PM: Bizarro world

PM Update
The market surged after Friday’s weak employment and MSFT and INTC are leading us higher in this bizarro world scenario.  Who expected this?

MARKET BEHAVIOR
Stocks finally did it, they strung together two consecutive up-days for the first time in over three-weeks.  We surged nearly 30-points since Friday’s opening low, an impressive rebound from the post-employment weakness.  Volume was still below average, but higher than Monday’s exceptionally low turnover.

MARKET SENTIMENT
The market is proving it is an equal opportunity humiliator.  This sideways trade is grinding up both bulls and bears.  Currently bulls have the upper hand, but that’s only if we breakout to new highs.  The way this thing is going, it wouldn’t surprise me to see another plunge after setting a new high Wednesday.

It really feels like the market is stuck in no-man’s land.  Bulls promote the trend and unlimited monetary easing.  Bears say this has gone far enough and we’re due for a pullback.  Both have equally compelling arguments and why the market’s stuck in this trading range.

TRADING OPPORTUNITIES

Expected Outcome:
At this point it is just too difficult to predict the next move.  I expected market weakness, but it just hasn’t happened.  When markets breakdown, they typically roll over fairly quickly.  The resilience shows it is simply not ready yet.  Support and a strong close on Wednesday demonstrates this market has more upside left.  I don’t know if that is ten-points or fifty, we just have to wait and see.  Of course I don’t trust this market, so even if the next move is higher, I don’t have to be part of it.

If the trading range remains intact and we trade lower on Wednesday, the chances for a near-term pullback increases.  We bounced off 1540 two times already and a third test will not be as lucky.  This is a widely followed technical level and expect a large wave of stop-loss and short selling to hit the market if we penetrate these recent lows.

Alternate Outcome:
This rally might only be middle-aged and the recent volatility and skepticism are keeping it younger than most expect.  Challenging all-time highs brought out the cynics and recent dips revitalized the bears.  The rally feeds on this negativity and is why we continue holding up.

The last three-days of nearly straight up gains are stereotypical short-squeeze.  There was little news to justify the buying and in fact the news on Friday was unexpectedly bearish.  Yet here we are, near all-time highs.  I cannot tell if this is the last gasps of the rally or we are just getting started.  Either way, this is a tough place to short the market.

INDIVIDUAL STOCKS
Much of the market’s strength came from old tech.  MSFT and INTC had huge days for such boring names.  It appears rumors of Wintel’s death are greatly exaggerated.

AAPL is still stuck near the lows, but found a little more breathing room.  From a sentiment standpoint, it is interesting to note how the message volume on StockTwits AAPL feed has dropped dramatically.   Maybe people are finally losing interest in this name indicating we are getting closer to the expected rebound.

The big hurdle will be earnings in two-weeks.  This is just anecdotal, but personally I have seen very few iPhone5s in the wild.  I fly a fair bit and will always look to see what personal technology people  using at the airport and on the plane.  There are tons of iPhone4s and Galaxy S3s, but few iPhone5s.  I’m afraid to think what would happen if AAPL actually reported a drop in sales.  There is nothing that will kill a growth story like a lack of growth.  Of course that could be the last plunge before the stock finally rebounds.

NFLX found support at $160 after a bout of selling, but its fate largely lies with the broad market.  If the market continues higher, look for NFLX to follow suit, but if the market breaks down, it will take high-beta stocks like NFLX down with it.  But this dip will be a buying opportunity and the stock’s race higher will continue once the market regains its footing.

Stay safe