Apr 302012
 

S&P500 daily at 1:05 EDT

Indexes are selling-off modestly for the first time since breaking above the recent trading range.  Is this a good time for people who missed the recent run to get in, or a last chance for those still holding stocks to get out at a decent price?  In typical fashion, the arguments for both directions are equally compelling.

If we use the strength of the follow through day and the performance of the recent rally’s general, AAPL, as a benchmark, it seems less than an ideal foundation for a material move higher.  But on the other side, the markets often climb a wall of worry and it is this very uncertainty that provides the best opportunity to buy early weakness and hold for a profit as other investors slowly come around.

 

FRAN daily @ 1:05 EDT

I am fighting a negative bias and I don’t want to let it skew my outlook, but I still find myself suspicious of this rally.  There are a lot of good stocks holding up well in this weakness, but I have yet to pull the trigger on any of them since the follow through day.  FRAN is having a great day, up 5% in a continued bounce off of its 50dma.  LNKD is also showing impressive strength after its own 50dma bounce.  SWI is holding on to an impressive move off of last week’s earnings.  On the other side, AAPL is extending a 3-day slide after its blow-out earnings.  It is pushing down toward its 50dma and a bigger risk will potentially be a test of the recent $555 low.  It seems at the moment everyone who wants AAPL already owns AAPL and no one is left to rush in and prop up the declining price.

 Posted by at 11:08 am on April 30, 2012
Apr 272012
 

S&P500 daily @ 12:15 EDT

The indexes continue to hold recent gains and are edging higher. The S&P500 is above 1400 and sitting above the recent consolidation area. Today the NASDAQ joined the S&P500 by also poking its head above its recent range. These developments continue to be constructive and supportive of yesterday’s Follow Through Day. With this positive price action, there is no reason not to venture in and try some promising stocks. Start with 1/2 positions and add on as the market continues to move up.

From a sentiment point of view, it seems like the number of bulls and bears is fairly balanced and the lack of a disproportionate disparity most likely means the moves going forward will be more modest.  Extremes in the market tend to coil up the spring and today there is not much energy bound up in the spring.  Of course this balance rarely holds up and over time we’ll see the market skew one way or the other based upon headlines, price movements, and group think.

There are some interesting individual stock stories (AAPL, AMZN, SWI, GNC, etc), but as far as the indexes go, they are fairly boring at the moment.  Give it a few weeks and no doubt traders will find some kind of drama to start obsessing about.

 Posted by at 10:19 am on April 27, 2012
Apr 262012
 

IBD called yesterday’s 1.4% gain on the S&P500 a day 11 follow through and we are back in a Confirmed Uptrend by their measures. But waiting more than two weeks for the follow through, having average volume on the FTD, and making just 1.4% gains are three separate signs that this FTD is less potent than ideal. That doesn’t mean this one can’t work, just in the past FTDs with this less than compelling action are more prone to failure. No doubt we can find weak FTDs that worked, but on average they have a lower success rate than more powerful ones. The best thing we can do is watch the subsequent price action and not jump into this market head first without waiting for more compelling evidence to support this FTD, namely positive price gains. Start buying good looking positions and then add on when the price increases. This will let you in the market, but also manage the risk if things breakdown.

As for where we are, the markets are mostly flat today on light volume. The SPX is at the upper end of the recent trading range, just poking its head above. The NAS is in the upper half of the range, but still has a bit more progress before breaking above it. The market seems unsure of itself at these levels as neither the bear nor the bulls have the courage to buy or short this market and it is a staring contest between the two to see who will blink first.

So far the market has found good support at the 1360 level as we bounced off of that twice. A third trip to that level would be fairly bearish as there is no such thing as a bullish tripple-bottom. On the upside, we have taken a few weeks to digest recent gains and flushed out some of the irrational exuberance leading up to the end of the first quarter. The bulls were humbled by the pullback and the bears will humbled by the bounces off of support. So in these regards, the clock has been reset for both groups and we are just waiting on the price action to see which side has greater strength. Being at the upper end of the trading range means the bulls have a slight edge and just need to push us a tad higher before traders start buying the breakout. But given the positive sentiment over yesterday’s price move and regaining the 50dma, it is disappointing that there is not more follow on buying today. No doubt this indecisiveness will continue the lower volume trading we’ve seen over the last few months. But as traders, price is truth no matter what the volume is.

We have seen positive price action from the leaders that weathered the storm and there look to be good buys to invest in. I continue to be cautious and am not sold on this FTD yet, but further gains will get me in the market with both hands. If we can’t hold above the recent consolidation, there is most likely more left in the downside move.

 Posted by at 11:17 am on April 26, 2012
Apr 252012
 

AAPL daily

AAPL blew away estimates again and is single-handedly lifting the market today.  Most of AAPL’s strength comes from iPhone sales in China as they missed iPad and Mac expectations.  The one upshot is these quarterly results don’t include a Chinese release of the new iPad, which will provide a big boost for next quarter’s results. But AAPL is warning of a slowdown in iPhone sales going forward as customers hold-off in anticipation of an iPhone5.

As for how this affects the rest of the market, we are experiencing a nice pop today and all three major indexes retook their 50dma, but are still within the previous consolidation range, so not a technical breakout yet.  Today’s 1% and 2% gains are great to see after the recent weakness, but don’t constitute a follow through day because declines over the last few days reset the rally count.  This is day two for the S&P500 and day one for the NASDAQ.  We need a strong follow through day on Friday or next week to signal this market is ready to rebound.

NASDAQ daily

And given where we are, it seems prudent to allow the market a couple days to prove itself since today’s rally is the result of a single company.  The challenge will be to see if AAPL’s results can reverse the bearish sentiment we’ve seen in the markets as of late.  Is AAPL stronger than the markets, or are the markets stronger than AAPL?  And of course it doesn’t have to be an either/or as AAPL could decouple from the markets and continue higher in the face of wider weakness.

But again, sit tight and wait for that confirmation to demonstrates it is safer to venture into the market.  We give up some profit by waiting, but we decrease the risk of losing money by being patient.

 Posted by at 9:12 am on April 25, 2012
Apr 242012
 

The markets are flat to up modestly this morning as we digest yesterday’s sell-off.  Is this the level were value buyers are attracted to the market and that is who is supporting us here?  Or are we being propped up by swing traders foolishly trying to pick a bottom?  One group has a lot of weight and conviction behind them and the other is a 90lb weakling that will bail at the first sign of trouble, so it really does matter who is buying at these levels.

The one slight positive is we no longer seem to be triggering an avalanche of selling at each weak patch we encounter.    Yesterday we sliced through the 50dma and found a bottom early in the trading day and climbed from there.  But the other side of the coin, if we are not seeing panic induced selling by weak-kneed traders, then what we are seeing is real selling by institutions, and that is a lot more meaningful.

AAPL daily

The market moving earnings release will come from AAPL after the close.  AAPL was the general that lead the Q1 rally and it also represents ~12% of the NASDAQ index.  Any weakness in AAPL will surely affect the tech trade, if not the entire market.  But on the other side, a strong result from AAPL could kick off the next bull leg higher.  Given AAPL’s 50% price gain over the last few months, it really is hard not to think AAPL shares are priced for perfection and the bar is set extremely high for them.  And on top of that, virtually every ‘expert’ I’ve seen is saying you should buy the dip on AAPL.  When the market gets so one sided on a stock, it inevitably goes the other way because of the supply and demand imbalance.  Is AAPL at that point?  In a few hours we’ll know the answer.

 Posted by at 9:49 am on April 24, 2012