Nickels and Dimes

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:15 EDT

MARKET BEHAVIOR
The slow grind lower continues for a fifth day as the market gave up an almost trivial three-points in early trade.

MARKET SENTIMENT
Five days of selling that only manages a 1.5% decline from all-time highs is hardly worth paying attention to, but maybe that is the plan.  The market might try to lull us to sleep before it robs us blind.

There are two kinds of market declines, the spectacular crashes that take everyone’s breath away, leaving us paralyzed with fear and indecision.  The other is a painfully boring slide that chips away nickels and dimes under our nose.  We all know the market is imploding when we wake up one morning and a huge chunk of our portfolio is missing, but when we slip a few points here and there, no one seems pay too much attention.  These are the losses we can easily rationalize away because no one is afraid of 0.1% and 0.2% declines.

But the thing is the slow-moving selloff tend to last longer and do more damage than their faster moving cousins.  Everyone remembers the Financial Meltdown that crippled global markets in the Fall of 2008, but many forget the market had already been selling off for a full year prior to the crash.  Drop five percent in a day and it is headline news.  Drop five percent over two months and no one notices.

TRADING OPPORTUNITIES
Expected Outcome:
The 1.5% dip from all-time highs doesn’t seem to be enough to attract a new wave of dip-buyers and we continue languishing under 1,800.  Sometimes holding near new highs supports recent price gains, other times it signals dwindling demand.  Most stock owners have been conditioned to continue holding weakness because every time they sold, they came to regret that decision as the market quickly rebounded to new highs.  That attitude is keeping supply tight and supporting prices as owners refuse to sell the weakness.  But we also need to worry about the other half of the equation, demand.  With as optimistic as the market’s become in recent weeks, many of the people who wanted to buy this market already have. Without a supply of fearful holdouts to convert into buyers, it is less clear who will fund the next leg higher.

Alternate Outcome:
Markets consolidate gains one of two ways, the first is pulling back, the second is trading sideways for extended periods.  While it seems likely this market will reconnect with the 50dma in coming weeks, it could do that by simply staying at these levels and letting the moving average catch up to it.

Trading Plan:
There is a little something for everyone.  A bear can short the market with a stop above 1800.  A bull can continue holding with a stop under  1,780.  For the person out of the market looking to get in, wait until we reclaim 1,800 before buying.  It is better to be a little late than a lot early given all the clear air under the market.

Plan your trade; trade your plan

A wild ride to nowhere

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
A wild ride to nowhere.  Gap 10-points lower at the open, surge 15-points an hour later, collapse 20-points a few hours after that, only to reclaim another 15 just before the close.  If anyone is keeping track that, there was more than 60-points of up and down through the day, easily the wildest ride in quite some time.  But for all that amazing volatility, we finished down a trivial 2-points!

MARKET SENTIMENT
There was a little something for everyone in today’s trade.  For bears, tops are often volatile as the battle between bulls and bears heats up.  This is because previously dominant bulls start losing their grip on power and bears are finally able to put up a competitive fight.  Today’s back and forth certainly qualifies as a competitive fight.  For bulls, everything was clearly going the bears way when we slipped under 1,780, yet they couldn’t hold that ground as a wave of dip-buying bowled them over.

Markets often break down faster than they climb.  There are plenty of human and crowd psychology reasons for that, but what is important is bears had a golden opportunity to break this market wide open, but they just couldn’t get it done.  That clearly shows buyers are not rolling over here and they still have sufficient strength to defend these levels, at least for the time being.

While today’s rebound is impressive, it is hard to be bullish when everyone else is.  Investor Intelligence bullish readings are near 5-year highs (57.1%) and bearish levels are setting new 5-year lows (14.3%).  While these readings don’t give us definitive trading signals, they indicate an imbalance that will invariably swing back the other way at some point.  Maybe it won’t be tomorrow, next week, or next month, but it is coming and that makes it hard to get comfortable with these levels.

TRADING OPPORTUNITIES
Expected Outcome:
Markets decline for one of two reasons.  The more obvious is unexpected bad news causes investors to lower their expectations of the future and thus the price they are willing to pay for stocks.  The second is running out of new buyers because the crowd is extremely bullish and everyone who believes in the rally already owns all the stock they can hold.  While the first case leads to a terrifying and breathtaking plunge, the second scenario sneaks up on us as we slip lower without raising alarms.  Since current worries are few and far between, we can discount the imminent plunge and instead need to be watchful of the benign grind lower.  While it is clearly premature to be talking about a correction 1% from all-time highs, with so many bulls already in the market, it is hard to figure out who the next greater fool is.

Alternate Outcome:
When in doubt, stick with the trend.  So far we have seen little concrete data or technical behavior to suggest this market is running out of gas.  Even if we pullback for a few days, all that does is shake free weak owners who will soon be forced to chase this market as it continues higher without them.  Reclaiming 1,800 and setting new highs above 1,813 will go a long way to showing this rally still has legs.

Trading Plan:
The market is at a critical juncture.  Either we bounce or we don’t.  It is hard to be more clear than that.  Failing to reclaim 1,800 shows buyers are becoming scarce and a test of the 50dma is likely.  On the other side, another humiliating defeat of bears at 1,780 likely means we have new highs in the near future.  Trade each of these scenarios according to your outlook, but keep stops close incase the market doesn’t respond as expected.

INDIVIDUAL STOCKS
The WSJ is reporting AAPL finally landed China Mobile, something AAPL bulls have been eagerly waiting for.  Now that it is finally here, we get to see how much of this news is actually priced in the stock.  While we will no doubt see a strong reaction to the news, the more meaningful trade will occur after the initial excitement settles down.  Will the stock keep adding to those early gains, or is this a buy the rumor, sell the news event?  If we see a nice pop, it would be hard not to take profits off the table given how far the stock’s come in recent months.  This is not unexpected news, so it is unlikely it will cause a lot of investors to change their mind about the stock.  Those that were bullish before this news will remain bullish, and most bears are bears for reasons unrelated to China Mobile and equally unlikely to change their outlook.

Plan your trade; trade your plan

Volatility increases

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:18 EDT

MARKET BEHAVIOR
A wild ride this morning as we gapped lower, surged higher, and then plunged under the early lows by midafternoon.

MARKET SENTIMENT
Volatility is often a sign of shifting trend as many stubbornly continue trading what has been working, but their declining numbers mean they don’t hold the same sway over the market.  For the last 12-months every dip has been buyable.  While most resisted buying the dips in the first half of the year because they expected a pullback, now everyone is buying the dips because that has become the most obvious trade.  But what happens when everyone starts buying the dips?  After a while the crowd ends up fully invested and there is no one left to buy.

The last few months has seen a dramatic shift in sentiment as we went from countless headlines of doom and gloom to a complete lack of fear.  Markets move when people change their mind and as people warmed up to the market, their buying pushed us to all-time highs.  Now that we are at a point where everyone feels pretty good, there are fewer bears left to convert to bulls.  That means price gains will slow down.  Even more worrisome is this new, large pool of bulls is ripe to change their minds their selling will push us lower.

While sentiment is not an exact science, it gives us insight into probabilities for a move.  While we can easily continue making new highs, the large shift in sentiment makes us vulnerable to a pullback.  While we cannot use this as a timing signal, it gives us an idea of the actual risk/reward of owning the market.

TRADING OPPORTUNITIES
Expected Outcome:
Fear and uncertainty is only just starting to creep back into the market.  By nature the market is a fearful creature and the last six weeks has been unnatural.  Nothing brings fear back into the market like sliding stock prices.  It really doesn’t matter what reason people attach to it, they are simply trying to rationalize what is nothing more than the laws of supply and demand taking over.  While it seems likely we are destined test the 50dma in coming weeks, it won’t be a smooth ride and expect the choppy volatility to continue.

Alternate Outcome:
Every dip is buyable until it isn’t.  We are only 1.5% from all time highs and it is certainly premature to be calling a top.  Every dip purges excess from the markets and this choppiness might be all we need to refresh the market and set the stage for the next leg higher.  If the market recovers recent losses, that shows dip-buyers are alive and well.

Trading Plan:
Given the large shift in sentiment recently, it is hard to justify the risk/reward of buying such a minor dip.  Let this move play out and we will likely get the opportunity to buy at even more attractive levels in coming weeks.

Plan your trade; trade your plan

Time to cool off?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks opened under 1,800 and failed to reclaim this nice round support level by the close. The market is still 50-points above the 50dma following its 160-point, nearly straight-up bounce off the October lows.  This is the eighth-week the market’s been above the 50dma and is the longest stretch since we did nine-weeks back in January and February.  No matter what side of the bear/bull debate we fall on, it is perfectly reasonable to expect the market to retest support at the 50dma in coming weeks.  Sometimes that involves a pullback, other times it simply means pausing so moving average can catch up.

MARKET SENTIMENT
The last few weeks have been worry-free once our politicians quit their bickering and raised the debt ceiling, removing the risk of a catastrophic default.  Since then it’s been clear sailing with the tail winds of Yellen’s confirmation hearing and stronger than expected October employment numbers.  But the thing is the market is a worrier by nature and it cannot go long before fear over some impending disaster creeps in.  Today’s weakness is largely attributed to a bad day on the German markets and increasing concern over Taper in our part of the world.

Markets often move in waves as the pendulum of sentiment swings between fear and greed.  It’s been a good run and we should expect a move the other direction at some point.  But when the fear creeps in, embrace it, don’t be afraid of it.  Nervous sellers dumping shares at a steep discounts is the way confident traders make money.  Their fear is our profit.

TRADING OPPORTUNITIES
Expected Outcome:
Anyone holding out for higher prices in the near-term needs to see the market reclaim 1,800.  This proves dip-buyers are alive and well.  Without that, we could see the market slip back to the mid 1,700s as value oriented buyers wait patiently for more attractive prices.

Earlier this year the traditional “sell in May” was a bad idea, as was the conventional wisdom  that September and October are horrible months to own stocks.  Now we have many of those same people pointing out how strong December traditionally is.  2013 hasn’t payed much attention to conventional wisdom, so I wouldn’t count on the Santa Clause Rally either.

Alternate Outcome:
Reclaiming 1,800 and setting new highs this week shows this rally isn’t ready to take a break and wants to keep going.  While we can debate the sustainability of such a move, only price pays and we cannot argue with a rallying market.

Trading Plan:
Traders need to quickly decide on what timeframe they are using.  Longer-term investors will sit through any near-term weakness and use these opportunities to buy more of their favorite stocks.  Shorter-term investors should lock in recent profits and look to buy back in at lower levels.  The most aggressive can short the market with a stop above 1,800.  If we reclaim and hold 1,800 we need to reevaluate expectations of near-term weakness.

MSFT daily at end of day

INDIVIDUAL STOCKS
TSLA blew up in shorts faces as a German regulatory agency deemed the car safe following recent reports of battery fires. That sent the stock up $20.  But is this a fundamental catalyst that will get the momentum bandwagon going again?  That is harder to say.  I have my doubts, but if the stock reclaims the 50dma, then let the party continue.  If it hits its head on this level, we likely still have more selling in front of us.  No matter how safe the car is, the public if fascinated by this story and expect any future car fires to be front page news.  This is no different from the TM gas pedal incidents or Gulf Coast shark bite scares.  The more rare the event, the bigger the news it is, especially when someone catches video of it on their smart phone.

AAPL is off to the races again as the iPhone and iPad are flying off the shelves this holiday season.  While that was expected, more surprising is the PBS News Hour reported that MSFT‘s Surface was the best-selling tablet at Best Buy over the weekend.  While this was aided by aggressive pricing, buyers might actually be looking for more utility out of their tablets than Angry Birds and Candy Crush.  I believe the future lies in full featured tablets and MSFT/INTC are the only ones providing these capabilities.  While many accuse MSFT/INTC of falling behind the times, I actually think they are ahead of the pack on this one.

Plan your trade; Trade your plan

Waiting for the bounce

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:10 EDT

MARKET BEHAVIOR
Stocks slipped under 1,800 in midday trade as dip buyers were unwilling to defend that support level.

MARKET SENTIMENT
Stocks go up and stocks go down.  We had a strong, 150-point rebound from the October lows and no matter what side of the fence we fall on,we shouldn’t be surprised by occasional selling along the way.  The bigger question is if this is just another routine, buyable dip, or the start of a stumble into year-end.

To bounce we need dip buyers.  These are either bargain hunters who find deals too good to resist, or regretful traders who missed the prior run and jump at the chance to get in at earlier levels.  Since we are only one percent from all-time highs, we can pretty much eliminate bargain hunters as a source of support.  These buyers wait for better discounts and will holdout until at least the 50dma before finding prices too attractive to resist.

Without bargain hunters, that leaves us dependent on chasers to continue pushing us higher, the proverbial next greater fool.  While these people are always out there, we want to know how much money they have left to throw at this market.  Given the strong move since the start of the year, we can assume many of the chasers prepared to buy this market have already bought.  While there are mountains of money stashed in savings accounts and bonds, that represents a multi-year story as it flows back into the market and has a limited impact on day-to-day trading.

TRADING OPPORTUNITIES
Expected Outcome:
With everyone justifying why we should own stocks at these levels tells us these people are already fully invested.  With fewer skeptics to convert into buyers, that makes it more likely the market will struggle to continue making strong gains.  Prices move when people change their minds and trade that new outlook.  Since many are now comfortable owning this market, that means we might be running out of new buyers.

Alternate Outcome:
Rallies go far further and longer than anyone expects.  There’s been a loud chorus calling for a pullback since March, yet here we stand 300-points higher.  There is no reason this remarkable rally needs to stall out here and we could easily surge another 50 or 75-points into year-end and the buying frenzy continues.

Trading Plan:
With limited upside and material risk underneath, the risk/reward favors locking in profits and resisting the urge to buy the dip, at least for a little bit.  The most aggressive can short this violation of support with a stop above it.

Plan your trade; trade your plan

Testing support at 1800

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks dipped for a second day, but managed to hang on to 1800.  This level was resistance in early November and is now providing support here.

MARKET SENTIMENT
Much of the recent chatter and articles revolve around defending why we are not in a bubble, or talking about the Santa Claus Rally.  While there is cynicism around the edges, far more people are making excuses to hold than claiming this is a golden shorting opportunity.   That is a remarkable shift from a few months ago when the consensus was calling for a pullback.

Sir John Templeton famously said  “Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”  We are clearly past pessimism and skepticism, the only question is if this is optimism or euphoria.  This morning the Stocktwits’ SPY sentiment gage was well over 70% bullish, far and away the highest reading of the year.  While not a scientific sample and valid way to extrapolate broad market sentiment, it does give us insight into which side is confidently bragging about their positions.  As the saying goes, hubris precedes the fall.

While sentiment measures make poor timing signals because we never know how far is too far, they do give us a good sense of which direction the market is poised to move.  Since there are few worries holding this market back, it is hard to imagine a single piece of good news that will launch us higher.  On the other hand, one piece of bad news could easily send us into a tailspin.

TRADING OPPORTUNITIES
Expected Outcome:
While a trend is more likely to continue than reverse, we also need to account for the risk/reward for each trade.  While the market could easily continue inching higher, the potential for a big move is to the downside.  While it rarely makes sense to take big risks for small returns, buying calls is one way to squeeze every last drop out of this up-move while also managing downside risk.

Alternate Outcome:
The problem with sentiment is we never know how far is too far until after the fact.  This market could continue grinding higher through next year as the wider population embraces stocks for the first time in five years.  While this outcome relies heavily on the next greater fool theory, it does happen and we need to watch for it.

Trading Plan:
1800 is the line in the sand.  If dip buyers fail to defend this level, it signals further downside.  The 50dma is back at 1750 and retesting this level is not unreasonable and actually constructive for continuing this rally into next year.  If the market holds 1800, expect a slow grind higher for the rest of the month.

AAPL daily at end of day

INDIVIDUAL STOCKS
AAPL stock had a strong Thanksgiving week as it rallied in anticipation of a good holiday shopping season. It made new high ground today, but stumbled and finished weak along with the broad market.  If we experience further weakness in the indexes, expect AAPL to give up most of these recent gains.  There is no reason for a bull to chase the stock up here and we will have the opportunity to get in closer to the 50dma.

TSLA is trading sideways in the $120s.  It failed to put in a V-bottom and is instead consolidating.  Chances are we have not seen the real capitulation selling yet.  A dip back under $100 would go a long way to stamping out the previously unbridled enthusiasms for this small car company with a huge market cap.  At this point it is hands off and is more gambling than investing.  It could continue sliding to $100 or rally $40.  It is just a coin-flip.  Anyone tempted to buy this dip should continue waiting and let the stock prove itself first.  Better to be a little late than a lot early.

Plan your trade; trade your plan

Slow holiday week

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks gave up a modest 0.1% in a light, holiday week session.

MARKET SENTIMENT
Most of the senior traders are on vacation, leaving junior guys in charge of the trading desks.  That explains the light volume, but it also gives us insight into the kind of moves we might expect.  Most of the intelligent thought occurs on the buying side of a trade and is the domain of the most experienced managers.  On the selling side, they largely have set profit targets and stop-losses that trigger sales.  With the senior guys on vacation, we shouldn’t expect rookie traders to initiate new positions or buy dips without the oversight and approval of their bosses.  On the other hand, they do have their orders to sell when stocks hit predetermined price levels.  Limited buying authority and strict sell rules create the potential for a larger than normal selloff  since there will be fewer buyers ready to catch the dip.  That doesn’t mean this will happen, but we should expect fewer dip buyers if we stumble into some weakness.

TRADING OPPORTUNITIES
Expected Outcome:
With few traders looking to buy aggressively this week, we shouldn’t expect a strong move higher.  On the other hand, crossing stop-losses could trigger a wave of selling and we could fall further than expected without the support of dip buyers.

Alternate Outcome:
We have stop-losses on both sides of the market and any strength could trigger a short squeeze, sending us even higher.  Given the low volume of the holiday week, it doesn’t take much buying to move the markets sharply higher.

Trading Plan:
This skew between buying and selling authority over the holiday week sets up a favorable short given the potential for limited dip buying in the face of any weakness.  Or the simpler move is sitting out the low-volume week and taking a well deserved break from the markets.

FB daily at end of day

INDIVIDUAL STOCKS
FB continues to struggle following its most recent earnings call where the company hinted at weakness among young users.  On the opposite side, NFLX seems to be recovering from its earnings call driven selloff when Reed Hastings suggested the stock might be ahead of itself.  While not close to the post-earnings spike, the stock is staying well above the 50dma and challenging $350.

AAPL is consolidating recent gains and letting the 50dma catch up as owners hope for a strong holiday season.  With all new iPhones and iPads, this is the time for the company to reverse the market share losses and reclaim some of its mojo.  AAPL bulls are wishing for a China Mobile deal for Christmas, but while they’ve been waiting years for this deal, Android has become the smartphone of choice and AAPL’s China marketshare is in the single digits.  Will wealthy Chinese really dump their five-inch Android phones for the cool looks of an iPhone?  Only time will tell.

Plan your trade; trade your plan

Next greater fool

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks recovered the bulk of the last three days of selling and finished a few points shy of 1,800.  Volume was higher than the three prior down-days, but below average as we approach next week’s holiday shortened week.

MARKET SENTIMENT
Dip buyers jumped in and reversed this week’s modest selloff.  If buyers continue supporting these levels in coming days, that invalidates the thesis we are running out of buyers.  Markets often roll over quickly and holding up here for a couple more days prevents us from seeing that quick move lower.  Often that means the next is higher.

Markets roll over for one of two reasons, bad news but also paradoxically, good news.  The first one speaks for itself and there is no reason to cover it here.  The other is running out of buyers when the bull market wins over last of the fearful and finally convinces everyone to buy.  It successfully defeats every objection these pessimists have and they rush in as the final piece of good news falls into place.  From then on, it doesn’t matter how bullish follow-on stories are, the market cannot go any higher because everyone already bought in.  (Obviously terms like “everyone” are hyperbole, but you get the idea.)

Since the current market doesn’t have fearful headlines obsess over and by rule it is impossible to predict the next unexpected catastrophe, we are left deciding how many buyers are left to keep buying the good news.  Over the near-term there are a finite number of traders ready to put their money into the market.  While there are gigantic mountains of cash stashed in bonds and money markets earning negative real rates of return, they’ve been there for the last five years and are unlikely to flood into the market tomorrow or next week.  No doubt this is a major fundamental catalyst that will fuel our secular bull, but for this near-term analysis we can ignore them.

Markets move up and markets move down, driven largely by the shifting outlook of short-term traders.  They buy when they feel good and they sell when they get nervous.  Institutional money managers and buy-and-hold investors skip these gyrations as they hold for 12-months or longer.  If we ignore the money hiding in bonds and don’t count the buy-and-hold crowd, we are left with this smaller and more active swing trading crowd.  These guys pushed us up to recent highs, but they don’t have the deep pockets to keep moving us higher.  Some claim we will see a chase for performance into year-end, but to be honest, the chase started 9-months ago and anyone still sitting on their hands this long is unlikely to make a move now.  So the question is, where are the next round of buyers coming from?  I have a hard time answering that question and is why I am reluctant to own this market in the near-term.

TRADING OPPORTUNITIES
Expected Outcome:
While the market can continue higher, there is not a big weight hanging over it and we lack that explosive catalyst to launch us higher.  On the other hand, we are over 60-points from the 50dma and 160-points from the 200dma.  Limited upside combined with lots of open air underneath us don’t setup a favorable risk/reward.  The market likely has a date with the 50dma and either we dip down to meet it, or we grind sideways until it comes to us.  Given that setup there is not a lot of reason to own risk here if we are not getting paid for it.

Alternate Outcome:
While we are not currently in a bubble, we could easily continue higher without pausing and put ourselves in one.  Only price pays and it makes no difference why this market goes higher.  Breaking to new highs could set off another round of short-squeezes and that upside momentum could continue convincing new investors to volunteer to be the next greater fool.  If they are giving away money, we might as well take it.

Trading Plan:
We trade when the odds are in our favor.  That typically means buying when we don’t want to buy and selling when we don’t want to sell.  It is a little too easy and comfortable to own this market, so it is probably a good time to take profits and wait for the next trade.  If a long insists, they could move a trailing stop up to 1,775 and see where this goes.  A short could take a stab at this with a stop above recent highs.

Plan your trade; trade your plan

Boiling a Lobster

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
The slow motion slide continues for a third day.  The givebacks have been minor, less than 1/3 of a percent each day, on light and declining volume.  The market remains above previous resistance at 1,775 and is well above the 50 and 200dma.

MARKET SENTIMENT
So far everything looks great.  We are near all-time highs and the market is not fretting over a looming catastrophe.  This has to be the first time this year the market is not obsessing about something.  Even the last three-days are nothing to worry about since down-days are part of every advance.  This dip is so modest and orderly, few are worried about it.

But here is the thing, the market rallied through 2013 in spite of a nearly constant barrage of fear and pessimism.  You could even say the rally fed on it.  While it is great everyone feels so upbeat, should we be concerned about this shift in sentiment and outlook?

Declining volume shows many are not interested in selling this weakness.  Low-volume was very bullish this year.  The lack of selling keeps supply tight and makes it easier for prices to rally.  But no matter how tight supply is, we still need enough demand to keep up.  More than a bearish headline, the biggest risk for this rally is running out of buyers.

While I am not a bear by any stretch of the imagination, it is often noted that bull markets top on good news.  This is the headline that finally signals all clear and invites the last of the holdouts to jump in.  But no matter how great things look, markets decline without new buyers.  Between the elimination of fear and bullish feelings following Yellen’s confirmation hearings, could that be the good news that got everyone in the market?

There is a fundamental difference between headline driven selloffs and running out of buyers.  Unexpected headlines send everyone rushing for the exits at the same time, markets drop precipitously, but they find a bottom quickly.  The emotion and herd driven selling capitulates relatively quickly and allows the brave contrarian to buy heavily discounted shares from fearful sellers.

Demand driven selloffs are completely different.  Everyone feels good and they largely ignore weakness, assuming it is yet another buyable dip and they would be foolish to sell the weakness.  The market slips slowly, failing to raise any alarms or make holders nervous.  This is analogous to boiling an oblivious lobster by raising the water temperature one degree at a time.  In individual stocks we’ve seen this behavior in AAPL and TSLA.  Are we on the verge of seeing the same thing in the broad market?

While I am reluctant to call a top, the recent change in sentiment and outlook is enough to concern me.  The best trades are the hardest to make.  Owning this market feels way too easy and that makes me suspicious.  We profit by owning risk, not comfort.  Things feel too comfortable for my taste.

TRADING OPPORTUNITIES
Expected Outcome:
It’s been a great ride over the last 12-months, but we all know this cannot go on forever.  No doubt I am likely premature, but it feels like sentiment is shifting and that invariably triggers a new a behavior from the market.  Maybe we trade sideways for a while.  Maybe we dip far enough to bring fear back into the market.  We won’t know when and how far this will go until we are in the middle of it.  Right now 1775 is the key level to watch.  After that it is 1740 and then the 50dma.

Alternate Outcome:
These things always go further and longer than anyone expects.  We are twelve-months into this rally leg and there is no reason it needs to end here.  As long as people keep buying the dip, this market will continue marching higher.  The current stretch above the 200dma doesn’t even come close to the record.  Doubting this market is going against the trend and countless traders have died for the cause of “too-far, too-fast”.

Trading Plan:
It all comes down to risk versus reward.  What is the upside from holding here as compared to the downside?  How much higher can the market go in the remaining months of the year?  How far can it fall?  While it can easily continue higher, a modest reward might not be worth taking an outsized risk.  We are in this to make money and the only way we can do that is by selling our winners.

MSFT daily at end of day

INDIVIDUAL STOCKS
TSLA slipped to recent lows and gave back most of yesterday’s bounce.  While there is lots of room for this stock to bounce back, in situations like this it is better to be a little late than a lot early.  Wait for this stock to find a bottom before jumping in.  That means holding current levels for at least several more days and then buying the high volume bounce off a key level.

AAPL is holding support above $510, but other than that small ray of hope, the stock is lifeless.  The recent product launches and big name investors failed to reignite the growth stock.  While the dividend is nice, that might be the best part of owning this stock over the next decade.

On the other side of the fence, MSFT is near 10-year highs as investors cheer an impending change in leadership.  It also doesn’t hurt that the Windows phone doubled market share.  While the numbers are much smaller than the iPhone and Android, they are making the largest share gains, largely at the expense of BBRY.  It will be interesting to see what direction the next management team takes these promising phones and tablets as consumers start demanding full-powered mobile devices.

Plan your trade; trade your plan

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What happened to all the bears?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks notched new highs out of the gate, but stumbled into the close.  The market is well above prior resistance at 1775 and we will see how it responds if it retests support in coming days.  The 50dma is over 50-points away the 200dma is lagging by 150-points.

MARKET SENTIMENT
The market hit the skids when Carl Icahn made bearish comments regarding this market.  There are two ways to spin this.  First is this is only one man’s opinion and it is trivial to the big picture.  On the other hand, if this rally is so fragile that a single guy’s comments knock it down a peg, what will happen if there is a legitimate piece of negative news?

There has been a dramatic reversal in sentiment over the last several weeks.  A month ago bulls were an endangered species and many polls showed only 1 out of 5 respondents were optimistic.  Now it is the bears who have become scarce as their numbers are reaching similar lows.  Clearly the market rallied strongly from those bearish lows as all the pessimists converted to bulls and threw their money at the market.  But is the pendulum getting ready to swing the other direction?

Source: Yahoo Finance 11/18/2013

In another Yahoo Finance poll, only 19% said they were bearish.  Everyone else was already invested and holding on for higher levels.  But the thing to remember is we only reach higher levels when new buyers bid up prices.  If everyone is already in the market, where are we going to find these new buyers?  Many point to the bond market and Main Street, and I completely agree, but that is the multi-year, secular bull story.  It takes years for those tides to turn and we are still in the early stages, but as traders, we exploit near to intermediate shifts in markets.  That means we need to focus on the money already in the market and ready to buy tomorrow and next week, not next year.  By most indications, much of that money is already committed to this rally and there are few cynics left to convert.  Another popular sentiment measure is the Stocktwits SPY stream.  It spent most of the last year well under 50% as cynics refused to believe in this Teflon rally, but now that all the risks have been removed and we have nothing but clear skies, it ramped up to 68% bullish.

Anyway you slice and dice this, bullish sentiment is getting frothy and it is no surprise that a single comment by a widely respected hedge fund manager could trip up the market.  Now the question is traders with cash will buy this 0.3% dip, or wait patiently for better prices in coming weeks.

Source: Yahoo Finance 11/18/2013

TRADING OPPORTUNITIES
Expected Outcome:
While I think the market is poised to pullback, the size of the consolidation is up in the air.  This could simply be a retest of support at 1775, or we could crash 150-points and run into the 200dma.  What matters is how quickly this bullish fever breaks.  If we fall 20-points and everyone starts scrambling for the exits, then it will be a quick pullback.  But if we dip slowly and most make excuses for the weakness and keep their bullish outlook, that means we will slide further and longer.  Over the summer and fall we saw swift downdrafts arising from Syria, Taper, and Default.  That quick turnover allowed us to quickly find a bottom.  But if we don’t have a fear driven catalyst and instead slip slowly on weak demand, that will draw this out and likely go further than most expect.

Alternate Outcome:
Like everything in the markets, there is no easy sentiment signal to trade.  One time the market tops at 50% bullishness.  The next time it is 63%, and the time after it continues rallying well past 80% bullishness.  While 68% on Stocktwits is the highest its been, we could have said the same thing about 63% or 58%.  This thing might keep going well past 75%.  But that is the market.  If this were easy, everyone would be rich.  We very easily could recover the Icahn selloff and continue higher as we suck in the last of the holdouts.  There is always money to buy stocks, it is simply a matter of converting a fear of heights into the fear of being left behind.

Source: Stocktwits $SPY 11/18/2013

Trading Plan:
It is hard to buy the market here.  We don’t have a news driven upside surprise since we already removed all the headline fear hanging over the market.  As a rule, we buy the market when it feels dangerous, not when it feels safe, and clearly this is the “safest” this market’s felt in well over a year.   If there is a coiled spring, it is to the downside as this giddiness deflates on either a bearish headline or simply running out of new buyers.  Long-term bears are giving up in frustration, making this the most attractive place to short the market in quite some time.  We can use recent highs as a stop-loss for any new short position.

INDIVIDUAL STOCKS
What is there to say about TSLA that hasn’t already been said?  As a trade, the problem with holding for the top is no one knows when we are at the top.  Dipping to $180 was simply another routine pullback before climbing above $200.  Then we slipped to $150 and clearly that was the wrong time to get out because the stock was on the verge of bouncing.  And here we are at $121.  A few months ago I suggested locking in profits near $150.  Clearly I was early since the stock went up another 30%, but at this point, selling at $150 looks pretty darn nice.  Never forget we are in this to make money and the only way to do that is selling our winners.

Plan your trade; trade your plan

Where’s the fear

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks pushed ahead to new highs following Janet Yellen’s confirmation hearing.  We are just a few points from 1800, something that was unthinkable only a month ago.

MARKET SENTIMENT
It feels like there are only two opinions in the market, that stocks will keep going to the moon or we are in a bubble about to burst.  Where is the middle ground?  The people who say we need to take a breather and digest recent gains before marching higher?  Where are the nuanced opinions that say we need to pullback to the 50dma or traders should lock-in profits?  All I hear are these two polar extremes of buy, buy, buy and sell, sell, sell.  Maybe, just maybe, the truth lies between these two emotionally charged opinions.

I find it interesting how many people blindly attribute this market’s success to QE.  This year’s strength can’t possibly be because we shook off all the major risk factors people were worried about.  When is the last time you heard Contagion?  How about Cyprus?  Sequester?  Double-Dip?  More recently we put Shutdown and Default in the rear view mirror.  Who needs money printing when the market keeps removing all the uncertainty people were hiding from?

And here is why this is important.  If everyone believes QE is inflating this market and Yellen will continue the easy money policy, they will forecast higher prices for as far as the eye can see.  But what if it wasn’t easy money propping up this market, but overcoming fear and uncertainty?  My theory is this market rallied on overblown fears turning into non-events.  If that is what really drove us to all-time highs, we need fear, not QE to continue going up.  But this is the first time in at least a year and a half where the market is not obsessing over some impending catastrophe.  Without fear, this rally might be running out of gas regardless of what the Fed plans on doing.

TRADING OPPORTUNITIES
Expected Outcome:
For the record, I am long-term bullish and think we are only a fraction of the way through a secular bull market.  When everyone says buy and hold is dead is the best time to buy and hold.  This is exactly what I am doing with my retirement account because I don’t need those funds for decades.  But in the near-term, I swing-trade extremes in sentiment with my trading account and it sure feels like the bearish views from earlier in the year are quickly being overtaken by boundless optimism.  The time to be excited about this market was in January, February, and March, not after a 25% runup.  Anyone just warming up to this market is a day late and a dollar short.  Buy when we are afraid, not when we feel safe.

Alternate Outcome:
These things go so much further than anyone expects.  That is what makes picking tops so perilous.  We might know exactly what will happen, but if we are early, in the market that is the same thing as wrong.  Everyone knows this rally will eventually stall, we are only debating the timing.

Trading Plan:
The market is most dangerous when it feels the safest.  Between endless QE and no material risks on the horizon, it sure feels like a safe time to hold stocks.  While I easily could be early, I feel the risks are growing with every leg higher.  If you don’t want to sell, at least use a trailing stop to protect recent profits.  Making money in the markets is easy, the hard part is keeping it.

TSLA daily at end of day

INDIVIDUAL STOCKS
TSLA cannot get out of its own way.  Markets are making all-time highs, yet the auto maker is stuck near five-month lows.  There is a crisis in confidence and that is never a good thing in a stock that ran up more than 400% in half a year.  It will eventually recover, but let it prove itself first by reclaiming $150 and the 50dma.  For current owners, hope is not a strategy and we always need an exit strategy.  If the broad market stumbles, that weakness will hit high-fliers especially hard.

FB recovered the 50dma, but volume was anemic and didn’t signal a valid buy-point.  Keep waiting for that strong volume bounce off the 50dma.  If we don’t see that, don’t jump in because we could slip back under this widely followed moving average, especially is the broad market stalls in coming weeks.

Plan your trade; trade your plan

Buy the breakout?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks turned early weakness into all-time highs as this market keeps defying the skeptics.  The one-way rebound from the morning lows reeks of shorts tripping over each other trying to get out.  While not as strong as last Friday’s reversal, it ranks among the best gains we’ve seen over the last couple of months.  We continue trading near the upper end of a trading channel that dates back to spring and are well above the 50dma.

MARKET SENTIMENT
I’m contrarian by nature and today’s short-squeeze makes me suspicious.  We’ve come a long way, there are few worries to be found, and the market pops on “unexpected” news Yellen wants to continue Ben’s policies.  No doubt I’m late to the skeptic party, but that is by design.

It was a painful day to be short and many of the buyers were bears forced to cover their losing positions.  While bulls cheered the reversal and all-time highs, the red flag is seeing powerful trade from an already extended market.  Often we embrace powerful moves as signals of strength, but that only applies when there is a huge weight holding the market back.  That is the source of the coiled spring poised to explode higher.  We don’t have that setup here because worries are few and far between.  When we see unjustified strength, we must suspect looming exhaustion.

TRADING OPPORTUNITIES
Expected Outcome:
Now that most shorts have covered, who is left to buy?  That is a really good question.  One I cannot answer.  I don’t have a crystal ball and cannot call tops, but I do trade odds and right now the market feels extended.  While we can easily continue higher, without widespread fear as fuel, the chances of a big move are limited and at best this will grind higher.  On the other hand, if we run out of buyers, there is nowhere to go but down and we have well over 100-points of clear air between us and the 50dma.  While I’ve been a big proponent of this market because confident owners keep supply tight, if we run out of buyers, it doesn’t matters how tight supply is.

Now don’t get me wrong, I’m not expecting a market crash or anything of the sort.  It just feels like it is time for a step-back before resuming our climb higher.  We trade probabilities and risk/reward.  Right now the risks are large and rewards are small.

Alternate Outcome:
These things go so much further than anyone expects.  While we’ve come a long way, there is no reason we cannot continue higher as underweight money managers keep chasing this market into year-end.

Trading Plan:
We are in this to make money and when the potential upside is limited and the downside large, it is wise to take money off the table.  Since May the trade has been buying weakness and selling strength.  Right now we are at new highs and risk is greatest when we have no fear.

MSFT daily at end of day

INDIVIDUAL STOCKS
TSLA was left out of the broad market’s party as it continues struggling with $140.  The euphoric, one-way buying is taking a break and it needs to reclaim $150 and the 50dma for the stock to get its mojo back.  TSLA departed trading fundamentals a long time ago and bulls cannot use them to justify buying and holding here.  This is a momentum name and until it regains it, we are best suited staying away.

AAPL also failed to enjoy the market’s good fortune.  All of this year’s good news is behind us and it will be months before there is another upside catalyst.  The stock is holdable as long as it stays above $510, but things could get ugly if it slips under $500 and the 50dma.

Surprise, surprise, MSFT is the newest momentum stock.  Only after something is ridiculed and left for dead does it present an interesting buying opportunity.  While everyone obsesses over AAPL and what a great value it represents, MSFT is the far better stock to own because it is going up and that is the only thing that matters.

Plan your trade; trade your plan

Bridge For Sale

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
On Veterans Day, Stocks did a lot of nothing on extremely light volume.  We continue holding near all-time highs following Friday’s powerful rebound on stronger than expected employment numbers.

MARKET SENTIMENT
The front page of Monday’s WSJ was dominated by articles claiming the market is poised for a correction.  If anyone thinks journalists can call market tops, I have a bridge for you.

Sir John Templeton is famously quoted for saying “Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”  It feels like this market is somewhere between skepticism and optimism.  No one believed the market could rally this year, but that is exactly what it did.  There was Obama’s reelection, Default part I, Sequester, Europe/Cyprus, Obamacare, Sell in May, Syria, Taper, Rising Interest Rates, Sept/Oct market crashes, Shutdowns, Default part II, and countless other excuses people used to stay away.  This is the rally no one trusts, yet it does nothing but march higher.  That sure sounds like skepticism to me.

Now we find ourselves in clear air for the first time in a while.  The market is no longer obsessing over headlines and the strongest criticism the cynics can come up  is “over bullishness”.  As the WSJ articles pointed out, many of the 2008/2009 sellers are slowly warming up to stocks again.  While journalists and bears would have us believe retail investors starting to come around signals a top, it isn’t early retail investors that signal a top, but the last of the holdouts. It isn’t when a couple of neighbors start talking about stocks at backyard BBQs again, but when everyone is bragging about their stocks.  While we are clearly progressing through the life-cycle of a bull market, we are still a long way from having the masses speculating in stocks again.

This steady conversion of risk averse into stock buyers is what will support the market for months, even years to come.  Between all the money hiding out in bonds and cynical hedge funds underperforming the bull market, there are plenty of buyers still available to push this bull market well beyond what anyone expects.  We don’t top when the cynics are calling for a top, we top when they give up.  As the WSJ articles and endless stream of critics show, we still are not there yet.

TRADING OPPORTUNITIES
Expected Outcome:
While there is still upside left in this bull market, markets move two-steps forward, one-step back.  Bull markets refreshes themselves one of two ways, a sharp pullback, or a long period of trading sideways.  With this many people calling for a top, it won’t take much of a dip to dramatically swing investor sentiment.  The potential dip will fall further than bulls are prepared for, but not as far as bears are hoping.  Between those two opinions, we will find a bottom.  Or alternately, this market could refresh by boring everyone to death with relentless sideways trade, forcing both bulls and bears give up in frustration.  Either way we need to cool off a little bit.

Alternate Outcome:
There is no reason stocks cannot ramp up another 10% before year-end, collapse under the 200dma by the same deadline, or do both.  Markets surprise us far more often than they do what we expect.  Of course between the bulls expecting further gains and bears calling for corrections, the least expected outcome might be a whole lot of nothing.

Trading Plan:
Until further notice, continue buying weakness and selling strength.  We are at the upper end of the recent consolidation and it would not surprise me to see the market surge into new ground on short-covering.  How the market behaves following those new highs will go a long way toward tellings us if we should sell the strength or buy the breakout.

Plan your trade; trade your plan

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Wild ride

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of week

MARKET BEHAVIOR
Stocks had a wild close to the week as we dipped 23 points on Thursday, but then recovered all of those losses on Friday.  As dramatic as the ride’s been, we are still holding within the 1750 – 1775 consolidation following October’s strong rebound.  While the daily chart shows a wild ride, taking a step back reveals a fairly benign weekly chart.

MARKET SENTIMENT
There are always two sides to every market and price is the perfect balance point between these two views.  Recent volatility chased out anyone that lacked the conviction to sit through Thursday’s sell off.  These sellers were replaced by far more confident owners willing to buy the weakness.  That confidence ended the selloff on Friday and turned it into a powerful short-squeeze that quickly turned the tables on the cocky bears gloating about the impending collapse only a day before.  But in the Bear’s defense, changes in trend are often accompanied by increases in volatility as the long dominant party starts losing its grip on power.  This shift evens the fight and allows the minority to start flexing its muscle.   It is too early to say which scenario is playing out and we need to uncover more clues in coming trade.

TRADING OPPORTUNITIES
Expected Outcome:
When in doubt, stick with the trend; it continues countless times, but reverses only once.  It’s been a good year and the rally that just won’t quit is unlikely to give the cynics what they’ve been looking for all year.  We’re coming to the end of the year and many of the last holdouts are conceding defeat and going with the flow.  While this is often part of the topping process, these shifts take time and the trend often continues farther than anyone expects.

S&P500 weekly at end of week

Alternate Outcome:
Recent volatility has people  concerned and paying attention.  String together a couple down-days and confidence will quickly devolve into uncertainty and fear.  While it often takes a catalyst to send us lower, running out of buyers and topping on good news will signal a bigger pullback than the news-driven ones we’ve seen in recent years.

Trading Plan:
Continue watching for trading opportunities.  We remain stuck in a consolidation and until further notice, buy weakness and sell strength.  Since neither Thursday nor Friday’s moves materially breached recent highs and lows, look for a wave of stop-loss trading to accelerate a move out of this region, but if the a wider pool of traders does not embrace this breakout/breakdown, expect it to fade back into the consolidation.

Plan your trade; trade your plan

Where’s the Beef?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Dramatic reversal in fortunes as the market opened strong on interest rate news out of Europe, but then collapsed nearly 30-points intraday.  This slide pushed us through 1750 and undercut last week’s lows.

MARKET SENTIMENT
There was no clear headline catalyst for today’s selloff and it appeared to be mostly herd induced selling.  Without any real meat to the story behind this slide, it is less likely to stick.  Complacent owners have been trained to ignore weakness since every other dip this year was a buying opportunity and anyone who sold headline fear-mongering came to regret that decision.  What are the chances these same owners will impulsively sell weakness that doesn’t even have a compelling story behind it?  Fear of selling prematurely, again, will keep most owners sitting on their positions this time.  Bears will criticize that complacency, but that resolve by owners to continue holding keeps supply tight and makes it far easier for the market to find a bottom.

Q:  If complacent owners were not selling, who was?
A:  All the active traders trying to outsmart the system.

Near-term volatility is driven by opinionated bulls and bears who insist on buying strength and shorting weakness.  Unfortunately, sideways consolidations are the exact wrong time to make these directional bets.  Bears shorted weakness last week, but were forced to cover during this week’s strength.  Then bulls bought the last few days of strength, only to get chased out by todays collapse.  And so the up and down cycle continues.  The thing to remember is active traders don’t have deep pockets and explains why these volatile moves fizzle so quickly.  Without bigger money jumping on this selloff, it will stall this time too.  Since most holders are increasingly comfortable with their positions, I don’t expect many to rush for the exits any time soon.  That resolve puts a floor under this market.

TRADING OPPORTUNITIES
Expected Outcome:
As discussed in recent weeks, we expected the market to consolidate and trade sideways following the 130-point rebound from the October lows. It shouldn’t surprise any of us these breakdowns and breakouts over the last two weeks stalled.  Now we are left pondering the latest selloff.  Another round of selling will likely push us down to 1740, but that could be where short-term selling exhausts itself and we bounce on tight supply.  But rather than try to catch the falling knife, wait for support.  This selloff could easily take us back to the 50dma or even 1,700.  While I expect a bounce sooner than that, the swing-trader in me would like to see a bigger selloff simply because that gives us bigger profit opportunities on the rebound.

Alternate Outcome:
While there is no story behind this move, it is hard to deny the strength of the herd.  When we see other people selling en masse, it shakes our confidence and conviction.  Drop far enough and the most resolute bull turns into a sacred bear.  While it is more likely this market will find a bottom in the near-term, we must defend against a larger selloff that takes us further than even the bears expect.

Trading Plan:
Sideways chop is only suitable for day-traders and longer-viewed investors who ignore the volatility.  Intermediate time frame traders are best suited to sit this one out since these failed breakouts and breakdowns cause us to chase our tail and lose money in the process.  If anyone must trade, buy weakness and sell strength.

TSLA daily at end of day

INDIVIDUAL STOCKS
TWTR splashed on to the scene with an impressive 73% first day pop.  Since few got the IPO price, the rest of us are left deciding if TWTR is worth more than $20 billion.  At this stage earnings and valuations are meaningless.  This is a momentum stock and will trade according to the whims of the greater fool theory.  For the more practical trader, these IPOs will settle down over the first few weeks and give the bull the opportunity to get in on a valid buy point as it clears the initial IPO consolidation.  Until then, let the gamblers pay in this name.

AAPL had a bad day in sympathy with the broad market and is just above $510.  We will probably dip closer to $500 before finding support.  While support creates a nice entry for the bull, be wary of a dip under $500 and the 50dma.  We only date stocks because invariably they all let us down if we fall in love with them.

TSLA slipped for a second day following earnings and news reports of a 3rd car fire.  The euphoria quickly shifted to concern with the stock down nearly 30% in less than two-months.  The higher they rise, the harder they fall.  If the stock can consolidate around these levels for a couple of weeks, it will likely bounce, but keep this a trade with clearly defined sell points.

Plan your trade; trade your plan

Buy complacency, don’t fear it

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks climbed modestly and closed within two-points of the record close.

MARKET SENTIMENT
As extended as people claim this market is, it continues hanging in there.  Yesterday morning’s sharp dip to 1755 no doubt seduced bears into shorting the plunge they’ve long been waiting for.  Unfortunately for them, most of those new shorts were forced to cover the rebound and provided a good chunk of the buying that pushed us right back to record levels.

There is a lot of talk about how dangerous the recent wave of complacency is.  But these pundits have it completely and totally backwards.  Complacency is extremely bullish!  Complacent owners are fat, dumb, and happy.  They haven’t a care in the world and zero interest in selling.  Without sellers, supply tightens up, making it extremely easy for prices to rally.

Don’t fear complacency, fear running out of buyers.  This rally will die when people stop buying and not a second sooner.  Quit worrying about how complacent owners are, instead focus on the people stuck outside this rally, looking in.  That is the group that determines the fate of this bull market.  With the large number of traders that bailed during the summer’s Taper, Shutdown, and Default whipsaws, there is plenty of money watching from the sidelines in dumbfounded disbelief.  And this doesn’t even include the ocean of bond money that has been fleeing the jump in rates.  Complacent owners uninterested in selling and a huge pool of money left out of the rally create ideal conditions for a continuation.

TRADING OPPORTUNITIES
Expected Outcome:
The previous commentary is focused on the medium and long-term outlook, as traders we want to know what will happen in coming days and weeks.  I have little doubt there is a cluster of bearish stop-losses just above recent highs and breaching these levels will trigger another short-squeeze.  Since we have only been at these levels for a couple of weeks, don’t expect a huge wave of short-covering and we will see the buying quickly taper.  From there we will likely fall back into the recent trading range as the wider group of prospective investors grows more comfortable with buying the market near record highs.

Alternate Outcome:
The one catalyst that will destroy the growing complacency is a fearful headline that dramatically alters people’s’ expectations of an uneventful grind higher.  Watch for a new uncertainty with the potential to spread like wildfire.   As long as we see it early, we will be out before most realize they should be afraid.

Trading Plan:
The market remains within the recent range between 1740 and 1775.  We should expect market makers to push us above this level in coming days for no other reason than to trigger another wave of short-covering.  But rather than buy the breakout, expect the market to fall back into the trading range.  We covered 130-point over a few weeks and we still need a little more time to consolidate recent gains.  The best trade remains buying weakness and selling strength.

MSFT daily at end of day

INDIVIDUAL STOCKS
TWTR is the most talked about new issue since FB.  But FB’s debacle makes it far less likely we will see the same here.  The market was giddy for FB and we all know how that turned out.  This time the market is far more cautious, meaning the stock is unlikely to be overbought in the early days.  I still wouldn’t trade it in the first two weeks, but it will probably head higher over the medium-term.  But that is a trading call, not a fundamental analysis of the company’s future prospects and ability to grow into this outrageous valuation.  And of course we also need to see where it starts trading on Thursday before we can appreciate how much upside remains.

TSLA dipped into the $140s for the first time in nearly three months.  If the stock holds $140, it will likely close today’s gap.  From there it is anyone’s guess if the euphoria returns or reality sets in.  Anyone holding this name needs to have an exit plan because the days of easy buy-and-hold profits are out the window.  Without a clear plan, we are far more susceptible to emotional trading decisions and more often that not that leads to poor trading decisions.

MSFT popped on news of the CEO finalists.  F‘s Mulally is generating the largest amount of buzz.  While some criticize this choice because he is coming from a manufacturing background, that only shows they don’t understand how he turned F around.  He didn’t save F by improving its assembly lines, he saved F by making it cool.  He got rid of the vanilla fleet styling and encouraged designers to take chances.  That is how we ended up with the edgy designed Focus, Taurus, and Explorer.  If he takes over at MSFT, I expect he will instill that same passion as a user and steal a page from AAPL’s playbook, turning MSFT into a cool brand. MSFT has all the right pieces, it just needs a dash of cool to bring the customers back.

Plan your trade; trade your plan

Don’t be a pig

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks gave up a lot of ground in the first hour of trade, but recovered most of those losses by midday.  The market continues holding above 1750 as neither buyers nor sellers are showing up with enough force to move us out of this region.  Markets typically grind higher and fall swiftly.  Holding these levels for more than two weeks suggest this is more grind like since we are already moved beyond the window that qualifies as swift.

MARKET SENTIMENT
Holders are content holding and prospective buyers are sitting on their hands.  This limits supply and keeps a lid on new demand.  The result is tight, sideways trade.  At some point we will either run out of buyers propping up these levels, or those sitting on the sidelines will grow tired waiting for a pullback and jump in at current levels.  Since most of the profit taking and cynical, new-high shorting happened last week, the advantage shifts to the bulls.  The market swallowed that supply without missing a beat and will likely rise as the number of available shares dries up.

TRADING OPPORTUNITY
Expected Outcome:
It feels like the market wants to hold these levels for the near-term.  That means we should expect several failed breakouts and breakdowns before this consolidation is over.  When the market trades sideways, the best move is buying weakness and selling strength.

Alternate Outcome:
The market is more relaxed than it has been at any other point this year.  While that doesn’t automatically mean we are on the verge of selling off, it does make us more vulnerable to a new and unexpected headline.  While rallies often go longer and further than anyone expects, eventually it will end and we need to be ready to jump out before everyone else.

Trading Plan:
In sideways markets, buy weakness and sell strength.  Be wary of the obvious breakouts and breakdowns because the market is likely to throw a few head fakes at us over the near term..  While we are ultimately setting up for a continuation higher, the market will likely continue trading sideways for a bit longer as it consolidates recent gains.

INDIVIDUAL STOCKS
TSLA was hammered after-hours as it beat official estimates, but fell short of what the market was secretly hoping for.  While the company continues its strong growth, it isn’t taking over the world as quickly as the most optimistic bulls were hoping for.  Is this a buyable dip, or the end of the drunken euphoria?  That is hard to say for sure.  The best trade is letting this play out for a few days.  If the stock quickly finds a bottom, then we can buy the dip next week.  But if paranoid owners start rushing for the exits, it could get ugly and it would be foolish to try and catch that knife.  We are in this to make money and the only way to do that is by selling our winners.  There is nothing wrong with taking some profits off the table because we all know what happens to the pigs.

Plan your trade; trade your plan

Expect the choppiness to continue

By Jani Ziedins | Intraday Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at 1:22 EDT

MARKET BEHAVIOR
Stocks slipped in early trade, but they found support at 1755 and recovered a large chunk of the losses by midday.  The market continues trading between 1750 to 1770 as it consolidates recent gains.

MARKET SENTIMENT
We are stuck in this range above 1750 since few are willing to sell their winning positions while others are afraid to buy near all-time highs.  This standoff will continue until we either run out of the modest number of buyers necessary to offset the normal churn in ownership, or we hold these levels long enough that prospective buyers feel more comfortable wading in.  Either way, expect the resulting sideways trade to remain choppy with failed breakouts and breakdowns as the market takes time to build critical mass for the next directional move.

TRADING OPPORTUNITIES
Expected Outcome:
This is a tough place to own stocks since these head-fakes higher and lower tempt us to act impulsively.  This price-action is better suited for day-traders that can respond to the intraday swings, or long-term traders that ride it out.  Swing-trading choppy markets is difficult because it gives off so many false signals.  Over the near-term, we are best suited buying weakness and selling strength over short periods of time.  Think of it like day-trading over 48 or 72 hours.

Over the next couple months, expect the market to drift higher into year-end barring any headline driven crisis.  Underweight money managers will need to stuff their portfolios with the right stocks before they close their books for the year.  That will keep a bid under the best performing stocks.

Alternate Outcome:
I am concerned about the lack of fear in the market.  While I don’t expect a bear market any time soon, we could see a swift move lower if the market starts obsessing about a new risk factor not already priced in.  The problem with unknown unknowns is we don’t know anything about them and it will catch most everyone off guard.  Hopefully by paying attention, we will respond before everyone else.

Trading Plan:
This market is best suited for day-traders or long-term investors.  The failed breakouts and breakdowns make it hard for intermediate traders.  If anyone must trade the market, trade the range by buying the dip and selling the rebound.

TSLA daily at 1:23 EDT

INDIVIDUAL STOCKS
A lot of volatility in TSLA ahead of its earnings.  Unless trading earnings is your thing, it is best to stay away from this for a day or two.  If Musk found the cure for cancer, then it is an easy buy after earnings.  Anything else and we will have a hard time pushing past $200.  Most, including Musk, recognize this stock is way ahead of itself.  While the “next greater fool” thing works great for a while, it always comes to an end and everyone in this name needs to have an exit plan so they don’t get left holding the bag.

BBRY is a dead man walking.  It really feels like the company could not find a buyer at any price.  That doesn’t bode well for anyone holding the stock in anticipation of an acquisition.   With MSFT taking NOK, it is hard to see another natural fit for someone else in the tech space looking to break into this market.  Unfortunately for many optimists, BBRY still looks like a long-term short.  In the near-term, a gambler could play for a bounce back up to $7.50.

GLD struggles to find a home as fears of contagion, inflation, and all the other justifications for stockpiling gold evaporate.  Over the next couple years it will probably slip into triple digits.  While some claim everyone should hold some gold in their portfolio, I’m far more partial to things that increase in value.

Plan your trade, trade your plan

Overly bullish

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks made a small move higher, reclaiming some of last week’s equally minor selloff.  We are 0.4% from all-time highs and closed above 1740 for the 10th consecutive session.  Markets that roll over tend to do it fairly quickly.  Holding near the highs this long suggest we still have upside ahead of us.

MARKET SENTIMENT
While it is hard to throw a stone without hitting someone who claims this market is overly bullish, I have a hard time finding all these bulls everyone else keeps talking about.  There was another Yahoo Finance poll over the weekend.  While Bullish easily beat Bearish and Neutral, can we really say 42% is overly bullish?  Does the average guy on the street think stocks are a safe and easy way to make a fortune?  Has everyone already forgotten about the 2008/2009 market crash?

The one thing that makes me confident we are not near the end of this bull market is just how many times a day I hear people say we are at the top.  People still don’t trust this market and these all-time highs terrify them.  Many traders have PTSD and all they see in every chart is another market correction.  Every dip over the last four-and-a-half years has been buyable, yet they still cannot bring themselves to trust a market that goes from the lower left to the upper right.  But that is the secular story, as traders we want to know what will happen next week and next month.

Source: Yahoo Finance 11-04-2013

TRADING OPPORTUNITIES
Expected Outcome:
Profit takers and short-sellers already leaned into the market over the last two-weeks.  They sold what they were going to sell and the market barely flinched.  That bodes well for a continuation, especially as the newly laid shorts get squeezed as we set yet another new high.  There are no guarantees in the market, but holding above 1740 for two-weeks shows this market is not running out of buyers willing to pay these prices.

Alternate Outcome:
Call a top for long enough and eventually you will be right.  Bears will inevitably be right and they will be right when we least expect it.  Its been a good year in spite of Debt Ceiling I and II, Sequester, Cyprus,  Taper, Shutdowns, and all the other stuff I already forgot about.  But here’s the thing, markets rally in the face of fear and right now we are running short of the stuff.  About the best the critics can come up with is that we are “too high”.  The lack of a meaningful worry means the market is vulnerable to a new obsession sweeping over traders, causing them to hit the panic button.  It might not come next week or next month, but it is coming and we need to be prepared for it.

Trading Plan:
Holding recent gains makes it more likely that the next move is higher.  But at the same time, without a lot of fear left in the market, that means we don’t have much of upside potential either.  At best we have a slow grind higher, at worst we stumble into year-end.  A high probability of modest gains or a low probability of large losses.  Given what a strong year its been, now might be a nice time to lock in gains and coast into year-end.  For those trying to eek out the last few dollars of profit, stay alert and remain nimble.

TSLA daily at end of day

INDIVIDUAL STOCKS
TSLA and NFLX roared back after slipping in recent days.  Fear of an imminent broad market top leads many traders to cut their exposure to the highest beta stocks first, and there are few stocks with higher beta than TSLA and NFLX.  Both of these names also suffered a recent bout of CEO’s talking down the stock.  As a momentum investor, I have no idea of such comments will let the air out of these bubbles, but as a fundamental investor, it is really hard to argue with the CEO and founder of both these companies.  If they are concerned, then we might take a hint.  Remember, the goal of this game is to make money, not sell at the top.  The most successful investors often claim the secret to their success is selling too early.  If we want to be more like them, maybe we should take the hint.

TSLA has earnings tomorrow and it is increasingly difficult for the company to surprise bulls to the upside.  Maybe they do it again, one errant comment out of the earnings call like we saw with NFLX and FB and the stock will be down 20-points.

Plan your trade; trade your plan

Still hanging in there

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks ended a two-day losing streak with a nice 0.3% gain.  Friday was the sixth close above 1750 as the market consolidates recent gains and is building support at this level.

MARKET SENTIMENT
We are holding within 1% of all-time highs as recent fears are fading from memory.  The market exploded higher as the weight of Taper/Shutdown/Default was lifted from its shoulders, but while we feel better about the world, most of the upside has already been realized.  We get paid for owning risk, not buying comfort and anyone chasing up here is a day late and a dollar short.  Most often the best trades are buying what we don’t want to buy and selling what we don’t want to sell.

Politics aside, the biggest risk facing the market is an abrupt overhaul or repeal of Obamacare. While there are plenty of stories on how Obamacare affects business and hiring, it is a known quantity that markets have come to terms with.  Upsetting this balance would toss a big portion of our economy into near chaos if the bill was gutted and left for dead.  What would happen to insurance policies?  People with preexisting conditions?  Subsidies?  Insurance company actuarial tables that were designed around expected enrollments?  Abruptly overhaul or repeal Obamacare and all of a sudden no one knows what the rules of the game are anymore.  Markets hate uncertainty and that would pull the floor out from underneath nearly 20% of our economy.  There is a good reason the market surprised many pundits when it shot higher following the Supreme Court’s ruling upholding Obamacare.  The market hates uncertainty more than it hates Obamacare and the last thing it wants to do is reopening the healthcare debate.

TRADING OPPORTUNITIES
Expected Outcome:
There are two ways hot markets cools down, giving up a portion of recent gains or churning sideways for an extended period.  130-points over 15-trading sessions was an amazing run and no one is surprised the market is taking a break.  The bigger question is if we pullback to support, or simply trade sideways before resuming the up-trend.

If the market holds 1750 on Monday, that shows it doesn’t want to pullback any further.  It had every opportunity to slide on profit-taking and cynical bears shorting all-time highs in recent days, but this resilience is noteworthy.  It shows dip-buyers are aggressively chasing even the most modest pullbacks and their money is putting a floor under the market.

Alternate Outcome:
With so little fear in the market, it is vulnerable to a new, previously unaccounted for risk factor.  Keep an eye out for anything that could send traders scrambling for the exits.  There is always risk of the unknown, but we can protect ourselves if we see it before everyone else.

Trading Plan:
Shorts should get ready to cover if the market doesn’t stumble in coming days.  It is always better to get out proactively when our investment thesis isn’t working as expected and our losses are modest. Avoid the stubborn pride that makes us stick around until the market moves so far against us pain forces us out.  Longs can buy continued support, but expect a slow grind higher since most of the explosive move is behind us.

Plan your trade; Trade your plan