PM: Hard to fight this bull

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