Aug 16

The profit opportunity everyone should have seen coming

By Jani Ziedins | End of Day Analysis

End of Day Update:

On Wednesday the S&P 500 forgot about Turkey and rallied sharply on news the US and China restarted trade negotiations. Those headlines were enough to put traders in a buying mood and pushed us back near all-time highs.

I assured readers on Tuesday that we didn’t need to worry too much about those Turkish headlines because this current crop of confident owners refused to sell far worse news. In fact, I said we would be lucky if prices dipped to 2,800 support because that would give us a great entry point. As luck would have it, we dipped to 2,800 support Wednesday morning before bouncing back to the highs. Savvy traders that understood what was going on were able to make a quick buck at the expense of those that didn’t know any better. (sign up for free email alerts so you don’t miss the next trading opportunity)

Last week Turkey was new and unexpected, something traders hadn’t been talking about previously. But one week and two dips later, it has come a long way and the initial shock is wearing off. Friday will mark a full week for traders to process these developments and execute a response. Traders who fear Turkey have been given plenty of time to sell and is what drove this week’s weakness. But as expected, the majority of confident owners shrugged off the news and continued to stick with their favorite stocks. If they refused to sell an escalating trade war between the two largest economies in the world, did anyone actually expect them to overreact to problems in some minor eastern European country? Turkey is getting priced-in and each subsequent recycling of those headlines will have less and less of an impact.

Wednesday’s dip to support was a great opportunity for anyone that missed the first run to all-time highs to jump aboard this rally. But now that we are back near the highs, chasing becomes riskier. The path of least resistance is still higher and this market is setting up for a strong year-end rally, but over the near-term we should expect a little more choppiness as we consolidate recent gains. That said, any positive developments from the negotiations between the US and China could fuel a swift move up to 2,900. I don’t mind owning stocks here, but anyone that missed Wednesday’s discounts and is trying to buy now should be willing to sit through a little near-term volatility.

And as usual, there was nothing to do with our long-term investments except keep holding them. Prices will keep going higher over the next few months and we want to be there to enjoy the ride.

If you found this post useful, join the thousands who follow me on Twitter so you don’t miss future updates: 

Jani

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Aug 14

How a savvy trader could have missed this Turkey mess

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Tuesday the S&P 500 rebounded from Monday’s fizzle and is recovering from a brief bout of Turkish worries. The names have changed, but the story is the same. A small European country is struggling and threatening to take the rest of Europe down with it. These headlines were the catalysts for last week’s tumble from the highs.

While we are still under last week’s highs, fear of Turkey’s economic collapse has been contained. A one day bounce is far from conclusive, but three days into this selloff and we are down less than 1%. That means most traders are definitely not overreacting to these headlines. This remains a “half-full market” and most owners are willing to give it the benefit of doubt.

While these Turkish headlines are new and impossible to predict, it was still possible for a savvy trader to sidestep this dip. I wrote the following last Thursday when stocks were at record highs and before Turkey hijacked the front page of the financial section:

Even though the market left most of its concerns behind as we climbed to these highs, that actually makes this a more dangerous place buy. Smart traders buy discounts, they don’t chase premium prices. Risk is a function of height and this week’s gains made this one of the riskiest places to buy all year. Now don’t get me wrong, I’m most definitely not calling a top or predicting and imminent collapse. But what I am saying is we rallied up to resistance and it is normal and healthy for the market to pause and even dip a little.

I don’t have a crystal ball so I don’t know if we stall at current levels, or if we break through 2,880 resistance and stall above it. Either way it doesn’t really matter because the risk/reward has shifted against us and this is a better place to be taking profits than adding new money. It is a fool’s errand to try and decide if the peak will be 2,862, 2,875, or 2,892. The point is ‘good enough is good enough’ and that is all that matters. And the thing to remember is we cannot buy the next dip if we don’t have any cash. Buy weakness, sell strength, and repeat until a good year becomes a great year.

But just because we slipped from the highs doesn’t mean we need to run for the hills. As expected, the selling has been limited and we didn’t even fall to 2,800 support. As with every other headline over the last six months, owners are reluctant to sell. After years of selling prematurely and regretting it, most traders have learned to hold no matter what. That has been the smartest way for long-term investors to navigate these dips and it doesn’t look like anything changed yet.

Turkey is a small nation and by itself it cannot take down the global economy. No doubt it could cause a lot of pain for some European banks, but there is no reason to think the ECB won’t come to the rescue this time too. That is why the market’s reaction to these headlines has been so muted.

That said, the danger with the above assumption is it means very little risk has been priced in. If everything works out, the upside is limited because we didn’t dip very far. But this complacency leaves us vulnerable if things do not go as planned. I don’t expect this situation to make much of a dent in the global economy, but we have to monitor it closely because if the situation deteriorates, it will weigh on stocks. Unlike Trump’s trade war, larger Turkish risks have definitely not been priced in.

The trader in me misses the days when headlines like these would lead to widespread predictions of another economic collapse. Unfortunately the days of 10% swings in the indexes are long gone. Now the best we get is a 1% dip. The stability is great for care-free holding of long-term positions, but for trading opportunities, there is a lot to be desired.

The dip to 2,820 and subsequent bounce presented us with a fairly weak risk/reward. Day traders could have profited from this few hour move, but for me I’m waiting for something more worthwhile.

While it already looks like the Turkish selloff is dead, we need to hold this bounce for a few more days to be certain. There is a chance this bounce could fizzle and we continue slipping back to 2,800 support. If that happens, that will be a far more attractive entry point. Until then I will keep watching, waiting, and hoping for that next profitable opportunity.

As for our longer-term positions. There is nothing to see here. Stick with what has been working and ignore the noise. The market is still setting up for a strong rally into year-end.

If you found this post useful, join the thousands who follow me on Twitter so you don’t miss future updates: 

Jani

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Aug 09

What to expect now that we reached the highs

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Thursday the S&P 500 slipped for a second consecutive day, but “slipped” is a bit of an exaggeration since combined both days didn’t even register a 0.2% loss. That leaves us still within 1% of all-time highs as we simply slow down following last week’s impressive bounce off 2,800 support.

Long gone are last month’s trade war and rate-hike fears. Funny how calming rising prices can be. But this isn’t a surprise to anyone who has been reading this blog for a while. Long ago we recognized this market’s strength. While others were waiting for the impending collapse, we saw a market that refused to go down no matter how bad the headlines got. One of the things I learned a long time ago is what the market is not doing is often more insightful than what it is doing.

There are few things more bullish than a market that refuses to go down on bad news. All it took was a break from the negative headlines and this market would surge on “no news is good news”. And that is exactly what happened. Remember, we trade the market, not the headlines. If the market doesn’t care about trade wars and rate-hikes, then neither should we.

That explains this markets assent to all-time highs, but the trader in all of us want to know what comes next so we can profit from it. While I’ve been calling for this move to all-time highs, I’ve also been warning that prices would run into resistance at these levels. We are still stuck in the slower summer months and that means we lack big money’s firepower to drive large directional moves. That won’t come until after Labor day when institutional money managers return from their summer cottages. Until then we should expect the market’s moves to be more measured and breakouts and breakdowns to stall quickly.

Even though the market left most of its concerns behind as we climbed to these highs, that actually makes this a more dangerous place to be buying. Smart traders buy discounts, they don’t chase premium prices. Risk is a function of height and last week’s gains made this one of the riskiest places to buy all year. Now don’t get me wrong, I’m most definitely not calling a top or predicting and imminent collapse. But what I am saying is we rallied up to resistance and it is normal and healthy for the market to pause and even dip a little.

I don’t have a crystal ball so I don’t know if we stall at current levels, or if we break through 2,880 resistance and stall above it. Either way it doesn’t really matter because the risk/reward has shifted against us and this is now a better place to be taking profits than adding new money. It is a fool’s errand to try and decide if the peak will be 2,862, 2,875, or 2,892. This point is good enough for me and that is all that matters. And the thing to remember is we cannot buy the next dip if we don’t have any cash. Buy weakness, sell strength, and repeat until a good year becomes a great year.

From a short-term trading perspective, this is a better place to be taking profits than adding new money. But for our longer-term investments, stick with what is working and that is buying-and-holding our favorite stocks. We might see a little near-term weakness, but this market is strong and the rally into year-end is still on.


Stock crashes are breathtakingly quick, which means NFLX and FB hanging onto current levels for two weeks tells us the post-earnings selloff is largely done. At this point it would take a new round of bad news to launch the next move lower. While it will take a while to recover recent losses, it seems most owners are willing to give their favorite stocks the benefit of doubt and are sticking with them. That means we should expect FB and NFLX to retake their leadership position later this fall. Meanwhile GOOGL, AMZN, and AAPL are either making new all-time highs or are just about to. The best trade of the first half of 2018 is getting ready to be the best trade of the second half.

It didn’t take long for Bitcoin to tumble all the way to $6k support. Long gone are the hopes of retaking $8k and now only a few hundred dollars separates us from another lower-low. This chart is very sick and we still have a way to go before this over.

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Jani

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