Jani

Jun 302015
 
S&P500 daily

S&P500 daily

End of Day Update:

Monday’s one-way selloff took a break Tuesday as we bounced modestly off the 200dma. The S&P500 reclaimed 2,070 twice through the day but was unable to hold those gains and closed closer to 2,060. Volume was even higher than Monday’s selloff as waves of nervous owners sold to eager dip-buyers.

Greece continues to dominate headlines, but now some are claiming Puerto Rico is the bigger contagion threat. I don’t see it, but if the extra excuse helps people rationalize their emotional trading decisions, then good for them.

Technically we still find ourselves above 2,050 support and the 200dma. Both levels provided meaningful support since late last year and that was enough for buyers to rush in and buy the dip. The risk is emotional selloffs typically end when we run out of emotional sellers. Today’s modest gains on elevated volume show there is still a decent number of sellers bailing out of this market. More interesting would be a low-volume bounce since that tells us we finally exhausted the supply of available sellers. Conventional wisdom claims we want to see a high-volume rebound, but given all the headline uncertainty, don’t expect aggressive buying to save the day. The way Greek politicians are handling the situation, a rational person wouldn’t expect a compromise since inmates are running the asylum.

The most encouraging trade would be holding 2,070 support over the next couple of days. That period of calm allows traders to make more rational decisions. The risk is if we slip under 2,050 and the 200dma, triggering another wave of reactive selling. I’m not encouraged by today’s high-volume, weak trade and it seems like prices still want to go lower. But even at the risk of further weakness, this is still a better time to be buying than selling. Stay strong and resist the temptation to join the emotional herd of sellers.

Individual Stocks:

$AAPL – Apple struggles alongside the broad market and it will continue to trade weak until the entire market finds its footing. There is no reason to sell AAPL here, but not much reason to buy it either.

FEYE daily

FEYE daily

$EBAY – Ebay showed resilience around $60 support and the strongly rising 50dma. While all stocks are vulnerable to widespread selling, Ebay’s strength today showed many owners still believe in this story and are not ready to give up on it.

$FEYE – FireEye also found support at its 50dma, but the stock has a larger hill to climb since it finds itself more than 10% off of recent highs. The faster the rise, the harder they fall and clearly that was the case here. It is critical to avoid high-fliers during volatile periods because their drawdowns will be multiples of more conservative stocks, but the reward will be equally impressive once the stock reclaims $50.

$ALGN – Align continues trading well and is acting like it is immune to Greece all the other stories dominating headlines. This is definitely one worth keeping an eye on when the broad market regains its footing.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL $EBAY $FEYE $ALGN

 Posted by at 10:29 pm on June 30, 2015
Jun 292015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

The S&P500 plunged over 2% as Grexit fears launched into overdrive. We smashed through 2,070 support and closed a hair above the 200dma. Volume was elevated, but surprisingly low for such a dramatic move. No doubt the holiday-shortened week contributed to this slower than expected volume. Of course it would be more accurate to state it the other way; our slower than normal week contributed to this outsized volatility. When big money is on vacation, markets are often less stable, especially when spooky headlines get involved.

Two-weeks ago we traded near all-time highs when many investors assumed a Greek compromise was all but signed. This week we crashed to the lowest levels since winter as investors assume the Grexit is all but assured. This is a great example of why smart money trades against the herd. When everyone assumes the deal is done, then it is priced in and there is little upside remaining. That is the perfect opportunity to take profits and wait for the inevitable problems to arise. We’re in this to make money, not own stocks. The only way to beat this game is by taking profits when we are confident and don’t want to sell.

Lets get one thing straight, the Grexit is a non-issue for anyone not living and working in Greece. Our financial system had five years to manage, hedge, and otherwise reduce exposure to a Greek default. Most Greek debt is now held by European governments who can weather these losses. For them it isn’t a big deal because they didn’t enter into these positions expecting a profit, or even their money back. All they were doing is buying stability and time. And given that they delayed the inevitable Greek default by five years, they did a pretty good job. While a few politicians might lose their jobs and damage their legacy over this, the financial system will survive without Greece because of the time they bought us.

As for the markets, they are the most emotional when uncertainty is at its greatest. Many stock owners took a sell first, ask questions later approach to these headlines, offering their stock at a steep discount to anyone willing to take the risk. But as often the case, one person’s loss is another’s gain. The time to sell was two-weeks ago when we didn’t want to sell. Anyone with a longer-term view, today is the wrong time to sell. Resist the temptation to throw your trading plan out of the window and join the emotional herd rushing for the exits. For those lucky enough to be in cash, the best trades are the hardest to make. While we don’t want to recklessly buy every dip, we need to be prepared to jump in when everyone is convinced it will only get worse. That is the point where the last of the holdouts breakdown and hit the sell button. Once the last of the hopeful have given up, we run out of sellers and stop going down.

Individual Stocks:

Everything went down today because there is no safe harbor during an emotional dash for the exits. But once the anxiety passes, like it always does, the resulting price action will reveal which stocks are ready to lead the next leg higher. The stocks that fall the least and rebound the quickest show us who the true market darlings are because they’re stocks traders are most excited to own reluctant to sell. While it is a little early to be buying the dip, look for strong price-action and be ready to buy before everyone else does.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL

 Posted by at 10:56 pm on June 29, 2015
Jun 252015
 

End of Day Update:

The S&P500’s indecisiveness continues as last week’s rebound turns into this week’s selloff. The index slipped back under the 50dma and closed just two points above 2,100 support. Volume was average, but higher than recent lethargic, summer trade.

We received positive economic data and Obamacare news today, but Greece weighed on prices as another drop-dead date came and went without a resolution. The most noteworthy thing is for as fatal as Greek headlines have become, US stocks are proving incredibly resilient. The long feared Grexit has never been closer, yet we stubbornly remain within than two-percent of all-time highs. Hardly panic territory.

There are two ways to explain this complacency. Market participants have grown tired of Chicken Little’s false alarms and are ignoring this round of Grexit fear mongering. Everyone who sold the Grexit Part 1, 2, and 3 came to regret that decision as prices rebounded to new highs not long after. Many of those investors won’t be fooled a fourth time and are holding steady in the face of increasingly ominous headlines because they know a last-minute deal is right around the corner.

The other possibility is the market took a rational look at the risk posed by a Grexit and realized that with five-years of preparations, the fallout will have little impact outside of Greece itself. While I’ve written about the limited impact a Grexit for some time, I’m truly surprised the market is reacting so rational to this uncertainty.

The challenge for the speculator is figuring out which scenarios is driving this complacency because that determines the direction we go when Greece finally defaults. If the market assumes Greece won’t default, the default will trigger a panic selloff. But if prices are holding steady because rational investors realize Greece doesn’t matter, then a Greek default will be old news by lunchtime.

While don’t know what will happen next week, I know stocks are not being sold at a discount, meaning anyone buying this risk is not getting paid for it. As a trader I will happily hold risk for the right price. A few points from the highs is not a meaningful discount and is why I’m passing on this trade.

Individual Stocks:

$AAPL – Apple’s attempt to reclaim the 50dma failed for a second day as early strength faded into the close. There is no reason for long-term owners to abandon the stock, but it is hard to be excited about this price-action and the weakness will likely persist.

$EBAY – Ebay continues to trade well following its break above $60. While not a big momentum name, the stock is showing constructive strength by moving to multi-year highs ahead of the PayPal spinoff.

$FEYE – FireEye is searching for support following this week’s 7% pullback from last week’s highs. $50 provided minor support in early June and is trying to do the same here. The risk is predatory traders pushing the stock under $50 to flush out all the defensive stops under this obvious stop-loss level. For those looking to get into FEYE, a break under $50 but then quickly reclaiming it could signal the capitulation bottom of this near-term pullback.

$NFLX – Netflix stumbled from all-time highs after Carl Icahn revealed he closed out of his epically profitable trade. Upgrades, downgrades, and gurus hyping and bashing a stock don’t change the fundamentals. These statements are nothing more than one person’s opinion and their impact on a stock’s price is fleeting at best. There are many reasons to avoid NFLX, but what Icahn did with his position is not one of them.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL $EBAY $FEYE $NFLX

 Posted by at 9:51 pm on June 25, 2015
Jun 222015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

The S&P500 ended in the green as traders anticipate an imminent Greek deal even though the two sides continue to wrangle. This half-full outlook is a material departure from recent crises. Previously the market would devolve into a downward spiral of emotional selling over any headline uncertainty. Greece part 1, 2, and 3. Fiscal Cliffs. Sequester. Taper. Etc. But not this time. Hindsight being 20/20, we know those emotional selloffs were great buying opportunities. It seems traders finally picked up on that trend and are no longer interested in selling the dip for Greece part 4. While that was the right call those other times, is it the right call here?

The reason those other dips were buyable is because the emotional selling priced in the worst-case outcome. When reality turned out less bad than feared, we rallied in relief. But that is clearly not happening here as we rest less than 10-points from all-time highs while the Greek posturing and grandstanding drags on. Clearly this is anything but pricing in the worst-case outcome. What happens if the market assumes a rosy outcome and things turn out less well than expected?

While the market will likely be right this time, sellers are not offering steep discounts to own this risk ahead of a signed deal. That means two things. First, if prices are not repressed, then there is less upside when things turn out okay. Second, what if the market gets this wrong? Limited upside and plenty of downside? Not a trade I want to make and it is best to let other people own this optimism. The more interesting trade will be if this turns into a buy-the-rumor, sell-the-news. Something to watch for in coming days.

Individual Stocks:

$AAPL – Apple continues to be fairly unimpressive. No reason to sell it, but no reason to buy it either. The big headline is management caved to Taylor Swift’s demand that they pay artists during the Apple Music’s free trial. While that will cut into earnings by some token amount, the free publicity this generates will more than make up for it. While this will build extra awareness for the streaming product, competing with Spotify is a much higher hurdle than Apple’s failed attempt to dethrone Pandora with Apple Radio. People didn’t change from Pandora and they won’t switch from Spotify. We can give Apple credit for trying, but this clearly isn’t the innovation shareholders are hoping for.

ALGN daily

ALGN daily

$ALGN – Align continues to show strength following last week’s dramatic test of support. This is the fourth day the stock held well above $60 support and this is telling us buyers, not sellers are in control. Wednesday’s emotional selloff actually built a bullish setup because it chased off many of the timid owners with tight stops. Anyone still in this name demonstrated that their finger is not anywhere near the sell button.

$EBAY – Ebay is recovering nicely from its test of $60 support. What was previously resistance is now a buying level for larger investors that want to accumulate this stock ahead of the PayPal spinoff. Another example of patience and discipline paying off.

$FEYE – On the other side of the coin, FireEye touched $55 last week, but is down two-and-a-half dollars since then. Those that were riding the easy money wave higher hit a speed bump. There is nothing wrong with the stock or the story, but common sense tells us it is unreasonable to expect a stock to go up day after day. Last week I suggested we were approaching a good time to lock-in some profits and buy back in a little lower. We stalled at $55, now we get to see if the pullback slips under $50 support before bouncing. The great thing about those that locked in profits is it doesn’t matter to them if we find support or not since they are watching this weakness from the sidelines.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL $ALGN $EBAY $FEYE

 Posted by at 10:05 pm on June 22, 2015
Jun 172015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

It was a volatile Fed day with strong intraday moves in both directions, but the S&P500 only managed to hang on to a four-point gain by the closing bell. Volume was the highest in a week, but still repressed by the typically slow summer season.

The Fed didn’t say anything that surprised us and is why we finished near where we started. It would have been foolish to expect anything else since every other Fed statement this year failed to break us out of this trading range. The policy remains accommodative, but expect a token rate increase before the end of the year. While many speculators are afraid of rate hikes, the far bigger shock to the system was ending the Fed’s bond buying program last year. Not only did we survive that, but the market is up more than 15% from when the Taper started. Going from 0% to 0.25% in short-term interest rates is trivial in comparison to ending a trillion-dollar money printing operation.

The game of chicken in Greece continues as their politicians refuse to compromise and European leaders are reluctant to call their bluff. Some analysts claim the probability of a Grexit is now up to 50%. This is weighing on European markets, but the S&P500 is less than 2% from all-time highs. Similar headlines five-years ago sent shockwaves through the market, but this time the risk is far less since the financial system has had plenty of time to manage and hedge the risk posed by a Greek default. While we should expect some near-term volatility, the market holding near the highs tells us these problems in Greece are already priced in.

Individual Stocks:

$AAPL – Apple continues to underperform the broad market, closing in the red on a day where the indexes finished in the green. It seems some of the anticipation built up ahead of the Apple Watch’s release and the developer’s conference is slowly leaking out. The stock slipped under its 50dma and is more than 5% off of its 52-week highs. While there are no signs of an impending collapse, the stock might be settling into a sideways trading range.

ALGN daily

ALGN daily

$ALGN – It was a dramatic day for Align as some of their patents came under threat. This dropped the stock $5 from the opening highs. While I’m not in the industry, I suspect ALGN’s branding and relationships with orthodontists are more of a moat than its technical patents. Long-term this won’t be a big deal and healthy competition is always good for business. But in the short-term, anything is possible as traders react emotionally. It is nice to see the price rebound and finish well off the lows. Three more closes above $60 and the storm will have passed, with the added benefit of scaring off the weak and emotional owners. Shakeouts like this improve the upside potential. But until then, treat this stock with extreme suspicion. There is a good chance today’s afternoon rebound will fizzle in coming days and we retest that $60 support.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL $ALGN

 

 Posted by at 9:50 pm on June 17, 2015