Thursday, February 20, 2014

Maginot Line or Just Another Resistance Level?

Nothing should surprise anyone anymore as this market moves forward into 2014. Yesterday the market actually had an old fashioned battle at resistance levels which held for the day. Helping the bear case were the following factors:

1 - An overbought market that had rallied for several days in a row and was running out of steam

2 - A major S&P 500 resistance level that was being approached by a bullish army that was out of gas.

3 - International turmoil led by the events in The Ukraine and Venezuela.

4 - Statements in the Fed minutes that some Fed officials would consider raising rates earlier if the economy showed some strength. This was the last straw - see second circle on the tic chart below - that put the knife in the market's back. Of course, in hindsight, the statement was not a big deal, but the headline scared me at the time..

Now for a couple of news items:

TSLA - I think TSLA is a great company whose share price is overpriced and has been given a performance pass by Wall Street given its romance with Elon Musk and the potential of electronic vehicles. Yesterday's earnings were a a clean beat and the guidance was very nice. But the guidance is only calling for a 55% increase in Model S sales and that is contingent upon the battery supply issue being resolved by mid 2014. Musk said that the battery issue will be solved by then. He also projected a much greater production rate by year end. Then he stated that the roll out of the Model X would be delayed into 2015.

If he can do all of these things without a hitch, the stock may have a chance. But 55% growth is not the stuff of dreams for such a high priced stock. And the battery issue has yet to be resolved. We all know Murphy's Law. I would like to play TSLA and given the gap up, the cult status, the high number of shorts, it may be smart to stay out of the way until this move runs out of momentum. I am waiting for the opportunity to short TSLA, but may even day trade it long given the day tic chart.

FB - They bought What's App and everyone said who the heck are they? I have used What's App for years to communicate with friends and relatives in Europe for free. It is a way to text message without incurring the large costs of international texting that the phone companies charge. It is a great App and a smart move by FB. I am in no rush to buy FB here, but long term this sounds like the right thing.

I am basically flat now, having made some profits in my SPY short and given back some in PXD, which had a failed breakout during the day.

In my view, the market was due for a sell off, but it was a tough battle until the bulls caved in. It is probably time for a pause, some choppy action and maybe even a sell off. But my view as a seer has been very difficult in this psychotic market environment.

BIG Capital Advisors and Seaview Partners are not responsible for your investment decisions. We believe very strongly in our opinions, but you must perform your own due diligence in making your investment decisions.
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