Don’t be a pig

By Jani Ziedins | End of Day Analysis

Nov 05

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks gave up a lot of ground in the first hour of trade, but recovered most of those losses by midday.  The market continues holding above 1750 as neither buyers nor sellers are showing up with enough force to move us out of this region.  Markets typically grind higher and fall swiftly.  Holding these levels for more than two weeks suggest this is more grind like since we are already moved beyond the window that qualifies as swift.

MARKET SENTIMENT
Holders are content holding and prospective buyers are sitting on their hands.  This limits supply and keeps a lid on new demand.  The result is tight, sideways trade.  At some point we will either run out of buyers propping up these levels, or those sitting on the sidelines will grow tired waiting for a pullback and jump in at current levels.  Since most of the profit taking and cynical, new-high shorting happened last week, the advantage shifts to the bulls.  The market swallowed that supply without missing a beat and will likely rise as the number of available shares dries up.

TRADING OPPORTUNITY
Expected Outcome:
It feels like the market wants to hold these levels for the near-term.  That means we should expect several failed breakouts and breakdowns before this consolidation is over.  When the market trades sideways, the best move is buying weakness and selling strength.

Alternate Outcome:
The market is more relaxed than it has been at any other point this year.  While that doesn’t automatically mean we are on the verge of selling off, it does make us more vulnerable to a new and unexpected headline.  While rallies often go longer and further than anyone expects, eventually it will end and we need to be ready to jump out before everyone else.

Trading Plan:
In sideways markets, buy weakness and sell strength.  Be wary of the obvious breakouts and breakdowns because the market is likely to throw a few head fakes at us over the near term..  While we are ultimately setting up for a continuation higher, the market will likely continue trading sideways for a bit longer as it consolidates recent gains.

INDIVIDUAL STOCKS
TSLA was hammered after-hours as it beat official estimates, but fell short of what the market was secretly hoping for.  While the company continues its strong growth, it isn’t taking over the world as quickly as the most optimistic bulls were hoping for.  Is this a buyable dip, or the end of the drunken euphoria?  That is hard to say for sure.  The best trade is letting this play out for a few days.  If the stock quickly finds a bottom, then we can buy the dip next week.  But if paranoid owners start rushing for the exits, it could get ugly and it would be foolish to try and catch that knife.  We are in this to make money and the only way to do that is by selling our winners.  There is nothing wrong with taking some profits off the table because we all know what happens to the pigs.

Plan your trade; trade your plan

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.