PM: Another new closing high

PM Update

MARKET BEHAVIOR

Stocks opened at 1514 and rallied through the day, finishing above 1520.  While we missed a new intra-day high, it did notch a new closing high as the slow grind higher continues.

MARKET SENTIMENT

As the market inches higher, the calls for a pullback get quieter by the day.  I don’t think everyone is sold on this market, but the cynics are not nearly as vocal after getting their nose relentlessly bloodied day after day.  This is all part of the normal progression through the life-cycle of a market move.  With each passing day bears and cynics are throwing in the towel and joining the rally bandwagon.  Their buying is the fuel that is propping up this market, but once the last have changed sides, demand will dry up and the market will finally nose over.

TRADING OPPORTUNITIES

Expected Outcome:
While there are no clear signals to sell yet, we need to be increasingly vigilant.  This market will top in coming weeks and we need to be ready for it.  It might happen as early as next week or it could drag on through the end of the first quarter, but either way the writing is on the walls .  Look for the inability to hold support or the biggest weekly price gains since this rally began.  Those will be the signs to get out.

Fund managers are judged by their quarterly performance and the longer the rally goes, the less time managers have to catch the market before the end of the first quarter.  A pullback will be a huge relief for many professional money managers, but will most likely be the reason it won’t happen.  Managers behind the eight ball are buying every dip in an effort to catch this market, but if you get too many people buying dips, there are no dips to buy.  That behavior explains why the move higher has been so smooth.

Alternate Outcome:

Clearly there is no rule that say rallies can only last 12 to 16 weeks and obviously there are countless examples over the last 100 years that lasted a lot longer.  But trading is a game of probabilities and we need to trade the most likely outcome.  It is entirely possible this rally goes for a couple more months, but the odds are against it.

INDIVIDUAL STOCKS

AAPL is finding support in the lows $460s.  Holding here and using $460 as a stop is a reasonable way to trade the rebound.  But if the market breaks $460, look for a wave of stop-loss selling from a lot of other like-minded traders.  I’m still suspicious of this stock because supply and demand is stacked against it.  If everyone thinks this is a great value and already own the stock, where are the new buyers going to come from?

Stay safe