AM: Dragged down by Japan

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks opened weak following turmoil in Japanese markets, but US markets brushed off those worries and reclaimed a chunk of the early losses.

MARKET SENTIMENT
There are plenty of issues in Japan, but current volatility is largely driven by an over-crowded hedge fund trade going long the Nikki and short the Yen.  It was guaranteed easy money until it started falling apart a couple of weeks ago, no doubt execrated by margin calls on over-leveraged hedge funds.  But that is there and this is here.  We live in an interconnected world and some of that spills over, but remember the US markets are leaders, not followers.  Bearish traders trying to get a jump on the expected breakdown in our markets shorted US stock futures overnight, but much to their dismay, the US market bucked the trend bounced just minutes after the open.

From a supply and demand point of view, much of the selling in US markets took place last week, meaning there was little supply left to continue a breakdown.  Fundamentals or not, the market bounced because there was no one left to sell.

TRADING OPPORTUNITY
Expected Outcome:
Everyone wants a strong market to pullback so they can get in at lower prices, but every time they get what they asked for, they become paranoid and are afraid to buy the dip.  Last week’s selloff gave people a chance to get in at 1600, those that missed Friday’s strength had another chance this morning.  The market is entering a volatile range as we consolidate recent gains.  Don’t get greedy and lock in long and short profits early and often.  We can trade the breakout when it happens, but as long as we remain inside 1600-1700, swing-trade it.

Alternate Outcome:
Today’s weakness shows some buying restraint by those watching the bounce from the outside, but we are still well above the 50dma and 1600.  Falling back to this level so soon after testing them shows buyers are scarce and the breakdown is finally here.

Trading Plan:
Shorts that failed to cover last week can use this weakness to take profits.  Staying above 1622  means the bounce is still intact and buyable.  Falling under 1622 over the next couple days is a red flag and demonstrates lack of demand.  Outside of that, look for the market to trade up to 1670ish over the next couple weeks where we will take profits and short weakness.

Plan your trade; trade your plan

PM: Constructive trade

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks traded flat on low volume, following last week’s decisive rebound from 1600 and the 50dma.

MARKET SENTIMENT
Following all the selling and subsequent rebound last week, everyone is standing around wondering what comes next.  Volume was light as few chose to trade, preferring to see what happens next, but this is bullish.  It shows holders are comfortable holding and no one is rushing to lock in profits or sell the bounce.  We have rallied the last six-months on tight supply and can continue doing it here.

The obvious top seems less obvious today.  We broke through key support at 1600 and the 50dma, but it failed to trigger a wider wave of selling.  We didn’t bounce because traders were complacent and rushed to buy the dip.  No it was quite the opposite, everyone expected the plunge as we were in the mist of the long-awaited correction.  Complacency and dip buying didn’t prevent the selloff; fear, panic, and a huge wave of selling ended it.  Once the pessimists and fearful were out or short, there was no one left to sell, supply dried up, and we popped.  Supply and demand at its most simple.

TRADING OPPORTUNITIES
Expected Outcome:
If this bounce is built on unsustainable dip-buying, it will fizzle Tuesday.  Anything that lasts at least four-days has wider buying behind it and is safer to own.  Last week squeezed many of the late shorts, but there is still an army of shorts holding on from higher up and hoping this bounce is a bull-trap.  Unfortunately for bears, they had the perfect setup to break this market last week and could not get the job done.  If a bear did not heed the warnings last week, there is still time.  It is okay to be wrong, it is fatal to stay wrong.

Alternate Outcome:
If the rebound collapses on Tuesday, it means this bounce was built on a foundation of sand and the selling is not done yet.  No matter what we think, we use stops to get us out of bad situations.  Failing to hold the 50dma or 1600 so soon after bouncing is not encouraging and shows bears gained the upper hand.

INDIVIDUAL STOCKS
AAPL’s early gains fizzled following their developers conference.  We have OS X 10.10, a fairly modest upgrade, but for me personally, the redesigned dual-monitor support is huge.  Apple barely supported dual-monitors since Snow Leopard and upset many of their professional users that carried the company in the pre-iPod days.  The new Mac Pro was also a nod to power users since many assumed the line was being discounted in favor of consumer grade computers.  The downside for investors is these power users don’t even add up to rounding errors on the income statement.

The big deal for average users is the completely redesigned iOS7 that finally moves the iPhone out of 2005.  It is still playing catchup to Android, but at least it isn’t as far behind.  But for AAPL investors, icon designs don’t drive phone sales, features do and expect AAPL to continue losing market share to cheaper and larger phones.  AAPL has a lock on expensive 4″ phones but that is because they are the only one selling $600 small screen phones.

iRadio is a joke, they even joked on stage that it was just like Pandora.  P spiked on the news of how little attention iRadio was getting and it seems more a novelty than anything that will drive sales or revenue.  At best it will drive a few iTunes sales, but they didn’t give any reason for people to change from Pandora or Spotify.

Plan your trade; trade your plan

AM: No profit taking yet

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
The market is holding current levels following last week’s bounce off the 50dma.

MARKET SENTIMENT
Traders are not selling the rebound, showing renewed support following a nerve-wracking 5% pullback.  Most unsustainable bounces fail within a couple of days as the dip-buying dries up.  Trading flat is encouraging and holding here through Tuesday shows the runaway selling is over.

Much of the selloff was driven by predictions and anticipation of the widely expected selloff.  This flushed out many momentum based bulls, but after a certain point we run out of people willing to sell and that point was last Thursday.  If recent dip-buyers are optimistic, they will continue holding for higher gains instead of quickly flipping the stock and locking in profits.  Keeping supply tight is what will keep the rebound going.

TRADING OPPORTUNITY
Expected Outcome:
Holding these levels through Tuesday means anyone betting on a market crash is going to be disappointed.  We shouldn’t expect the rally to continue racing ahead and sideways consolidation is normal.  Buy weakness and sell strength.

Alternate Outcome:
Buying the dip is the most predictable and tired trade of the last six months.  One of these days it won’t work and the masses jumping in will get run over.  While the trend is our friend and we need to assume every dip is buyable until they are not, we cannot be nieve about it.  Be deliberate with our entry points and always use stops to protect us from the inevitable time when we get it wrong.

Trading Opportunities:
It is a little late to buy the dip, but continued support gives us the green light to continue holding.  We are likely falling into a range between 1600 and 1700, but trading it is far easier said than done.  At any point within this range the market can bounce or breakdown, making timing entries and exits difficult.  In situations like this buy weakness and sell strength, taking profits when we have them and look for the next entry.  Getting greedy and holding too long will likely lead to those profits evaporating.  An alternative for more sophisticated traders is selling time premium in the option market.

For the near-term we likely have more upside left in the bounce, but keep a hard stop-loss under 1600.  Failing to hold this level so soon after testing it means more selling is in store.  If we break 1650, that is a good place to move up a trailing stop.  If someone likes the gains they made over the last couple days, there is nothing wrong with cashing those in too.

INDIVIDUAL STOCKS
This is AAPL‘s big developer conference key-note.  While the stock started higher, it’s been flat to slightly lower once it started, but channeling Job’s ghost, expect Cook to save the good stuff for the end.  Right now investors are looking for another home run and will likely leave disappointed with a base hit.  A music service is a sideshow, the real meat will be hints on a large screen phone and a cheap phone, two markets AAPL is currently giving away to Android.

Plan your trade; trade your plan

AM: Bounce continues

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
The bounce continues for a second day as the market pushes back into the middle of the 1600/1700 range.

MARKET SENTIMENT
The headline event was the monthly employment report.  175k new jobs appears just right, not too hot to threaten QE and not too cool to signal economic weakness, or at least that is how the talking heads are spinning it.  Truth is we are up again because we ran out of sellers yesterday.  The market moves on nothing more than supply and demand.  Tight supply equals higher prices.

It is another painful day for aggressive and greedy shorts who failed to lock-in profits.  Many of the late shorts are forced to cover at a loss and their buying is a big part of today’s lift.  The flashing neon warning sign for bears was bouncing after breaking 1600 yesterday.  When the violation of support failed to trigger an avalanche of stop-loss selling, that was our signal we were running out of sellers.  If a bear’s investment thesis predicted a swift drop after breaking support, not seeing that move was a sign something was wrong and it was time to lock-in profits.

But that was then and this is now.  Where are the markets headed?  Is today’s bounce a bull-trap or a buying opportunity?  All the anxiety surrounding recent weakness flushed nervous holders out, replacing them with confident traders willing to buy the fear.  As anxious and paranoid as traders feel in the aftermath, a 5% pullback is very therapeutic and often all the market needs to refresh itself.

The crowd remains bearish here, meaning the contrarian trade is still believing in this market.  This morning there was a Yahoo Finance poll prior to the jobs numbers showing only 24% believe the economy is getting better.  It shouldn’t surprise anyone the market bounced again.  When everyone is constantly talking about how “overly bullish” the market is, the crowd is bearish, not bullish, and the contrarian trade is sticking with the trend.

TRADING OPPORTUNITIES
Expected Outcome:
The market can do one of three things; up, down, or sideways.  The pervasive bearishness and recent flush exhausted the supply of sellers and the bounce killed any downside momentum, meaning a crash is unlikely.  The market had a huge run in the first five months of this year and continuing that rate of gains seems unlikely.  The only thing left is trading sideways.  Recent trade likely set boundaries for the range between 1600 and 1700.  Sell strength and buy weakness.  Let profits grow to a worthwhile amount but don’t wait too long because they will likely disappear a few days later.

Alternate Outcome:
If we expect a trading range, the alternate is a directional move.  The outside limits of this range appear to be 1598 and 1687, but for simplicity’s sake lets call it 1600 to 1700.  The biggest threat is a near-term pullback to 1600 and likely means the rally is in trouble.  Breaking out to the upside means the rally is not done, but up-legs are slower and more deliberate than selloffs so we have plenty of time to jump on the rally bandwagon if that is the direction it goes.

Trading Plan:
Stay long until we get to the upper half of the trading range and then follow with a trailing stop.  Shorts should lock in any profits if they have some left.  Buy weakness and sell strength until we break out of the 1600/1700 range.  Swing trading a range is hard because we don’t know exactly what strength and weakness is.  Rather than get greedy trying to capture all of a move, build up some profits over a couple of days, lock them in, and look for the next trade.  More experienced investors can short or sell options.

INDIVIDUAL STOCKS
In addition to the exciting new square icons for iOS7, we can look forward to iRadio.  Lets hope it will drive new phone sales like Ping, iCloud, and Apple Maps.  No doubt iRadio will add some incremental revenue from existing users, but AAPL doesn’t have a revenue problem, they have a market share problem.   Without some new, must have feature, they will continue losing market share to Android.  People already have a Pandora account and all their friends are on Spotify, so I don’t see where iRadio fits in and it is nothing more than a late, platform dependent, me-too product.  I’m sure most don’t even remember Ping, but that was Apple’s attempt at a social network built into iTunes.  It was a gigantic flop because it was late and didn’t provide anything new for users.  Unless iRado offers something that blows away Pandora and Spotify users, expect another iFizzle.

GLD is down again as the volatility continues.  There is no reason to hold gold here until it breaks and holds $140.  It no longer provides safety and stability for a portfolio and the widely expected hyper-inflation just isn’t happening.

TSLA is sending shorts running for cover…again.  Shorting this stock is a suicidal game, but if someone can’t help themselves, at least take profits quickly because invariably it will bounce.   This is a nice swing-trading stock for nimble, fast, and courageous day-traders, but everyone else should watch with fascination from the sidelines.

Plan your trade; trade your plan

PM: What comes next?

By Jani Ziedins | Intraday Analysis

PM Update

MARKET BEHAVIOR
Dramatic turn of events as the market briefly penetrated 1600 following a sharp, midday slide, but rebounded decisively and finished up  0.9% for the day.  Volume was average, but slightly less than the recent down days.

MARKET SENTIMENT
With the expected bounce is behind us, we need to figure out if this is simply a temporary reprieve before further selling, or just another bear-trap on the way higher.   The problem for us is it easily could be either.

The selloff was becoming obvious, a little too obvious, as both holders and shorters anticipated a larger correction and sold preemptively into the weakness.  This proactive selling took much of the supply out of the market and made this bounce inevitable as selling exhausted itself.

We violated widely followed support, but failed to trigger an avalanche of selling.  That is an extremely revealing piece of information when it comes to evaluating how other traders are positioned and what they think.  Breaking the 50dma and 1600 was the point where everyone should have rushed for the exit at the same time, yet they stayed in their seats, leading to the bounce higher.  This shows most holders are not spooked by the dip and their resolve (or stubbornness) caused today’s bounce.

The interesting thing about this bounce is blunted all the momentum bears built up over the last two weeks and now puts bears on the defensive.  As far as sentiment goes, this is potentially a game changer.  It brings confidence back to nervous bulls and makes bears doubt themselves.

Friday we have the monthly employment report that will be good for some early volatility, but after a couple of hours it will be long forgotten and we will resume trading the supply and demand skew that lead to the recent selloff and today’s rebound.

TRADING OPPORTUNITIES
Expected Outcome:
The ball is in the bull’s court following today’s bounce.  Expect the rebound to continue for a couple more days as we squeeze shorts that overstayed their welcome.  From there it will be a a coin-toss if we continue to the upper end of the range or retest the lows.  Either way we are likely heading into a range bound market for the remainder of the summer and the best trade is buying weakness and selling strength.

Alternate Outcome:
Once the short-squeeze runs its course, the market could collapse due to a lack of demand if buyers continue avoiding this market.  It makes no difference what the fundamentals or technicals say, if we cannot find new buyers, the market falls under its own weight.

Trading Plan:
Buy the bounce with a stop under today’s low.  Shorts should lock-in profits before they evaporate.  We are moving into a choppy market and if we don’t capture profits early and often, they will likely disappear.  1600 is still the line in the sand.  Retreating under it over the next couple days shows buyers cannot support this market and we are likely headed lower.  But if we hold 1600, look for a move to the upper end of the range.  Until this market breaks-out/breaks-down, buy weakness and sell strength.

Plan your trade; trade your plan

AM: Bounce or false bottom?

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks slipped again in early trade, challenging 1600 and the 50dma.

MARKET SENTIMENT
The market clearly wants to test these widely followed technical levels, but the real question is how much stop-loss selling is left to trigger.  If we saw a large amount of preemptive selling on the way down, there are fewer traders left to dump this violation of support.  Under this scenario we will see an initial surge of selling when we break support, but since so much defensive selling happened early, it quickly exhausts itself and bounces in decisive a capitulation bottom.  This is the exact behavior we saw on April 18th when the market rebounded strongly after testing the 50dma.

The alternative is many traders are anticipating the inevitable bounce and have all their stops clustered under 1600.  A modest dip will set off a furious tidal wave of selling that doesn’t stop until we plunge at least 20 points.  At this point either outcome seems likely and the most conservative trade is to watch from the sideline.  It is an ego boost and gives us bragging rights to challenge the market and win, but allowing our ego trade is a good way to go broke.  Let the market show its hand and jump on the subsequent move.

TRADING OPPORTUNITIES
Expected Outcome:
The market briefly dipped under 1600 as I wrote this and all we can do is wait and see what happens.  Was this the capitulation bottom, or the prelude to a major QE selloff?  I wish I had the answer, but like everyone else I’m simply a spectator.  1600 is an important level because so many people are watching it and basing their near-term outlook on how we respond. Over the next couple days we will know a lot more about the what the market thinks and how people are positioned.  A bounce is buyable for a trade, but resist adding new shorts if we keep selling off.  Bull or bear, expect a short-squeeze/bull-trap bounce in the next couple days.

Alternate Outcome:
Trading would be so much easier if the market actually did what it is supposed to do.  The problem is it has a nasty habit of convincing us we are wrong just before proving us right, or convincing us we are right just before proving us wrong.

Bears are looking for a collapse, bulls a bounce.  Obviously one is right and the other wrong, but if only the market’s price-action was so clearcut.  A likely outcome is fake out with a false move before reversing and revealing its true intentions.   A bounce before a plunge, or a plunge before a bounce.  Just because the market is doing what we expect doesn’t mean we can let our guard down.  Prepare for, even expect it to snap back in our face.  In uncertain and volatile periods like this, take profits early and often because they will likely be gone in a couple of days.

Trading Plan:
Let the market do its thing.  I still expect a near-term bounce because everyone is on the selloff bandwagon, but the momentum is clearly on the bear’s side.  A bounce is buyable with a stop under recent lows.  It is late in the game to be adding new shorts and existing shorts should look to take profits.  The goal isn’t to make all the money and hold for top dollar is a sure way to give back all your hard-earned profits.

INDIVIDUAL STOCKS
AAPL challenged its 50dma this morning, but is holding it at the moment.  It is hard to be excited about this company given the complete lack of meaningful innovation over the last couple years.   Rumor is AAPL will release new default icons for iOS next week.  Without a doubt they need to get rid of the cheesy glare and  gimmicky graphics on the in-house icons, but hopefully there is something bigger than that.  Of course at the same time we also don’t want another half-baked iMaps episode either.  If the market is not wowed next week, expect traders to continue souring on AAPL’s and actually start to question the company’s long-term prospects.  It’s up to Apple to prove it is not the next Palm Pilot or BlackBerry and the way it is bleeding market share is not a good start.

GLD reclaimed some of its luster in the face of today’s selloff.  Thank a plunging dollar for the lift.  Gold could continue higher on Dollar weakness, but if we are making a currency trade, trade currencies, not gold.  Fundamental reasons to own gold continue eroding along with people’s trust.  Maybe gold will come back some, but it will be a long while before it reclaims its economic fear driven heights.

Plan your trade; trade your plan

PM: Another leg down

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks continue sliding, down three of the last four trading sessions and are 80-points off the high set a couple of weeks ago.  The market closed just above support at 1600, the 50-dma, and the lower trend-line of the uptrend.  Is this the place for another routine bounce off of support, or is this the start of something bigger?

MARKET SENTIMENT
What goes up must come down.  This is the pullback everyone was waiting for, but now they are scared and predicting market crashes.  This is how it usually goes, we hope and pray for something, but when it happens we are too afraid to act.  People who wanted the market to pullback so they could buy more, are panicking and selling with the crowd instead.  But that is the way it has to be.  If this were easy, everyone would be rich and we clearly know that’s not the case.

From here the market can do one of three things, bounce off of support at 1600, dip under 1600 and trigger one last wave of stop-loss selling before rebounding, or continue the relentless slide lower.  It really comes down to the dynamic between buyers and sellers.  Will we exhaust the supply of holders easily spooked into selling for a discount?  Will prices become so attractive value buyers can no longer resist?  Better or worse we will have our answer in a couple of days.

For all the talk of doom-and-gloom we are only 5% off all time highs.  Obviously every 50% collapse starts with that first 5%, but not every 5% pullback leads to a 50% collapse.

TRADING OPPORTUNITIES
Expected Outcome:
Stocks are still a few point above support and we must assume the market will bounce until it proves otherwise.  The challenge with trading technical levels is they are better drawn with a crayon than a straight edge.  Sometimes we bounce early, sometimes late.  Each trader needs to pick a stop-loss level that balances their tolerance for risk versus desire to avoid getting shaken out.

Even if the market is topping, expect either a doubt-top or saw-tooth decline with multiple short-squeezes and sucker’s rallies along the way.  Bull or bear, look for the market to bounce in the near future.  The only thing up for debate is how sustainable the subsequent rebound is.

The most encouraging thing about all this selling is it is pricing in the end of QE.  Once we work through this episode, we no longer need to worry about it.

Alternate Outcome:
Markets are notorious for overshooting on both the low and high side.  This market will pullback like everyone before it and this easily could be the start of that move.  If nothing else, use stop-losses as a last line of defense.

Trading Plan:
There is no reason we need to be in this market.  The mistake many traders make is feeling compelled to always have a trade on, but most of the time that is when they give back all their hard-earned profits.  Making money in the markets is easy, the hard part is keeping it.  The ambitious can look for a buyable bounce off of support on Thursday with a tight stop under recent lows.

Plan your trade; trade your plan

AM: Selling continues

By Jani Ziedins | Intraday Analysis

AM Update

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

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

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

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

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

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

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

Plan your trade; trade your plan

PM: What bulls?

By Jani Ziedins | End of Day Analysis

PM Update

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

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

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

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

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

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

Plan your trade; trade your plan

AM: Another round of selling

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks retreated following early strength.

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

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

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

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

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

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

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

Plan your trade; trade your plan

PM: A bullish reversal

By Jani Ziedins | Intraday Analysis

PM Update

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

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

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

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

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

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

Plan your trade; trade your plan

AM: Buy the dip

By Jani Ziedins | Intraday Analysis

AM Update

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

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

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

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

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

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

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

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

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

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

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

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

Plan your trade; trade your plan

WR: Brace for the plunge?

By Jani Ziedins | Weekly Analysis

Weekly Review and Look Ahead

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

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

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

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

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

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

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

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

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

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

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

Plan your trade; trade your plan

PM: Where are the buyers?

By Jani Ziedins | End of Day Analysis

PM Update

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

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

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

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

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

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

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

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

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

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

Plan your trade; trade your plan

AM: Sideways it is

By Jani Ziedins | Intraday Analysis

AM Update

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

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

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

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

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

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

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

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

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

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

Plan your trade; trade your plan

PM: Flat trade?

By Jani Ziedins | Intraday Analysis

PM Update

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

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

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

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

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

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

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

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

Plan your trade; trade your plan

AM: Fear QE ending?

By Jani Ziedins | Intraday Analysis

AM Update

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

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

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

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

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

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

Plan your trade; trade your plan

PM: Expect the unexpected

By Jani Ziedins | Intraday Analysis

PM Update

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

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

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

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

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

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

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

Plan your trade; trade your plan

AM: Another pause

By Jani Ziedins | Intraday Analysis

AM Update

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

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

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

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

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

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

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

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

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

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

Plan your trade; trade your plan

PM: Buy the dip or short the bounce

By Jani Ziedins | End of Day Analysis

PM Update

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

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

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

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

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

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

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

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

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

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

Plan your trade; trade your plan