday, but still below average.

MARKET SENTIMENT
Without any real headlines to attribute today’s weakness, the media blamed “profit-taking”.  Despite breaking recent support, we didn’t see sellers flood the market as volume remained constrained, meaning today’s weakness was more due to a lack of buying than wave of selling.

Most owners remain confident and are waiting for higher prices.  Every time they sold weakness in the last couple years was a mistake and traders have become conditioned to hold weakness and buy dips.  While it’s worked to this point, we need to be more careful the less fearful traders become.

TRADING OPPORTUNITIES
Expected Outcome:  Near upper end of trading range
Momentum remains higher and so far today’s weakness doesn’t look like anything more than the normal ebb and flow of supply and demand.  Down days are a normal part of going higher and without fearful headlines, expect any weakness to be short-lived as owners confidently hold through modest dips.

Alternate Outcome:
Markets often move as a herd.  Typically it takes something to spook the herd into a stampede, but sometimes selling begetting selling is all that is needed.  Journalists always invent reasons after the fact, but sometimes people sell for no other reason than other people are selling.

Trading Plan:
Some weakness here helps keep the market fresh, but the downside risk of owning sill out weights the upside reward of a grind higher.  Long-term owners can continue holding, but intermediate traders should consider locking in recent gains.

Plan your trade; trade your plan

Holding 1,870

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update

MARKET BEHAVIOR
Stocks recovered to flat after slipping modestly in early trade as they continue finding support at 1,870 for the fourth consecutive day.

MARKET SENTIMENT
The market remains near all-time highs because owners and buyers keep believing in these levels.  We’ve seen multiple headlines that could have sent us tumbling if this rally was fragile and over-extended.  Instead it ignored this “noise” and suggests we are standing on firm ground.  Today’s trade was on light volume, showing this strength was due more to reluctance by owners to sell than buyer’s enthusiasm to buy.  Since price is derived from both supply and demand, as long as owners remain confident and reluctant to sell, the resulting tight supply supports prices.

TRADING OPPORTUNITIES
Expected Outcome: Upper end of trading range
Markets often oscillate around the “right” price.  Sometimes they are too high, and others too low.  Since there is virtually no fear in the markets, that suggests it is more likely we are too high, rather than too low.  This makes it a riskier time to own stocks since the upside is more limited than the downside.  Momentum is clearly higher, but the risk/reward of owning here not great.  The best profit opportunities come from buying fear and selling confidence.

Alternate Outcome:
The recent dip to 1,740 cleared many weak holders and left us with a confident ownership more willing to hold risk and volatility.  When no one is interested in selling headlines or weakness, markets march higher.

Trading Plan:
Stocks are the most risky to own when it feels the safest.  Be careful with long positions here as the potential upside is dwarfed by the risk below.  Long-term owners can continue holding, but they should wait for better prices before adding to positions.  Short-term traders should lighten up and bears can jump on violations of support.

Plan your trade; trade your plan

What risk?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:05 EST

Intraday Update

MARKET BEHAVIOR
Stocks are trading in a tight range following Tuesday’s rebound to new highs.

MARKET SENTIMENT
Traders are indifferent to threats of economic sanctions against the largest oil producer in the world.  Pretty crazy how  inflation in Turkey sends us tumbling 100-points while hostile words between the US and Russia propels us to all-time highs.  If the market made everyone would be rich.

It appears the market is calling Putin’s and Obama’s bluff, assuming neither one has the courage to escalate the situation any further.  But if the market expect business as usual, that means there is little upside if this situation is resolved, yet it exposes us to huge downside if it deteriorates.  Little upside and lots of downside, not exactly the best place to own stocks.  Over the last year the market was afraid of its shadow, but as every predicted disaster turned into a buyable dip, traders are growing more apathetic toward risk.  One of these days we will come across a situation that is worse than feared and that will be the catalyst for the next correction.

TRADING OPPORTUNITIES
Expected Outcome:
While reality is often not as bad as the market fears, that only occurs after it sold off and more than adequately priced in the risk.  Here we have the opposite, real risk and uncertainty, yet we are making new highs.  Making money in the markets comes from understanding the risk/reward.  We need to know when to buy risk and when to sell it.

Alternate Outcome:
Owners are stubbornly holding on to stock and even conflict among the world’s superpowers is unable to shake their resolve.  While this could end badly, prices won’t go down as long as confident owners keep supply scarce.  It doesn’t matter what the market should do, only what it does.

Trading Plan:
For the short-term trader, there is little reason to own stocks here.  We are at the upper end of the recent trading range and the market is indifferent toward geopolitical risks.  While momentum can continue pushing us higher, the potential gains are dwarfed by the downside risk.  Buy weakness and sell strength.

Plan your trade; trade your plan

Ukrainian Uncertainty

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:47 EST

Intraday Update

MARKET BEHAVIOR
Stocks opened under 1,850, retreating from Friday’s all-time highs.  While stocks slipped back into the 1,830-1,850 consolidation region, we remain at the upper end of the recent trading range.

MARKET SENTIMENT
Traders are on edge as the situation in Ukraine deteriorates.  It is quickly turning into a showdown between Putin and the West, leaving us wondering who will flinch first.  While realistically the economic impact in the West will be limited, it is the uncertainty that weights on the market.  Few are in a buying mood when we don’t know what will happen and trading near all-time highs means value investors are not tempted to jump in yet.

While few on Wall Street foresaw this Ukrainian crisis a few weeks ago, the one thing we did know is the market was approaching the upper end of a potential trading range.  Every day there are countless positive and negative stories, meaning market participants can easily find an excuse to trade their preexisting bias.  If they want to buy, there are plenty of reasons to buy.  If they want to sell, it doesn’t take long to find a justification.  While the news is random, the market’s reaction to it is not.

TRADING OPPORTUNITY
Expected Outcome:
It is unlikely the situation in Ukraine will be resolved over the next day or two, so expect uncertainty and weakness to persist.  Most likely this is little more than saber rattling by both sides and the economic impact will be limited.  We will see near-term weakness, but it is creating yet another buying opportunity down the road.  The market is likely entering a trading range that will stretch through midyear, so continue buying weakness and selling strength.

Alternate Outcome:
The armageddon scenario is Russia and the West fall into an armed conflict.  The consequences are devastating enough to keep traders from buying all-time highs no matter how unlikely.  But even if we avoid military intervention, the market is on edge and nervous traders are prone to mad dashes for the exit.

Trading Plan:
Buy weakness and sell strength.  As we trade near all-time highs, lookout below.  This is still a decent place to defensively lock in profits and is giving shorts an interesting entry.

Plan your trade; trade your plan

IDA: Stalling at 1,850

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:27 EST

Intraday Analysis

MARKET BEHAVIOR
Stocks continue hanging around 1,850, unable to build on Monday’s breakout to record highs.  As we approach the end of the February, the market is flat for the year, failing to extend last year’s bull market.

MARKET SENTIMENT
Markets often exhibit a consistent character through each quarter.  Big money managers are judged by their quarterly performance and this often drives their decision making.  If a quarter starts strong, they are forced to chase, motivated by fear of being left behind and end up prices higher into quarter’s end.  As soon as the calendar changes, they are given three-month’s of breathing room and what was an urgent buying frenzy the week before, becomes a far more laid back approach.

This played out perfectly over the last two quarters.  In the closing weeks 2013, we had managers push us to record highs nearly every day.  Big money was climbing over each other trying to buy all the stock they could find for their quarter and year-end reporting.  But that buying evaporated the first trading day in January since they were no longer pressured by an arbitrary, calendar driven deadline.  Since this quarter has not continued making new highs, managers don’t feel pressured to buy and is why we entered a sideways period.  Without any sense of urgency, expect March to be equally laid back as we continue consolidating 2013’s gains.

TRADING PLAN:
Expected Outcome:  Stalling at the upper end of an extended trading range.
Markets trade sideways more often than anything else, so holding between 1,750 and 1,850 for the next several months is likely outcome.  While most of us either classify ourselves as bull or bear, we must recognize the market trades sideways most of the time, making the best trade buying weakness and selling strength.

Alternate Outcome:
The 5% pullback to 1,740 did a good job of purging excess, making gains from here more reasonable and sustainable.  While the explosive upside seems limited, momentum remains higher and this bull market is alive and well.

Trading Plan:
Buy weakness and sell strength.

INDIVIDUAL STOCKS
AAPL struggles while TSLA explodes to new highs.  One is a story everyone loves and the other is a growth stock that terrifies anyone with common sense.  The problem with a loved stock is everyone already owns it, leaving few to buy it.  No matter how great a company is, prices fall when it cannot find new buyers.  On the other side, a terrifying stock keeps going higher because so few people have the courage to own it, meaning those that bought into the hype are unlikely to sell at any price, keeping supply extremely tight.  Basic laws of supply and demand; sell what everyone loves and buy what everyone is terrified of.

Plan your trade; trade your plan

Stalling after new highs

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:37 EST

Intraday Analysis

MARKET BEHAVIOR
Stocks pulled back after setting record highs Monday morning.  This continues the sideways consolidation near 1,850 and we remain at the upper end of the recent trading range.

MARKET SENTIMENT
Monday’s push to new highs triggered a wave of breakout buying and short-covering, but the surge didn’t last long as we stalled and retreated from those early highs.  This suggests few are willing to buy the breakout because either they are already fully invested, or they don’t trust these valuations.

Sometimes breakouts are the launching pad for strong upward moves, but other times they are the last gasps of buying before demand dries up and prices slide lower.  While technicians believe all the information they need is contained in the chart, what market participants are thinking is even more important.  Did we breakout because a heavy weight holding the market back was suddenly lifted?  Or was it because all the good news has finally been priced in and there is little incentive for people to buy?

Resolving Fiscal Cliffs and Euro Contagion lead to big moves higher because many traders were reluctant to own those risks, but once those clouds cleared traders embraced the market.  More recently we had bouts of doubt over Emerging Markets and domestic economic data, but neither of those headlines whipped the market up into a frenzy.  It is harder to say these were heavy weights holding us back and removing these obstacles will trigger a run to 1,900.  On the other hand, its been a while since we had a real scare.  The apathetic attitude held by many traders leaves us vulnerable to the next headline scare.

TRADING OPPORTUNITIES
Expected Outcome:  Stalling near upper end of trading range
While this rebound can continue, we are near the upper end of a potential trading range and this affects the risk/reward of initiating new positions.    Following yesterday’s fizzled breakout, that shows there is not a lot of explosive upside in this market, meaning at best we will grind higher.  On the other hand, we are 100-points from recent lows and that creates a lot of downside risk if buyers remain hesitant to buy above 1,850.

Alternate Outcome:
Recent weakness and volatility left many people reluctant to trust this market.  Recent sellers are slow to change their mind and they remain on the sidelines.  This means the market is currently not over-owned since there is so much money available to chase another let higher.

Trading Plan:
Buy weakness and sell strength.  We are near the upper end of a potential trading range and the risk/reward suggests we be more defensive than offensive.  Failing to reclaim 1,850 demonstrates a lack of demand at these levels and likely means further weakness in the near-term.  If nothing else, this is a good place to take profits and wait for the next high-probability trade.

Plan your trade; trade your plan

IDA: Holding near highs

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:26 EST

Intraday Analysis

MARKET BEHAVIOR
Stocks are modestly higher and just 5-points shy of all time highs.  1,850 has been resistance since the end of 2013 and pausing here adds to the importance this key level.

MARKET SENTIMENT
Sideways trade underneath resistance has drained some of the excessive excitement following the strong rebound from 1,740.  A market that appeared invincible last week is giving some second thoughts this week.  But that is how markets work; if this were easy, everyone would be rich.

As traders we need to decide what is more significant, stalling short of resistance, or holding near record highs despite half-full headlines?  Extended and unsustainable markets typically roll over quickly, but maintaining these levels despite weakness on Wednesday is encouraging.  That dip was more than adequate to trigger wider selling if the market was overbought and inclined to selloff.  When that weakness reversed a day later, it demonstrated just how shallow the pool of willing sellers is and that bodes well for the near-term prospects.

While the market is poised to head higher on tight supply, we need to watch demand for signals on where we are headed over the medium term.  If new buyers fail to embrace a breakout to new highs, that could be what sends us back into the heart of the trading range.

TRADING OPPORTUNITIES
Expected Outcome: Headed toward upper end of extended trading range.
While the high-probability trade remains higher, the risk/reward is moving the other direction.  Given how far the market’s come and buyer’s reluctance to keep pushing us higher, likely means we are nearing the upper bound of this move.  If we are indeed entering a 6-month trading range, at most we have a couple dozen points of upside left all while standing on top of a 100-point trapdoor.  For a +24/-100 trade to make sense, we need a huge degree of confidence, something unheard of in free and fair markets.  That means this is a better place to be locking in profits than initiating new positions.

Alternate Outcome:
Pausing shy of 1,8500 and Wednesday’s dip to 1,825 cooled what was getting a tad exuberant.  Consolidating and resting under resistance for another week improves the odds of a sustainable breakout.

Trading Plan:
Either this market is headed higher, stuck in a trading range, or on the verge of collapsing lower.  Se we are at the upper end of a potential trading range, that means 2 out of 3 options would have us pullback from current levels.  Those odds imply this is good place to adopt a more defensive stance.  While it feels good to watch our profits grow, they are only real when we sell.  But even though the odds for a pullback improve by the day, as long as momentum continues higher, we don’t want to short the market yet.  Wait for a breakout to new highs and then short the market when it fails to hold those gains.

Plan your trade, trade your plan

IDA: Bouncing Back

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:17 EST

Intraday Analysis

MARKET BEHAVIOR
Stocks recovered a portion of Wednesday’s losses and remain between 1,810 support and the 1,850 highs.

MARKET SENTIMENT
Wednesday’s selloff failed to gain critical mass because most weak owners were flushed out in January’s dip to 1,740.  Anyone that bought recent weakness demonstrated an appetite for risk and volatility, meaning they are less likely to flinch when 2 out of 14 Fed members suggested raising interest rates earlier than previously stated.  When most owners shrug off headlines, selling stalls quickly.

TRADING OPPORTUNITIES
Expected Outcome: In trading range, approaching upper end.
Regaining its footing here likely means the market is setting up to break 1,850.  It might take a few more days of consolidation between 1,830 and 1,850, but holding these levels in the face of worrying headlines shows this market is on firm footing.  The bigger question is what happens after we exhaust the short-covering and breakout buying above 1,850.  Since we are approaching the upper end of a potential trading range, this makes for a more interesting selling opportunity than buying one.  A lot of good news is priced into the market here and it is hard to think of any big headline that could send the market racing ahead here.

Alternate Outcome:
If the recent dip to 1,740 purged enough excess from the markets, we could resume last’ year’s uptrend following a breakout to new highs.  There is plenty of international and bond money leaving those markets and in search of a home.

Trading Plan:
While the immediate trend is higher, we are better off looking for a place to lock-in profits.  A break to new highs would make a great selling opportunity and failing to hold the breakout could create an interesting shorting opportunity.

AAPL daily at 3:17 EST

INDIVIDUAL STOCKS
AAPL failed to hold the 50dma and finds itself under this key level again.  While the stock is stuck in no-man’s land after closing the earnings gap, a dip back under $500 spells disaster technically, while reclaiming $550 would be a big endorsement from the market.  Until then this story could go either way.  Since there is a lot of bullishness already priced in the stock and big buyers like Icahn and Cook have propped up the stock recently, the prognosis suggests further weakness once these whales finish buying.   As a side note, I find it somewhat ironic that people were afraid to own AAPL when Jobs fell ill and resigned the CEO position.  Many were worried about a lack of innovation without Jobs’s vision and leadership.  Yet here we are, three years later without any meaningful innovation from the company, but now the crowd is making excuses for AAPL, claiming the next category killer is just around the corner.

All I can say about FB’s latest acquisition is wow.  Is a smart phone app really worth more than half of the S&P500 companies?  TSLA is grossly over valued, but Whatsapp’s valuation would make even a TSLA bull blush.  Most of the articles written about the deal promote the huge growth opportunities ahead, but when the app already counts a material portion world’s population as active users, it sounds like it is closer to saturation than explosive growth.  The bigger concern for FB shareholders is this move by Zuckerberg reeks of desperation.  If he feels he needs to spend a major portion of FB’s marketcap on a defensive maneuver, it means he feels threatened by emerging social media companies.  Maybe FB doesn’t have as firm of a grip on its users as most investors assume.  At least Zuckerberg’s actions suggest that.

Plan your trade; trade your plan

Stalling under old highs

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:44 EST

Intraday Analysis

MARKET BEHAVIOR
Stocks continue consolidating under resistance at 1,850 as we trade between the 50dma and January’s highs.  If the market is entering a 6-month consolidation, we are likely near the upper end of the expected trading range.

MARKET SENTIMENT
Most feel better given the rebound to near all-time highs, but so far buyers are reluctant to continue chasing above 1,850.  Dip-buying and short-covering provided much of the lift from the 1,740 lows, but that buying frenzy is slowing as we approach old highs.  This pause is intensifying the focus on 1,850 as more people start watching this increasingly important level.  The longer we hold underneath it, the bigger deal it will become if/when we break it.  Shorts and breakout buyers are watching this level with interest and moving above it will lead to a new surge of buying, but that will likely be the last round of buying.  Reaching new highs means most of the shorts have already been squeezed and breaking above prior resistance will tempt the last of the hesitant momentum buyers.  Once we reach 1,860, we will largely have exhausted demand from short-covering, dip-buying, breakout-buying, and value-investing.  At that point we need to find a new crop of money to continue pushing us higher.

TRADING OPPORTUNITIES
Expected Outcome:  Nearing upper end of extended trading range
While the near-term momentum is higher and we will see another wave of buying if we break 1,850, no one should expect another 100-point run over the next few weeks.  The best profit opportunities come to those who are willing to take the biggest perceived risks by buying when everyone else is panicking.  Buying the market here is more risky and has less upside, making this a better place to sell than buy.

Alternate Outcome:
The market experienced a fair amount of churn during the 5% pullback.  Chasing off the weak and replacing them with confident owners makes it far easier for the market to continue higher.  Confident owners don’t sell and when no one wants to sell, prices keep marching higher.

Trading Plan:
Buy weakness and sell strength.  As we approach old highs, spend more time thinking about locking-in profits than making new buys.

Plan your trade; trade your plan

Holding near highs

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:36 EST

Intraday Update

MARKET BEHAVIOR
Stocks are modestly higher following the long weekend and continue holding the rebound’s gains.  We remain above the 50-dma, 1,830 support and less than 10-points from all-time highs.

MARKET SENTIMENT
Calm is returning to US and global markets following recent turmoil.  Nothing dramatic happened over our three-day weekend and stocks are still maintaining recent gains.  While the dip to 1,740 was unnerving, there is no such thing as an easy dip to hold.  If dips didn’t scare people, we wouldn’t have them because no one would sell.

This move purged the weaker and less committed, replacing them with more confident owners willing to buy the dip or hold through the volatility and uncertainty.  The market bounced as supply dried up when we ran out of nervous sellers and the confident continued holding.  But that was the justification for buying two weeks ago.  Now that we are 100-points higher, what comes next?

Shorts forced to cover losing positions provided much of the demand, as did swing traders and value investors buying the dip.  With prices returning to record highs, we’ve largely run out of shorts needing to cover, value buyers are less interested, and swing traders are more likely to sell these gains than buy them.  10-points from all time highs, the last surge of buying will come if/when we break 1,850.  That will squeeze out the last of the shorts and give breakout traders a buy signal.  But given how much buying we’ve seen over the last two weeks, this breakout is likely the end of the move, rather than the start of a new leg higher.  Once everyone who was ready to buy, bought, the rebound will invariably stall on lack of demand.

TRADING PLAN
Expected Outcome: Inside trading range, nearing upper bound
Markets trade sideways more than anything else, and given what a strong year 2013 was, it should be no surprise if we pause and consolidates over the next six months.  Sideways markets are best suited for buying weakness and selling strength.  Short-term traders can lock-in recent gains, long-term traders can wait for weakness before adding to existing positions, and shorts can start looking for the headline that will trip us up.

Alternate Outcome:
The dip to 1,740 shook many traders out of the market and turmoil in overseas markets has those foreign investors looking for a refuge.  Recent sellers and international demand could provide the lift that fuels another rally-leg higher.

Trading Plan:
Swing traders should start looking for an exit.  Longer-term investors should dial back purchases as we return to the upper end of the range.  Anyone still out of the market will be better suited waiting since chasing a market that ran 100-points in two weeks elevates the risk of an intermediate pullback.

S&P500 daily at 2:46 EST

INDIVIDUAL STOCKS
TSLA is poised to close above $200 for the first time.  The recent rebound off the 50dma is pushing the stock to all-time highs, but the time to buy the stock was weeks ago, not today.  While there are a few dollars of momentum left, expect it to consolidate recent gains near $200, giving a patient buyer time to get in later without exposing himself to extra downside risk by holding through a consolidation.

AAPL is also showing strength and ready to close above the 50dma for the first time since the Q4 earnings call.  Much of the strength came on the heels of AAPL’s aggressive buyback in recent weeks and expectations of a new product.  Hopefully this a new category killer and not another iMaps or iCloud fizzle.  A larger screen phone seem highly likely, but is that enough to get all the Samsung Galaxy defectors to switch back?  No doubt a large screen phone will sell well, but it is more like to be bought by existing AAPL customers upgrading and less likely to be stealing back market share from the competition.  Of course the biggest benefit will be finally slowing customer defections to large screen competitors.

Plan your trade; trade your plan

Pushing toward highs

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:02 EDT

Intraday Analysis

MARKET BEHAVIOR
Stocks are modestly higher as they continue adding to the recent rebound.  We are about 15-points from all time highs and back within the early January consolidation.  Support is back near 1,810 and overhead resistance is at 1,850.

MARKET SENTIMENT
Whatever the market was afraid of last week is a distant memory as the only thing traders are worried about now is being left behind.  Clearly bears are getting squeezed and doing much of the buying as they cover their shorts for a loss.  The bigger question is if a wider group of investors will support these prices once bears and chasers are done buying.  Having seen this market so decisively bounce back, no doubt it is erasing fears this market is on the verge of imploding.  Whether real or not, that perception makes traders more comfortable buying and holding stocks.  With parts of this world falling apart, the US market’s resilience is looking like an island paradise to international investors.

TRADING OPPORTUNITIES
Expected Outcome: Inside trading range, headed to upper bound
We’ve come a long way from the 1,740 lows and are no doubt closer to the end of this bounce than the start.  Anyone buying the dip here is clearly late to the party because best profit opportunities arise when everyone is filled with dread, not relief.  While momentum can continue carrying us higher, the risk/reward changed dramatically.  We are 15-points from recent highs and 85-points from the lower bound of a potential trading range.  The market will likely consolidate recent gains and the best trade continues being buying weakness and selling strength.

Alternate Outcome:
With as bad as the rest of the world has become, we could see international investors flock to US equities.  This demand could be what fuels the next leg higher.

Trading Plan:
Stocks don’t go straight up, so expect the rate of gains to slow.  At best the market will consolidate recent gains just under or just above resistance at 1,850.  Anyone sitting out of this bounce doesn’t need to chase here and can wait to buy the consolidation or dip after the frenzied buying dries up.  Swing-trades can start looking for opportunities to take profits.  We only make money by selling our winners and selling strength is the best way to avoid letting profits evaporate.  Either sell proactively or use a trailing stop to protect these gains.

Plan your trade; trade your plan