Apr 302013
 
S&P500 daily at end of day

S&P500 daily at end of day

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.

TSLA daily at end of day

TSLA daily at end of day

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

 Posted by at 10:36 pm on April 30, 2013
Apr 302013
 
S&P500 daily at 1:18 EDT

S&P500 daily at 1:18 EDT

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.

AAPL daily at 1:18 EDT

AAPL daily at 1:18 EDT

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

 Posted by at 11:21 am on April 30, 2013
Apr 292013
 
S&P500 daily at end of day

S&P500 daily at end of day

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.

GLD daily at end of day

GLD daily at end of day

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

 Posted by at 11:23 pm on April 29, 2013
Apr 292013
 
S&P500 daily at 1:20 EDT

S&P500 daily at 1:20 EDT

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.

GOOG daily at 1:20 EDT

GOOG daily at 1:20 EDT

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

 Posted by at 11:22 am on April 29, 2013
Apr 282013
 
S&P500 weekly at end of week

S&P500 weekly at end of week

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

 Posted by at 9:53 pm on April 28, 2013