AM: What bullishness?

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks traded modestly higher following Friday’s record close.  Over the last few months the markets established a pattern of consolidating new gains and restrained trade here is normal and expected.

MARKET SENTIMENT
No one knows what to make of this market.  Everyone thinks it should go down, but it keeps heading higher instead.  Even bulls expected modest weakness following the powerful first quarter.  This shows how much everyone knows; if this were easy, everyone would be rich.

The reason the market keeps heading higher is the widespread skepticism and reluctance to buy and hold.  If everyone already sold, who is left to sell?  When supply dries up, there is nowhere to go but higher.  Obviously I’m exaggerating when I use labels like “everyone” and “no one”, but you get the idea.  Traders are wary of this market and most of the proactive and defensive selling already occurred.  I attached another unscientific survey from Yahoo Finance  and it shows bearishness is far more pervasive than bullishness.   It appears the crowds of bulls are simply a figment of bear’s imagination.

The reason contrarian investing works so well is the crowd’s opinion is already fully expressed in market prices.  Any news that simply reinforces these beliefs will not move the market because it doesn’t change anyone’s mind.  Further, the reason the market often moves the opposite direction is once something is fully priced in, the only move left is the crowd changing its mind.  This market makes perfect sense when looked at from a supply and demand vantage.  Cynics can no longer push the market lower because they are already out.  The only thing they can do is move it higher by changing their mind and buying back in.  When the group expects one thing, we often get the opposite.

TRADING OPPORTUNITIES
Expected Outcome:
The market often consolidates gains because big money doesn’t like buying new highs and prefers waiting for a modest pullback to add to their positions.  This leads to the wavy trading range of stalling near highs, but solid support after modest selling.  A pullback to 1590 fits this behavior and is supportive of the recent breakout.  At this time there are no signs buying is slowing down and the smart trade is sticking with the trend.

Alternate Outcome:
Every correction begins with a new high.  Without a doubt Friday’s high could be that day, but going against this market here is picking a top and the smart trade is waiting for signs of weakening support.  Until we set a trend of lower-highs, lower-lows, and break key support, assume the uptrend remains intact.

Trading Plan:
Modest weakness following Friday’s new high is expected and should not be feared.  It is tough to buy these new highs since often see better prices in coming days.  A day-trader could short intraday weakness, but look for support above 1595 and another buyable dip as big money floods in.  As long as the market holds recent support at 1580, everything looks great.  Breaking 1580 means another test of the 50dma.  Failing the 50dma and 1540 will likely lead to larger selling and a test of the 200dma.

Plan your trade; trade your plan

WR: A Great Week

By Jani Ziedins | Intraday Analysis

Weekly Review

MARKET BEHAVIOR
Stocks had another great week, up 2% and finishing near the highs.  We smashed resistance at 1600 on Friday and set new all-time highs.  Weekly volume was a little above average and capped a very respectable week for the market.

MARKET SENTIMENT
This is the rally that just won’t quit.  I turned cautious back in early March, figuring the market needed to cool off, but repeatedly failing to breakdown invalidated my original thesis.  When things don’t work out as expected, we have to adapt.  The decisive rebound starting on April 18th is what finally convinced me I was wrong.  Everything pointed to the market going lower, yet it bounced hard and weak markets don’t hold up the way this one has.

The reason this rally keeps going is everyone else also saw what I was seeing, but the obvious trade is rarely the right trade.  These cautious investors locked in profits and waited for the widely expected pullback.  These waves of profit-taking and shorting are what forced the market into sideways trade for most of March and April.  I heard plenty of people talk about how overly bullish the market was, but the conspicuously absent voice was from the alleged masses of raging bulls.  When all we hear from are the skeptics, that means the skeptics the majority.

The biggest mistake traders make is assuming price and sentiment are the same thing.  A rising market is “obviously” bullish, so a market that’s risen for months on end is clearly overly bullish.  The truth is this market was overly bearish and that is what lead to this six-month rally off the November lows.  We were so buried in bearishness, pessimism, and cynicism that we are still digging ourselves out.  What appears like overly bullish is really less bearish.

TRADING OPPORTUNITIES
Expected Outcome:
Friday’s breakout could be the last gasps of this rally, signal the start of the widely expected selloff, and be the fourth consecutive “sell in May”, but until it shows real signs of breaking down we must stick with the rally.  The rally that defies logic and common sense will likely continue infuriating skeptics.  I have no idea how high or long this rally will go, but fighting it is the wrong trade.  The sheer amount of skepticism and caution  leads me to believe this rally can carry us through summer.  If the easy trade is sell in May, then the right trade is buy in May.  This market is clearly oblivious to headlines risks and it is naive to think it will wake up tomorrow and suddenly worry about some obscure data point when it ignored so many major ones.  When in doubt, stick with the trend and that is clearly the best trade here.

Alternate Outcome:
This rally will end at some point, most likely when everyone expects it to continue higher.  We are closer to that point than yesterday, but the widespread disbelief means we are not there yet.  No matter what we think, we must remain vigilant.  The best way to spot a selloff is to look for selloff.  As obvious as that sounds, don’t doubt this market until we start making lower-highs, lower-lows, and break key support levels.

Trading Plan:
Traders have been reluctant to chase new highs over the last few months and prefer waiting for a modest pullback before accumulating shares.  We will likely see the same thing here so anyone out of the market is better served waiting a couple of days for a pullback to 1600 or 1590.  If you miss the trade because the market takes off here, remember it is always better to be out of the market wishing you were in, than in the market wishing you were out.  Failing to hold 1580 shows big money is not buying the near-term dip and we need to look for support at the 50dma.  Slicing through the 50dma and continuing past 1540 means the widely expected selloff is finally taking hold.

INDIVIDUAL STOCKS
Much to the delight of bulls AAPL is holding above the 50dma and leading many to believe this is the rebound everyone’s been patiently waiting for.  As long as the market holds above the 50dma, the stock is holdable.  I remain a skeptic, but this stock will eventually find a bottom and this very well could be it.  Every trading plan starts with a stop-loss and pulling the ripcord if the stock falls under the 50dma will prevent us from sitting through another leg lower.

Volatility is picking up in LNKD and buying a speculative stock like this should come with a bottle of Tums.  If the stock holds and bounces decisively off the 50dma, keep holding, otherwise this is a decent place to lock in profits.  Bulls make money, bears make money, and pigs get slaughtered.  When a stock is up 50 or 60% over a couple of months we must consider locking in profits.

AMZN continues frustrating both bulls and bears.  Between the 200dma and 50dma it is in no-man’s land.  It is fun to speculate in names like this, but don’t mistake this for an investing opportunity.  Keep position sizes small so it doesn’t hurt much when we are wrong.

Plan your trade; trade your plan

PM: Bears run for cover

By Jani Ziedins | Intraday Analysis

PM Update

MARKET BEHAVIOR
Stocks decisively broke resistance at 1600 and closed near 1615 after better than expected employment numbers.  Volume was average, but better than the lethargic levels over the last couple months.

MARKET SENTIMENT
This market continues surprising bulls and bears alike, but that is what makes it work.  Obviously bears are feeling the heat, but even bulls expecting near-term weakness are getting left behind.  Anyone thinking this market’s come a long way and is due for a rest took profits and is regretting this decision.  These are the new buyers chasing this market higher.

Fundamentals and technicals don’t matter, only supply and demand.  Understanding what people think and how they are positioned is the only way to make sense of this market.  Bears and cautious profit-takers sold during the two-months of sideways trade.  But even with all this selling weighing on the market, we held up.  That alone is bullish, but all those sellers are the next buyers, fueling this rally to new heights.  It doesn’t matter what the fundamentals are, just how other traders are positioned.  With most of the weak hands already out the market, there is nowhere to go but higher.  And that is exactly what we’ve done.  The irrational market makes a lot more sense when we understand how other traders are positioned.

TRADING OPPORTUNITIES
Expected Outcome:
While we broke out to new highs, I’m reluctant to chase the market.  Over the last couple of months, buying dried up near the highs as big money waits for the dip.  Much of today’s buying was short-squeeze driven, but expect a 15-20 point pullback in coming days where big money will buy in.  This doesn’t have to happen, but it fits the current market’s personality of notching new highs and then consolidating those gains.  Everything looks great as long as we stay above support at 1580 and stick with what is working.

Alternate Outcome:
This upside breakout caught a lot of people off guard and could trigger a flurry of chasing.  If we witness a series of accelerating gains, this could be the last of the buyers rushing in before the market exhausts demand and noses over.  Slow and steady gains are sustainable, racing ahead is not.  As for the widely expected pullback, don’t doubt this rally until we break 1580 and fail to hold the 50dma.  This market will top like everyone before it, but look for a series of lower-highs and lower-lows signaling buying is drying up.  Don’t get in front of this market simply because it’s gone too-far, too-fast.

INDIVIDUAL STOCKS
AAPL held the 50dma for the fourth consecutive day, something we haven’t seen in over seven months.  Apple is a great company with popular, high-margin products.  The viability of the company was never in question so  obviously the stock will find a bottom at some point.  Many are hoping this is the bottom and a $90 point rally over a couple of weeks is a leading contender for that bounce.  But any bull needs to be careful because we’ve seen six similar bounces that failed to stop the slide.  This could be the real one, but set a hard stop-loss to keep you from riding another leg lower.  A simple stop-loss could have saved a lot of people  a mountain of money through this slide.  What is cheap often gets cheaper.

Plan your trade; trade your plan

AM: Bulls do it again

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks smashed through resistance at 1600 following a better than expected employment report.

MARKET SENTIMENT
These jobs numbers hit the sweet spot between good enough to show economic progress, but not so strong to threaten easy money.  A big chunk of today’s buying is coming from short-covering bears expecting a lousy headline.  Will a wider group of buyers follow this move or will we see the more typical stalling after making a new high?

Obviously the expected breakdown is further delayed.  Cynics keep losing the argument and the market continues marching higher without them.  Their core argument is this market is overly bullish and bound to fail.  But lets not make the common mistake of confusing price with sentiment.  Here are two surveys from Yahoo Finance and these non-scientific polls show a gigantically bearish skew.  There are nearly three times as many pessimists as bulls responding to these polls.

Everyone is bearish for the same old reasons; weak economy, Europe, Sequester, etc.  These negative themes were thrown about for months, even years without much success, why will it be different now?  Everyone knows about them, yet the market doesn’t care.  Prices move on unexpected news, not the stuff baristas at Starbucks are talking about.  We had too-far, too-fast for a while and just added Sell-in-May to the list.  The market isn’t listening to this noise and neither should we.

TRADING OPPORTUNITIES
Expected Outcome:
Hard to argue with what is working.  We made new highs on a surge of short covering.  It is hard to buy the market here since we often stall after making new highs, but the widely expected correction is much delayed.  The smart trade remains buying dips as long as we keep making higher-lows and higher-highs.

Alternate Outcome:
Today’s pop brings us one day closer to the end of this run.  Obviously it is foolish to short this market, but we must remain vigilant because tops happen when least expected.  It is too easy to doubt this market and is why we keep going higher, but once this market is easy to hold is when we need to become more careful.

Trading Plan:
We broke through another level of resistance and can move our trailing stops up to 1580 or 1590.  I have no idea how much further or longer this rally will last, but when in doubt stick with the trend.  The rally is in great shape as long as we stay above 1590.  This market is immune to negative headlines, so anything short of ending easy money can be ignored.  Sign buying is drying up is lower-highs and lower-lows and breaking the 50dma, until we see either of those stick with what is working.

INDIVIDUAL STOCKS
AAPL is holding the 50dma for the fourth day and trading higher along with the market.  Any holder should expect a near-term retest of the 50dma and how the stock responds will tell us a lot.  Slicing through the 50dma shows this bounce was just bottom-pickers.  Holding these levels through next week shows real buying from an audience far larger than just dip buyers.  Given how cocky the AAPL bulls are, I am still suspicious of the longer-term sustainability of this bounce, but as long as we hold the 50dma, keep doing what is working.

AMZN surged higher and is proving more resilient than many, including myself, expected.  Trading speculative names like this is always risky and usually we either strike out or hit home runs.  Succeeding in this style of trade is keeping the frequent losses small while waiting for a big score.  Right now AMZN is in no-man’s land between the 50dma and 200dma.   Another break of the 200dma is still shortable.

LNKD slid to the 50dma and a high-volume bounce off this level is a decent entry point, but we’ve come a good way and anyone with large profits should consider taking some off the table.  We cannot make all the money and it is foolish to try.  A trailing stop just under the 50dma is another way to hold for more upside, but make sure to protect profits.

Plan your trade; trade your plan

PM: Bad is good

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks reclaimed all of yesterday’s selloff and are just shy of 1600 for the third time.  The market established a mini-trading range between 1580 and 1600 over the last week and a half.  Yesterday it felt like we wanted to breakdown, today everyone is looking up.  It is hard to predict the intra-day moves, but the trend remains higher and is the better trade.

MARKET SENTIMENT
Friday’s headline event is the monthly employment report.  February’s numbers were shockingly bad and dramatically lowered expectations for April’s.  But as disappointing as February’s were, you wouldn’t know it from looking at the stock market.  Last month’s employment report preceded a 50-points surge that smashed all-time highs.

This market shrugs off bad news like no other and we certainly shouldn’t fear a bad employment report tomorrow.  A big reason is traders are buying because of monetary easing.  The logic goes, the worse the economy, the more money the Fed pumps into the system.  In this perverse, bizarro world, bad is actually good.  Does this mean good is bad?  Hard to test this theory since we haven’t seen good news in a long time.  But if this market became addicted to easy money, a strengthening economy threatens that and good could be bad.    Between February’s unexpectedly bad showing and Sequester layoffs finally kicking in, it is hard to imagine a legitimately good employment report Friday.  We could easily beat the pathetically low expectations, but that is simply less bad.  We are still a long way from posting healthy employment numbers that signal a strong and vibrant recovery.

TRADING OPPORTUNITIES
Expected Outcome:
As we know, this market does not respond to fundamentals, so we are wasting our breath spending more time on them.  Buyers keep buying every dip and today’s rebound shows they still have sufficient numbers to support this market.   Expect the zigzag higher to continue as big money buys every dip, but dials back purchases near new highs.

Alternate Outcome:
Every day brings us closer to the dip that doesn’t bounce.  I don’t know if it is next week, next month, or next year, but I do know it is coming.  We need to keep a lookout for the end of this rally because it will happen when most people least expect.  This rally leg lasted longer than others because it is immune to negative headlines.  While that often takes down other markets, this one needs to run out of buyers while everyone is still expecting higher prices.  No matter how bullish people are, once we run out of buyers there is nowhere to go but lower.

Trading Plan:
The rally remains on firm footing unless we dip under 1570.  From there we likely bounce off the 50dma and the bull is not in serious jeopardy until we slip under 1540.  Stick with what is working and expect the grind higher to continue in spite of, actually because of, all the calls for a top and selloff in May.  Use a trailing stop to protect gains and don’t try shorting this market until we see buying stall as seen by lower-highs and lower-lows.

INDIVIDUAL STOCKS
AAPL holds the 50dma for a third day.  Maintaining these levels into next week demonstrates real support for the stock.  As long as we stay above the 50dma the stock is holdable, but keep it on a tight leash and take profits early and often because it will be a choppy assent due to all the overhead resistance weighing on the stock.

LNKD dropped sharply in after hours trade on a disappointing outlook.  Even with a $20 selloff, the stock is only back to levels from a couple of weeks ago.  It is tempting to hold a stock that we think is the next 10x winner, but more often than not we are better off taking profits after such a strong run.  The stock probably has more upside, but it cannot keep up its current rate of gains.  Lock in profits and look to reenter at a better price.  We’re in this to make money and we can only do that by selling our winners.

Plan your trade; trade your plan

AM: Obvious top isn’t so obvious

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stockes recovered all of yesterday’s selloff.

MARKET SENTIMENT
We were down yesterday on news and up today on news.  What gives with this bi-polar behavior?  The market has a reputation for being irrational, but stocks always move for a reason and it only appears irrational when we don’t understand the underlying drivers.  The most important concept to grasp is prices only move on supply and demand.  Nothing more, nothing less.  People are confused when the market reacts the ‘wrong’ way to a headline and complain the market is being irrational.  The reason the market didn’t react ‘logically’ is the headline didn’t change anyone’s mind.  Either the news was already expected, or it simply reinforced what people already thought.  When people don’t change their mind, there is no new buying and selling, thus no reaction in the markets.  When we look at what people think and how they are already positioned, the lack of a move makes perfect sense.

Applying this to the current market, big money managers are reluctant to buy new highs, but they want to get in this market and are buying every dip.  When the market makes new highs buying stalls.  After pulling back a few points buyers rush in and support the market.  This has absolutely nothing to do with recent headlines and is simply the accumulation strategies employed by large money managers.  Anyone trading the news is having a bad time because the market is not responding to the news.

TRADING OPPORTUNITIES
Expected Outcome:
The yesterday’s obvious selloff is less obvious today as buyers continue supporting this market.  Buying typically dries up quickly around tops and the way we are holding up demonstrates buyers are alive and well.

There is nothing wrong with feeling uncomfortable with and sitting this one out, but it is extremely risky to short this market.  Either stick with the trend or sit out until we have more concrete evidence the rally is stalling.

Alternate Outcome:
Every rally ends and so will this one.  While the trend is higher, we need to remain vigilant and watch for cracks in the foundation.  Pullbacks like yesterday are normal and expected.  Resist the temptation to jump on the short bandwagon prematurely, wait for real signs of slacking demand.  Most likely this will show up as lower-lows and lower- highs.  With all the bearish headlines this market’s brushed off, don’t expect a bad headline to take it down. We are looking for stalling demand.

Trading Plan:
Keep doing what is working and this market is buyable until we break 1570.  A stop-loss/trailing-stop at 1570 is a decent level that sits a little under previous support in the mid-1570s.  Even if our stop gets taken out, we need to watch for another rebound and buy back in.  Just because we sell doesn’t mean we have to stay out.  The 50dma is climbing higher and near 1560 and is another key level of support to watch.  The last line of support for the rally is 1540, after that the expected correction is taking hold.

INDIVIDUAL STOCKS
AAPL recovered all of yesterday’s dip and is just shy of $450.  To maintain these levels bulls need a wider group of buyers to come in and support the stock.  This is the seventh bounce in this extended downtrend.  Every previous time the dip buying fizzled and the selling resumed.  The stock will eventually find a bottom, the question is if this is the real one or just another head fake?    AAPL cheerleaders are out of hibernation, showing there is still a lot of hope left in this stock.  Buyers can hold it here, but keep it on a short leash and don’t keep holing if it breaks under the 50dma.

Yesterday everyone was talking about the bond offering and it was a great business decision on their part, but I am dumbfounded by the people willing to lend AAPL billions of dollars for 30-years at near Treasury rates.  Boy do people have short memories.  How many tech companies lasted this long?  Back in the 80’s Apple was one of the hottest and most innovative tech companies between its Apple ][ and Macintosh computers.    Yet the company was on the verge of bankruptcy ten years later and needed Bill Gates and MSFT to throw it a lifeline.  Like I said, good for AAPL for taking the easy money, but these debt buyers need to have their head examined.

Plan your trade; trade your plan

PM: Is the rally dead?

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks dipped nearly one percent on average volume.  Since early March the market has been range bound with each breakout and selloff stalling near the highs and lows.  Today’s selloff short of 1600 continues that pattern.

MARKET SENTIMENT
While today’s move lower spooked many traders, we are still within one percent of all-time highs and it is premature to write this rally’s obituary.  Over the last eight-weeks the market always struggled near highs, but no matter how many people piled on the short bandwagon, buyers always stepped in to support it after a modest selloff.  Is there a legitimate reason this weakness will end differently?

People blame today’s weakness on economic data, comments from the Fed, or something else, but the truth is big money doesn’t like buying new highs.  We’ve seen this play out time and time again over the last couple months as buying stalls near the highs, but these same traders gladly rush in and support the market a few points lower.  This cycle of buying dips and shunning highs is what keeps us rangebound.

Many bears are excited this is finally the selloff they’ve been waiting for, and they could be right, but is there new evidence this dip will end any differently than all the other failed selloffs since last November?  Cynics point to weak economic data, but this market rebounded from negative GDP headlines, hiring numbers that missed by six-figures, and all the noise out of Europe.  If the market ignored all of that, why is it suddenly worried about today’s headlines?

Markets move exclusively on supply and demand.  Institutional buying dries up near the highs and picks up near the lows.  Until we see a material violation of this pattern, stick with it.  This market will eventually top on lack of demand, but support over the last four months shows there is still an ample demand ta these levels.   The current crop of recent sellers will power the next move higher when they buy back in.

TRADING OPPORTUNITIES
Expected Outcome:
Today’s dip doesn’t change anything and was largely expected by anyone who’s paying attention.  We didn’t know today specifically would be the day, but we new it was coming and now that it’s here we shouldn’t be scared of it.  Look for support near 1570 and the rally is not in serious trouble until we break through 1540.

Alternate Outcome:
Every change in direction starts with one day.  Is today that day?  Probably not, but we need to watch closely just in case.  It is safest to assume this is just another swing within the trading range because trends are more likely to continue than reverse.  I will only become concerned if we close under 1570 and bearish if we break the 50dma.  Anything else is a buying opportunity.

Trading Plan:
Stick with what is working.  While scary, today’s dip is nothing new.  Watch for buyers to support this market above 1570.  Anyone looking to get in the market can use this weakness as a buying opportunity with a stop under 1570.  If we cannot hold 1570, the next level we will test is the 50dma.  Failing that means the widely expected selloff is finally here.

INDIVIDUAL STOCKS
AAPL took a breather with the rest of the market.  We are still above the 50dma and a bull can continue holding, but keep the stock on a tight leash and sell if we break the 50dma.  Look for overhead resistance near $470 and take profits before then.  There are a lot of unhappy AAPL shareholders looking to get out at break-even  so expect substantial selling pressure as the stock moves higher.  I remain wary of this rebound and think the stock needs one last flush lower to chase off the last of the hopeful, but that is just my opinion and as long as we hold the 50dma, bulls can continue ignoring me.

AMZN had a rough day and failed to hold the 200dma for the first time in over a year.  This is a big change in personality and signals a lack of support from bulls.  This is a decent short entry with a stop above the 200dma.  Expect volatility in a move lower and take profits after strong moves and reshort the inevitable bounce.

I’ll write about UA tomorrow.  Leave comments with other stocks you want me to look at.

Plan your trade; trade your plan

AM: Step back

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Buyers took a break after the 60-point rebound from the 50dma.  We are currently finding support above 1590 and so far the market is not signaling anything other than a normal pause after a strong run.  We traded within a range over the last two-months and are at the upper end.  Either we stay in the trading range, or breakout to the upside. The market could breakdown, but we need to retreat to the lower end of the range before that becomes a consideration.

MARKET SENTIMENT
Traders have been reluctant to buy highs and sell lows, leaving us range bound, albeit with an upward bias.  Stalling shy  of 1600 shows a continued reluctance to buy highs.  Of course there are two ways to look at this, one is reluctance, the other is inability.  Reluctance means there is still money ready to buy the dip, inability means bulls are out of money and there is nowhere to go but down.  So far every dip finding a bid signals reluctance, not inability, but bulls will eventually run out of money and that is what we are watching for.

We all know the market cannot go up every day, but it is tempting for a bear to label every dip the top.  That is letting our biases cloud our view of the market.  A five-point selloff is hardly anything to worry about and we need a lot more evidence before writing off this bull.

Many traders sold preemptively in anticipation of a summer pullback and are having second thoughts.  The inevitable selloff is not happening and many sellers are buying back in.  This is the floor under the market and why the Teflon rally keeps marching higher.

TRADING OPPORTUNITIES
Expected Outcome:
There is nothing in today’s modest pullback that should worry us.  We are still well above support at 1570 and even ten or fifteen points of selling won’t put the rally in jeopardy.  Two-steps forward, one back.  That is all this is unless we see something unusual.

Alternate Outcome:
This rally is long in the tooth and living on borrowed time.  We often see summer weakness and need to be alert for a continuation of this pattern.  The trend is clearly higher driven by an abundant supply of buyers, but we always need to watch for cracks and be prepared for the eventual top.  Stick with what is working but don’t become complacent.

Trading Plan:
The market is still above our trailing stop-loss at 1570 and we don’t need to do anything here.  Someone out of the market could use this weakness to get in while using 1570 as a stop.  If we break 1570, the trading range continues, but the rally is not at risk unless dip buyers cannot stop us from breaking the 50dma and 1540.

INDIVIDUAL STOCKS
AAPL is down with the market, but holding the 50dma.  It is okay to hold the stock here, but keep it on a short leash.  Failing to hold the 50dma shows a wider audience is unwilling to buy the rebound and the stock will likely stall again.  Defense is the most important part of sustainable trading and no matter what you think about AAPL, stay disciplined and stick to your trading plan.  That includes using a rigid stop.

AMZN’s bounce above the 200dma was short-lived and we are already back under.  Sometimes we get chased out of a position soon after placing it, but that doesn’t mean we should give up.  Risk management is what lets us survive our mistakes, but sometimes we are not wrong, just early.  Keep following a good idea and wait for the next entry point.  When a deeper pool of dip buyers failed to show up and support AMZN, it shows there is more downside left.  Don’t get greedy because this stock will move lower in waves.  Take short profits periodically and re-short the inevitable bounce.

Reader Request:  FB  is posting earnings after the close.  This stock gave investors a wild ride since the IPO.  One of the most widely anticipated IPOs was the biggest flop, but here we are nearly a year later and much of the hype has been wrung out of the stock and the irrational perma-bulls bailed out a long time ago.  At this point traders are no longer willing to buy the potential and are waiting for performance.  There are a lot of reports of FB user fatigue in the developed world and young people don’t want to be on the same social network as their parents, but FB tapped into the innate urge for humans to connect and the international potential is huge.  A lot of upside remains for the company  the challenge is if the stock will follow.  It already has a high valuation, but exceeding expectations tonight will go a long way getting traders excited about this stock again.  A strong surge tomorrow is buyable, but if FB disappoints stay away from it.

Leave other stock requests in the comments.

Plan your trade; trade your plan

PM: How high is too high

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
New all-time highs as the market rebounded from an early selloff.  Buyers keep buying this market and there is clearly no problem with demand.  Today’s record was set on elevated volume, showing plenty of strength left in this bull.

MARKET SENTIMENT
The cynics were dealt another defeat.  They will be right at some point, but timing is everything and they remain on the wrong side of the trade.

Tomorrow is the first day of May and we get to hear everyone promote “Sell in May….”.  There are two views on this, those that fear summer weakness and already sold, and those that don’t care and are still holding.  At this point Sell in May has already been factored into the market is a non-issue.  We could selloff for any number of reasons, but Sell in May is not one of them.  If anything this is slightly bullish because recent sellers become potential buyers as the rally continues.

Traders remain wary of this market and with plenty of good reasons, but the market is not listening.  Since we make and lose money by the market’s moves, that is what we need to give the greatest weight to.  At the same time we cannot lose sight of what others are saying because they could eventually be right.  We are four-years into this bull market and it is fairly old for a bull.  Currently we are living on easy money complacency.  The real shock will come on the first hints of withdrawing monetary stimulus.  We are still a ways from the Fed increasing interest rates, but the a whiff of winding down bond buying will send people running for cover.  If the economy continues making progress, we could reach levels where the Fed feels comfortable pulling back, but like any junky, the market is going to suffer from painful withdrawals.  While the economy might be stable, we could fall into bear market.

TRADING OPPORTUNITIES
Expected Outcome:
Keep doing what is working.  The market is on the verge of hitting 1600 for the first time in history and buyers continue showing up in sufficient numbers to hold us at these levels.  The more people fear this market, the more comfortable I am.  We need to take this day-by-day, but the likely outcome is a strong summer with weakness getting pushed back to the fall.  We could see a 3-5% pullback at any point, but the larger correction is still months away.

Alternate Outcome:
There is a lot of air under the market and anything could trigger a stampede selloff.  Price action remains bullish, but we need to watch for cracks in the foundation.  As small traders we have the advantage of speed.  Use trailing stops to ride the market higher while guarding against the eventual breakdown.

Trading Plan:
The market likes round numbers and 1600 is just a couple of points away.  We might see a little selling after brokers pass out the 1600 hats, but as long as we hold 1570 everything is fine.  Investors looking to get in this market don’t let much weakness develop before jumping on discounted shares.  Slipping under 1570 means buyers are no longer enthusiastic and more cautious, likely leading to a test of the 50dma.  Failing to hold 1540 means we ran out of buyers willing to buy these levels and we need to fall further before value investors will step in.

INDIVIDUAL STOCKS
AAPL had a strong debt offering as part of its plan to return cash to shareholders.  It is nice to see the company sharing the wealth with shareholders, but it is too bad it cannot find something more innovative and exciting to do with its profits.  We can continue higher on a relief rally, but it is hard to get excited about an iPhone5s and we should expect AAPL to fall further behind Samsung this year.  It is also likely the Galaxy S4 will outsell the iPhone5s as few iPhone4s users feel compelled to spend the money upgrading.  PCs have a 4-year refresh cycle and as smart phone capabilities plateau, expect a similar shift to less frequent upgrades.  But what is bad for AAPL is good for ATT and VZ.

AMZN recovered the 200dma as dip buyers rescued the stock.  Was the selling overdone or just getting started? The rebound can continue for a couple more days, but another test and violation of the 200dma shows a lack of conviction from buyers and more selling is likely.  But a note for shorts, this is a trading stock and AMZN is not going out of business anytime soon.  Don’t get greedy and take profits near $220.  For longs, it is hard to get excited about this bounce until it reclaims the 50dma.

I had a reader request to look at TSLA.  I hadn’t pulled up the chart in a while and boy did I miss an impressive move.  It is hard to be anything but cautious after such a strong run.  Today’s huge volume reversal is also an obvious concern.  Anyone lucky enough to ride this higher should consider locking in some, if not all of their profits.  There could be more to this move, but obviously the rate of gains cannot continue at this pace.  A bull could buy back in after finding support at $45.  As for shorting this stock, it is tough to get in front of such a strong move, but if someone is feeling lucky, short with a stop at $55 or $58 and take profits at $45.  Since this is such a volatile stock, manage risk by trading a smaller than normal position.

While I cannot review all the stocks people request, I’ll try to incorporate reader request in future posts, so keep leaving suggestions in the comments.

Plan your trade; trade your plan

AM: Strength continues

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks are modestly higher after recovering from earlier weakness.

MARKET SENTIMENT
The market barely has time to selloff before the next wave of buyers rushes in and props it up.  No matter what common sense tells us, we trade the market and as long as holders keep holding and buyers keep buying, we continue going higher.

The most challenging part of becoming a true contrarian trader is seeing the difference between price and the crowd.  Most people wrongly assume contrarian is going against the trend, but far more often the contrarian trade is going with the trend.  When everyone is saying too-far, too-fast, the contrarian trade is sticking with the rally.  That is exactly what is going on here.  There are a million reasons to sell this market, but it keeps going higher because the crowd is already out of the market.

TRADING OPPORTUNITIES
Expected Outcome:
Stock continue defying expectations and are just under 1600.  When in doubt, stick with the trend and that has never been truer than this market.  I have no idea how much further this can go, but buyers snap up every dip and keep a solid floor under this market.  The new buzz is “Sell in May……”, but if that is what everyone expects, look for a strong summer.  Of course the longer this holds up, the more we need to fear the inevitable correction.  But that is then and this is now, so stick with the trend until the market tells us otherwise.

Alternate Outcome:
The market defies skeptics and the pool of cynics grows smaller with each bounce.  Without a doubt this market will selloff at some point, the only questions are when and how much.  We are looking for a double-top above 1597 and a resulting selloff under 1570 to signal buying is finally drying up.

Trading Plan:
Stick with what is working.  We could see a step back in coming days after such a strong bounce off the 50dma, but holding above 1570 shows buyers continue supporting this market.  A dip under 1570 likely means a test of the 50dma and a break of this level is when bears finally get their day.

INDIVIDUAL STOCKS
AAPL is surging above the 50dma.  The question is if this is the rebound everyone’s been waiting for.  The stock decisively reclaimed prior support at $42o, but needs to break $470 before it ends the streak of lower-highs.  Without a doubt this could be the end of the selloff, but every other bounce over the last eight-months was a selling opportunity.  Why will this time be any different?  That’s a question any bull needs to answer.  We should know pretty quick if this is just another bump on the way lower or if there is real buying behind this move.  $430 is a decent trailing stop for any holders and will allow unlimited upside, but protect capital from another selloff.

If you want me to write about a stock, post it in the comments and I’ll pick a few when I see something interesting.  Obviously I cannot provide insight into every stock out there, but I’ll try to include a couple new stocks here and there.  I had a request for TSLA and will get to that one tonight.

Plan your trade; trade your plan

PM: New closing highs

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
We set a new closing high on light volume.  Some people worry about the sustainability of light volume, but this market sure doesn’t.  We are a hair under 1600 and well past the point of a head-and-shoulders top.

MARKET SENTIMENT
The next potential bearish pattern is breaking through 1600 and forming a double-top, but at this point these predictions are mostly wishful thinking from cynics who missed the rally.  This market cannot go up forever, but as long as it keeps going up we should ride it, not fight it.  The rally remains in effect until we start making lower-highs and lower-lows.

I was bearish until April 19th’s bounce off the 50dma.  The market had the perfect setup to selloff, yet it bounced instead.  When the market doesn’t act as expected, it is right and we are wrong.  No ifs, ands, or buts.  We made a mistake in our analysis and need to change our outlook.  We might eventually be proven right, but never forget, in the market early is the same thing as wrong.

The market continues rallying because cynicism is the rule, not the exception.  Even bulls are waiting to buy the pullback.  When everyone expects near-term weakness, they sell ahead of it and wait to buy it, but this behavior prices in the pullback and it doesn’t happen.  In fact the opposite is more likely because recent sellers become the next crop of buyers.  That is why this market continues defying gravity.

TRADING OPPORTUNITIES
Expected Outcome:
It will be interesting to see where the market goes from here.  Willy buying dry up near recent highs and we stay within the trading range, or will we breakout and defy the doubters by marching to new highs?  Chances are it will do a bit of both.  Look for a new breakout and then a consolidation of those gains.  Holding above 1570 shows buyers are still supporting this market.

Alternate Outcome:
The market has a nasty habit of convincing us we are wrong before proving us right.  Many bears are giving up and going long this market.  That buying is the fuel pushing us higher, but these are often the last buyers.  The market is far more patient than most traders and only after people give up waiting for the pullback will it finally happen.

Trading Plan:
Look for new highs in coming days, and use this opportunity to move a trailing stop up to 1570.  If we break this support level we will dip to the 50dma and possibly challenge 1540.  Failing to hold 1540 means the long predicted selloff is finally taking hold.

INDIVIDUAL STOCKS
AAPL finished just shy of the 50dma and is up 10% over the last couple weeks.  Is this finally the bottom all the bulls have waited for?  Could be, but it sure doesn’t feel like the move down to $385 was true capitulation that dramatically altered sentiment and ownership in the stock.  We could rally for a few more days, but AAPL is a trading stock, not an investing one and the best money is made buying dips and selling rallies.  We probably have one more whoosh lower before finally demoralizing and chasing off the last of the hopeful, especially now the last bullish catalysts have come and gone.

AMZN broke the 200dma and presents an interesting shorting opportunity with the 200dma as a stop-loss to buy the stock back.  We easily could see a bounce back above the 200dma before a larger selloff begins, but with a tight stop, the risk is limited and the potential gains are large.  A bear needs to be patient and it might take a couple tries before he finally hits on the mother load.  A rebound above the 50dma means the expected breakdown is not happening and a bear needs to wait for another opportunity.

GLD mostly closed the gap from $143.  Does this mean the selloff is done, or just a dead cat bounce on the way lower?  This easily could be the V-bottom that ends the slide starting back in September, but this is an insane amount of volatility for a “safe” commodity.    I’m not in gold and have no interest, but if I were, I’d be looking to sell this bounce, not buy it.

If you want me to write about a stock, post it in the comments and I’ll pick a few when I see something interesting.  Obviously I cannot provide insight into every stock out there, but I’ll try to include a couple new stocks here and there.

Plan your trade; trade your plan

AM: The bounce continues

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks found a bid and are above 1590 in early trade.  The market is only a few points from the highs as buyers continue supporting these levels.

MARKET SENTIMENT
The inevitable selloff eludes bears and sustained buying defies common sense, but that is how the market works.  What is expected is already priced in, making the unexpected more likely.  Traders lightened up ahead of the expected pullback, meaning most of that selling already happened.  More than just reduce supply, this preemptive selling also created a new pool of buyers ready to chase the market higher.

There is no free lunch in the markets and the longer we put off a pullback, the bigger it will be, but so far the market seems content rallying higher.  With all the expectations of “sell in May and go away”, a contrarian should look for summer strength this year.

I was one of those cautious bears until the market refused to break down a couple of weeks ago.  It is impossible to always know what the market is going to do, that is why we need to remain flexible and willing to reevaluate our views when key parts of our original thesis are invalidated.  It is okay to be wrong, it is fatal to stay wrong.

TRADING OPPORTUNITIES
Expected Outcome:
We are challenging recent highs at 1597 and will likely break thought this level, but what comes after that?  Over the last couple months buying stalled near the highs and could easily happen again as big money investors prefer buying weakness.

As it stands, there are no fatal flaws in this market and the economy continues heading in the right direction, albeit slower than most would like.  We need to stick with what is working until we see real signs of a breakdown, most likely in the form of lower highs.

Alternate Outcome:
Another material selloff and breaking recent support will demonstrate how fragile this rally is.  Markets can only bounce so many times before they exhaust the supply of dip-buyers.  Use trailing stops to protect long profits and watch key support levels for short entries.  Summer is traditionally a weak period and we need to be cautious of the “sell in May…..”.

Trading Plan:
As long as the market holds 1570, the rebound is alive and well.  We might surge higher on a break of 1600, but a step-back to 1575 would be normal and expected because big money is reluctant to buy the breakouts.  Failing to hold 1570 signals a potential retest of 1540.  Falling under 1540 means the inevitable correction is upon us and more selling is likely.

INDIVIDUAL STOCKS
AAPL is challenging the 50dma on a strong surge higher.  It received good press and that excited buyers, but I cannot think of a time over the last six-months when the press and analysts have been anything but positive on AAPL.  Journalists and analysts opinions don’t change the fundamental story and this is probably one more bounce before the last flush out lower.  Falling to $350 will finally demoralize hopeful bulls and give value investors the opportunity to buy a decent dividend.  Unfortunately for the growth investor still hanging on, don’t expect value investors to bid up the stock to old highs.

AMZN slipped to the 200dma, but is still holding this level.  Look for selling to pick up when we break it, but take short profits quickly because any move lower will be a series of waves.  Lock-in profits when you are most confident and cocky and re-sell the stock short again on the next bounce. We could still see a bounce off the 200dma and the short entry would then be a retest of this level when the bounce falters.  If we don’t see a bounce, short a move through the 200.

GOOG is having a good day as it bounces off the 50dma.  The current logic says AAPL’s loss is GOOG’s gains.  In the market reality doesn’t matter, only perception.  If people think GOOG is the next big winner, then it will be.  I still think the stealth play is MSFT.  While everyone is focused on mobile operating systems, mobile processors, and mobile applications, MSFT and INTC are the only ones trying to make full powered devices in compact packages.  In a few years will the consumer want a neutered tablet that only runs mobile applications and doesn’t give them access to their files, or will they want a full powered tablet that works seamlessly with their work computer?

Plan your trade; trade your plan

LA: Buyers keep buying

By Jani Ziedins | Weekly Analysis

Look Ahead

MARKET BEHAVIOR
Elevated volatility continued for the third week as the market rose 1.75% and extended the bounce off the 10wma.  We remain inside the recent trading range between 1540 and 1597, but are above previous resistance at 1570.

MARKET SENTIMENT
Increased volatility is often seen in market tops as the debate between bulls and bears intensifies.  This week’s rebound was the third largest weekly gain since the start of the year, but for all the criticism thrown at this market, we are still within 1% of the highs.  Believe in this rally or not, we live and die by price and right now prices are near all-time highs.  This rally is fueled by an abundant supply cynicism and is why we continue heading higher.

Markets go down because people stop buying and start selling.  No matter how far this rally came, holders keep holding and buyers keep buying.  Until this changes, expect the rally to keep going.  Every dip is a buying opportunity because large institutions use the weakness to build their positions.  It is anyone’s guess how long this can continue, but we need to stick with that is working until it stops.

TRADING OPPORTUNITIES
Expected Outcome:
We remain inside the trading range between 1540 and 1597.  Recent volatility could signal the last gasps of the rally before we roll over, or the volatility is flushing out weak hands and clearing the way for another leg higher.  Elevated volatility accompanies market tops and we have that in spades, but market tops are due to a lack of buying.  So far we have an endless supply of buyers willing to rush in and buy every dip.  As long as we keep making higher highs, the stick with the market.

The best thing about being small and nimble is we can respond to the market’s moves and don’t need to anticipate them.  If we don’t know comes next, we simply wait for the market to tell us.

Trading Plan:
Until we have evidence to the contrary, assume the rally is alive and well.  The market is stuck in a range between 1540 and 1595.  Setting new highs shows there are ample buyers willing to chase.  If we stall and break through support at 1570, look for continued selling to the lower end of the trading range.  As long as we stay above 1540, the rally is still intact and the dip is buyable.  But there are only so many times we can test a level before failing, so be extremely cautious and use tight stops under this level.

Plan your trade; trade your plan

PM: On the 6th day we rested

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks finished modestly lower on Friday, but held above 1580 in light volume.

MARKET SENTIMENT
This is a tough market to trade and the only groups making money are proactive swing-traders and option premium sellers.    The market is currently pushing toward recent highs, leaving us wondering if this strength is a another selling opportunity or the start of the next leg higher (or lower).

Volatility’s picked up in recent weeks showing traders are becoming restless and ready for the next move.  We rarely get this long to sell the top, meaning the next leg is likely higher.  That doesn’t mean the breakout is sustainable, just that the next move is higher.

There are more reasons to avoid this market than buy it.  In fact I cannot think of a reason to buy other than it is going up.  This rally is old.  We are at all-time highs.  There are a slew of negative economic indicators.  Too-far, too-fast.  Etc.  Everything points to a topping market, but we have to ask why the market is not breaking down in the face of all this negativity.

The answer is surprisingly simple; there are more buyers than sellers.  But how can this be?  It’s actually not that counterintuitive if we look at it from the right point of view.  Those that are paranoid already sold, meaning most of the selling already happened.  Buyers that bought this uncertainty are comfortable with their analysis and willing to sit through near-term volatility.  Getting rid fo the nervous and replacing them with the confident takes a lot of supply out of the market and makes it far easier for the rally to continue.  And that is exactly what we’ve witnessed.  Our job is not to figure out what the market should do, but what it will do.  Right now it looks like it will continue higher.

TRADING OPPORTUNITIES
Expected Outcome:
A little selling today is normal, expected, and healthy after a five-day, fifty-point rally.  The dip was modest and found a floor at 1580, well above recent resistance at 1570.  As long as we hold 1570, expect the rally to continue.  I cannot say for how long, but at least expect new highs above 1600.

Alternate Outcome:
Markets have a nasty habit of misleading even the best of us and just when it looks like it won’t breakdown, it breaks down.  I don’t mind being on the wrong side of the trade, but I hate staying on the wrong side.  The market is defying cynics and it is far more profitable to trade with the trend, but we need to watch for the breakdown because it will come when we least expect it.

Trading Plan:
The rebound remains intact as long as we hold above 1570.  Failing support at 1570 shows the trading range is sucking us back in, but the market tis not breaking down until we test and violate 1540.  Bulls can use 1570 as a trailing stop and bears as a short entry.

INDIVIDUAL STOCKS
AAPL is attempting to recover $420 and will probably attract bottom-pickers who push it up to the 50dma near $430.  But look for buying to dry up after the dip crowd runs out of money.  There is no valid reason to expect this selloff is done and look for lower prices in coming weeks/months.  Anyone still in this should sell strength when the stock challenges the 50dma.  If they are a long time believe in the stock they can buy it back later

AMZN lost 7% on gigantic volume.  The stock finished near the lows of the range, but found support above the 200dma.  A high volume break of the 200dma is a good short trigger and will allow a trader to avoid a near-term bounce.  If someone wants to buy the stock, this isn’t a bad place to own it with a tight stop at the 200dma.

Plan your trade; trade your plan

AM: A step back

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks are down in early trade on the heels of a decent US economic growth number, but it fell short of expectations.

MARKET SENTIMENT
It is almost comical how the market is indifferent to lousy employment numbers, yet disappointed by encouraging economic growth.  It appears far more concerned about continued money printing than real economic progress.  The market is officially an easy money junkie and suffers from the same irrational behavior as an addict.  It makes us wonder what will happen when the easing finally ends.  I originally thought it would be a non-issue because a vibrant economic recovery would provide a smooth handoff, but if the market gets too wrapped up in easy money, it could be a shock to the system regardless of what the economy is doing.  It is a bit premature to trade this, but something to keep an eye on.

Various traders are expecting a breakout, a breakdown, or more sideways trade.  Over the last two-months swing-trading was the right call, but we will eventually move out of this range.  We have to decide if that will be higher or lower.  Everyone knows we cannot continue higher indefinitely, yet the market stubbornly refuses to breakdown like everyone expects.  We survived selling off in April and the next hurdle is “Sell in May…..”.  But if everyone expects it, can it still happen?

When traders anticipate something, they trade ahead of it.  They are either taking profits or selling short in front of the expected selloff.  Even bulls are holding back purchases until they see better prices.  When the market holds up in the face of this restrained buying and proactive selling, it makes us wonder what will happen when it flips around and goes the other way?  Continuing higher defies logic, but that is how the market typically operates.

TRADING OPPORTUNITIES
Expected Outcome:
A little selling after five-consecutive up-days is normal and expected.  The question is if this is simply one-step back after two-steps forward.  As long as the market holds prior resistance at 1570, the rebound is still going strong and we will eventually break this logjam to the upside.

Alternate Outcome:
The market is a patient beast and it often wears us down before revealing the next move.  It has a notorious habit of convincing us we are wrong just before proving us right.  I gave up waiting for the correction and that makes me nervous.

Trading Plan:
March’s overhead resistance at 1570 will provide support for a modest step-back and is a buying opportunity for the next move higher.  Breaking 1570 means a retreat back into the trading range and expect more sideways trade.  Testing and violating 1540 signals the selloff is finally taking hold.

INDIVIDUAL STOCKS
AAPL is modestly higher and finding some breathing room above $400, but well under previous support at $420.  Until people have a reason to buy this stock, expect the slide to continue.  The next negative catalyst will be the launch of a warmed over iPhone5s with some extra gimmicks no one cares about.

AMZN is down huge after earnings and just a hair above the 200dma.  A short looks real interesting if it falls another couple of dollars, but watch for a bounce off the 200dma.  An alternate entry is waiting for the bounce to fail and short it as it retreats through the 200.

Plan your trade; trade your plan

PM: Challenging recent highs

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
The win streak continues as the market finished higher for the fifth-consecutive day and is less than 1% from all-time highs.  Volume was above average but the day ended in the middle of the range due to a ten-point afternoon selloff.

MARKET SENTIMENT
Here we are pushing up against all-time highs again.  Bears reassure themselves with the afternoon selloff and will surely explain away new highs as building a double-top.  These are both valid points, but are they enough to finally bring down this resilient market?  Bulls and bears are evenly matched as shown by the sideways trade, but when in doubt stick with the trend.

TRADING OPPORTUNITIES
Expected Outcome:
I’ve been cautious since early March.  I thought the market would struggle with the transition to the second quarter, but it held up nicely instead.  The market flirted with 1540 three-times and bounced decisively after each.  Topping markets run out of steam, but this one keeps going and we cannot dismiss that.  There are a million reasons for this market to go lower, but it isn’t listening, at least not yet.  Picking tops is hard to do and we get it wrong far more often than we get it right.  It simply  comes down to probabilities, a market continues countless times but reverses only once.  This market is not giving any signals it is ready to breakdown, so stick with the rally until something new develops.

Alternate Outcome:
Every rally must come to an end and this one is no different.  The higher and longer we go, the bigger the eventual correction will be.  We have a couple more weeks to see if the expected May selloff takes hold, but if the rally continues through the Summer, look for a larger pullback this Fall.

Trading Plan:
The market can do three things here, up, down, and sideways.  Breaking and holding 1597 shows the rally is ready to continue.  Finding a ceiling at 1600 means the trading range is sucking us back in.  The breakdown only takes hold if we fall under 1540 again.  We are closer to the upper end of the range need to watch for the breakout, but guard against the swing-trade lower.  If someone is out of the market, it is a little late to buy and early to short, so wait to buy the breakout or sell breakdown in coming days.

INDIVIDUAL STOCKS
AAPL had an uninspiring up-day as it finished at the lows of the day.  Volume was well off of average as few felt compelled to adjust their position two-days after earnings.  A lot of hopeful holders are still hanging on, but another move lower without a fundamental catalyst in sight will demoralize the last optimists and ironically lead to the end of the selloff.

AMZN dipped in after-hours trade following earnings and closed extended trade near the 50dma.  A material breach of this level on Friday or coming days makes an attractive short entry, but if the stock holds up it is a better buy than short.  This is a momentum story so wait for momentum to develop and don’t jump in front of this stock on principles alone.

Plan your trade; trade your plan

AM: Strength continues

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks continue the rebound as we approach recent highs.  Will the series of ups and downs continue, or is the market finally ready to march higher?

MARKET SENTIMENT
The expected pullback remains elusive.  Even bulls are cautious near all-time highs and that wariness on both sides is what keeps propping up this market.  No doubt there are chasers running in, but the majority is reluctant to fully embrace these highs because common sense tells us we’ve come too-far, too-fast.

People often look down on dumb money that impulsively rushes in and out, but many times smart money over analyzes the situation and misses the trade.  Smart money is taking profits here after such a long run, but we keep marching higher, what gives?  To figure this out we need to understand what other people think and how they are positioned.

Those that expect near-term weakness are taking profits and holding back on new purchases, but the market is unfazed by this selling and reduced demand.  Without a doubt the market will pullback at some point, but we have to acknowledge the strength in this face of this selling is impressive.  Cautious smart money will eventually be right, but making money in the market is all about timing and no matter how smart we are, if we get the timing wrong we lose money.

Many traders are light this market ahead of the expected pullback.  If they already sold, that selling pressure is removed from markets and makes it easier to head higher.  Big money is bullish on this market but hates buying new highs.  They often wait for the dips to stock up and that is why every dip finds a floor.  Swing-traders and dip-buyers do not have the resources to keep supporting this market for this long, meaning real money is standing behind this move.

TRADING OPPORTUNITIES
Expected Outcome:
We can trade our opinions or we can trade the market and this market simply refuses to breakdown.  Without a doubt this market will selloff at some point, but it is not giving any signals the breakdown is imminent.  In fact it is far more resilient than most expected and that is extremely bullish in of itself.

I don’t feel comfortable with the rally, but the hardest trade is usually the right trade.  Without a doubt this rally is living on borrowed time and will breakdown at some point, but the trend remains higher and will likely continue for a while longer.

Alternate Outcome:
I’ve been bearish on this market for six-weeks and while its largely moved sideways in that period, the lack of a breakdown make the continuation more likely.  But “more likely” is not a guarantee and we need to continue watching for the inevitable selloff.  Markets have a habit of convincing us we are wrong just before proving us right.  Its taken me a while to come back around to the rally, and I very well could be changing my mind just the selloff begins.  But I’m okay with that because as a small trader I can reverse my position in a moments notice.  I don’t mind being wrong, but I can’t stand staying wrong.

Trading Plan:
The rally is intent on taking out 1,600 and that will continue the pattern of higher-highs.  It is possible buying stalls after new high as the up and down continues, but the rally is not in jeopardy until we break the 50dma at 1450.  I will be more cautious if the rebound stalls short of news highs at 1597.

INDIVIDUAL STOCKS
AAPL is up modestly following Tuesday’s earnings.  It appears some buyers are encouraged by they lack of a selloff and feel more comfortable with a potential negative catalyst removed from the stock.  But they are ignoring the trend and are bottom-picking, something that hasn’t worked well for many AAPL bulls.  A popular definition of insanity applies here, doing something over and over yet expecting a different result.

AMZN is higher ahead of earnings.  Even though the valuation is sky-high, Bezos knows how to play the market and I give him the benefit of the doubt when it comes to wooing shareholders.  If earnings disappoint,  there is a lot of air under this stock and plenty of time to get in on the short side with far less risk.

Plan your trade; trade your plan

PM: Can the rally continue?

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks closed unchanged on average volume.  This was the fourth-day buyers showed up in sufficient numbers to support these levels.

MARKET SENTIMENT
It is really hard to get excited about the market here, but that is what makes it work.  Everyone expects a pullback, even bulls preface their bullishness by saying they expect near-term fluctuations.  What this means is those fearing a major correction already out.  Swing-traders took their profits and are ready to short this market.  Even bulls are waiting for weakness so they can add to their positions.  Most of the selling already took place and we have a growing pool of money outside the market ready to come back in.  This is why the inevitable selloff still eludes us.

TRADING OPPORTUNITIES
Expected Outcome:
Good old supply and demand.  Sellers threw everything they had at this market and here we stand, 1% shy of all-time highs.  If this was the best bears could do, there is nowhere to go but up.  I don’t understand it, but that’s the way the market works.  If this made sense anyone could do it.

Sell in May and go away has been a thing for the last several years and many of traders expect another weak Summer.  But if that is expected, it makes it less likely to happen.  Maybe this year we rally through Summer and have a larger correction in the Fall.  Certainly a possibility we have to consider

Alternate Outcome:
Until yesterday the Expected Outcome was a selloff but it just hasn’t worked out that way.  Buyers continued buying this month and we found solid support at 1540 and the 50dma.  I still don’t trust this market, but it nullified many of my criticisms and I must acknowledge and respect that.  I don’t have to own the market here, but bulls deserve credit for putting up such a good fight.

Just because I stopped fighting this market doesn’t mean I embraced it.  I remain paranoid of our precarious position and 1540 and the 50dma are the key levels to watch.  As long as we hold above these the rally is on, but another test and violation of support is unlikely to bounce back.  Stay with what is working, but keep a close eye on the exits.

INDIVIDUAL STOCKS
AAPL’s increased dividend and share buyback program failed to impress and the stock finished flat on the day.  Most interesting is how little the stock moved following earnings.  Results were a mixed bag and both bulls and bears got a little of what they wanted.  But we have to award the draw to bears because momentum is clearly on their side and another fundamental catalyst came and went without reigniting the stock.

Realistically speaking the most bulls can look forward to is a minor refresh of the iPhone5 and a retina display coming to the iPad mini.  What else is there to bring this stock back to life?  Look for selling to continue and even accelerate into the mid to lower $300s.  This will be the last flush and finally put a floor under the stock.  The most loved stock needs to become the most hated and today’s uninspiring earnings moved us one step closer.

GLD is making a comeback, but the obvious bounce is rarely the real bounce.  Everyone is buying the dip and that is why the price is coming back, but what happens when dip buying dries up?  This occurs often enough on Wall Street that it earned the name “dead cat bounce”.  I cannot say how long or high the bounce will go, but we will retest $130 before this is over, making this a better selling opportunity than buying one.  I’m not a gold bull or bear and don’t have a particular opinion one way or the other, I am simply looking at it from a crowd psychology vantage.  The speed of how quickly dip buyers embraced the selloff makes me suspicious.

NFLX traded flat after blowout earnings.  There are still a truckload of shell-shocked shorts praying for this gap to slide back down, but unfortunately the market gods are far more inclined to humiliate the hopeful and desperate than help them.

AMZN reports earnings Thursday and this one is a coin flip   With such an outrageous valuation the stock is standing on a trapdoor and any bad news will send the stock reeling.  But Bezos and Co are masters at pulling rabbits out of hats.  Can they do it again?  Buying or shorting earnings is like betting on black or white.  The safer and higher probability trade is waiting for the news and then trading the subsequent move.

Plan your trade; trade your plan

AM: Buyers continue supporting this market

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
The rebound is taking a break as we trade sideways just shy of 1580.

MARKET SENTIMENT
Bears need the market to breakdown to validate their thesis we are over-bought and running out of buyers.  Bulls on the other hand need to prove buying won’t stall out again at the upper end of the trading range.  Finally swing-traders expect us to stay in the trading range and are preparing to take profits.  Right now that puts the swing-traders on the bear’s side, making it two-on-one.  If the rally can continue to new highs against bear shorting and swing-trader profit taking, it shows there is still a healthy supply of buyers willing to step in at these levels.  Many expected last week’s selloff to be the end of the rally and sold in anticipation.  Many of these sellers are buying back in after the market held up and are the ones pushing us higher.

TRADING OPPORTUNITIES
Expected Outcome:
Holding the bounce for a fourth day shows buyers are still willing to own this market and the recent rebound was more than just a flurry of dip buying.  If we see a material selloff over the next day or two all bets are off, but so far the market acts like it wants to go higher.  How much higher is up for debate.  Maybe we rally and bump our head on 1600 again before falling back into the trading range.  Maybe there has been enough consolidation to sustain an upside breakout.

While I still don’t feel comfortable with this market, it looks like it wants to go higher and we have to respect that even if we chose not to buy it.  The thing bulls have to be wary of is the higher we go, the harder we fall.  Every rally pulls back at some point and the longer we put off taking our medicine, the worse it will taste.

Alternate Outcome:
I’m still waiting for a market breakdown.  A weak close would breath life back into the bear thesis, but I have to admit continued strength is not what I expected and thus invalidates a large part of my bearish analysis.  This market will top at some point and we simply need to wait for it.  These things go further and longer than most expect so resist the temptation to jump in front of this rally.

Trading Plan: Closing above 1580 today shows bulls are still in control.  Failing to hold 1570 shows bears and swing-traders are weighing on this market, but the real selloff won’t begin in earnest until we set a material lower-low under 1540.

INDIVIDUAL STOCKS
AAPL is down modestly after earnings in an anticlimax ending to a widely anticipated event.  We heard a little for bulls with increased cash distributions, but bears can point to declining margins and earnings.  A clear lack of a win for bulls keeps bears in control and expect lower prices as one more catalyst came and went without bring the stock back to life.  Bulls finally got their cash hoard event and the stock is unmoved.  The only thing left is a radical new product and everything points to incremental updates to the iPhone5 and other existing products this year.  I expect the stock will print $350 over the next eight weeks as formerly hopeful holders become demoralized and abandon their once cherished AAPL.

NFLX is holding yesterday’s breakaway following blowout earnings. Few believe in this company, yet it keeps beating expectations and continues rallying on the backs of shorts.  We could see the stock retreat to $200 but this is a buyable dip and the direction remains higher.

Plan your trade; trade your plan

PM: Hard to fight this bull

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks rallied to 1579 and continued the three-day win streak following a bounce off the 50dma.  Volume was average and an improvement over yesterday’s light volume rally.  Of course volume was boosted by midday drama and panic selling when a hacker tweeted on the Associated Press’s Twitter account an attack on the White House.  The market initially sold off ~1% before rebounding minutes later when the story was refuted.

MARKET SENTIMENT
We’re back in the hunt for new highs after a two-week dip to the 50dma.  All that was wrong in the world is now right, or at least that’s what the buyers think.  Our job is figuring out if these buyers know something the rest of us don’t, or are dumb money arriving just before the curtain falls on this rally.

Another sustained bounce off of 1540 is impressive, but only if it holds.  There is no such thing as a triple-bottom, but no one told this market that.  We’re not out of the woods yet and we need one more support day on Wednesday to show this rebound is more than just dip-buying from a small group of swing-traders and short covering from premature bears.

If the market holds, we have to respect that and the resulting strength can be attributed to widespread expectations this market is on the verge of pulling back.  Even bulls say they expect a near-term weakness before resuming higher.  Everyone recognizes the nearly straight up move is unsustainable, but it will continue until people stop talking about a pullback.

TRADING OPPORTUNITIES
Expected Outcome:
If the market holds recent gains on Wednesday and finishes strong, we must give the credit to the bulls and this Teflon rally.  I have no idea how much higher this can go and I don’t need to participate in the rally if I don’t feel comfortable with it, but no matter what my personal bias is, continued strength indicates the next move is higher.

Alternate Outcome:
Market weakness on Wednesday will send up warning flags buying is waning and we could be near the end.  Unsustainable dip buying can prop the market up for a few days but it takes real buying to continue a move.  If follow-on buyers fail to show up tomorrow, we will start the widely expected pullback.

INDIVIDUAL STOCKS
AAPL’s earnings came and went.  The stock rallied after hours on a new buyback and increased dividend, but outlook tempered enthusiasm and the stock finished flat in extended trading.  Given all the back and forth between bulls and bears, the least expected outcome was no move on earnings.  I still chalk this up as a win for bears because another fundamental catalyst came and went without reversing the nasty down trend.  Look for the slide to continue until at least $350.

AAPL and Steve Jobs are famous for ignoring customer opinions and instead tell them they don’t know what they  want.  This works brilliantly when faced with new products categories customers doesn’t yet understand, but it is a disaster if you get it wrong.  AAPL insists customers don’t want five-inch smartphones, but someone should tell all the people drooling over the Galaxy S4.

AMZN reclaimed the 50dma for the fourth time in recent months.  There are only so many times a stock can tempt fate before coming up short.  I wouldn’t want to hold or short this into earnings, but if earnings disappoint, there is a lot of air under this stock.

Plan your trade; trade your plan