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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
On Thursday the S&P500 surged higher, extending Wednesday’s bounce off of 2,600 support and the 200dma. Markets sold-off Tuesday on fears of 3% Treasuries, but that nervousness and uncertainty evaporated as the focus returned to earnings. So far Facebook and Amazon knocked the ball out of the park and that strength is putting investors at ease.
While anyone can explain what happened after the fact (hindsight bias), it wasn’t hard to see this bounce coming a few days ago. This is what I told readers in Tuesday’s free blog posts:
“The thing to remember about today’s 3% headline is bond prices have been rising since Trump’s election. For practical purposes, 3% is no more significant than 2.9% or 3.1%. The round number simply makes for a better headline. Will 3% change anything, probably not. If the market didn’t care about 2.5%, 2.7%, or 2.9%, then 3% won’t matter either. This market has been incredibly resilient because confident owners refused to sell every bearish headline thrown at it over the last three months. Will this time be different? Not likely.”
Predicting the market isn’t hard if you know what to look for because the same thing keeps happening over and over. But just because we know what is going to happen doesn’t make trading easy. Far and away the hardest part is getting the timing right. That is where experience and confidence comes in. Several months ago investors were begging for a pullback so they could jump aboard this raging bull market. But now that prices dipped, rather than embrace the discounts, these same people are running scared. Markets dip and bounce all the time, but we only make money if we time our trades well.
The most important thing to remember is risk is a function of height. The higher we are, the greater the risks. By that measure, Tuesday’s dip near the 2018 lows was actually one of the safest times to buy stocks this year. Did it feel that way? Of course not. But that is why most people lose money in the stock market. If most people were selling Tuesday, and most people lose money, then shouldn’t we have been buying? Given the market’s reaction today, the answer is a pretty resounding yes.
The point of this post isn’t to brag about the calls I made, but letting people know it is possible to read the market and make money from these swings if they learn to look at the right things and ignore all the other noise around them.
And this doesn’t just apply to this week’s move. In January I warned readers the relentless climb higher was unsustainable and incredibly risky. Just when the crowd was feeling the most confident, February turned into a bloodbath. But what most people failed to realize is that dip was actually the safest time to be buyings stocks because prices were dramatically lower. It is always safer to buy when fear and uncertainty are peaking than when everyone is calm and confident. This year, far and away the riskiest time to own stocks was in January when everyone was confident and the safest was to buy when everyone was scared in February.
Then we come to what happened since. I told readers the selloff did enough damage that we shouldn’t expect a rebound back to the highs. Instead, look for a sideways consolidation and a trading range to develop. In a trading range we buy weakness and sell strength because every directional move fizzles and reverses. And what has happened since February? Every directional move fizzled and reversed.
While it is easy to identify a trading range when looking at an old chart, these things also easy to spot in real-time. Unfortunately most people miss it because their judgement is clouded with bullish or bearish biases. They assume every move the higher or lower is the start of the next big move. But just when everyone is convinced the rally is back on, or the selloff is about to get worse, the move fizzles and reverses.
I don’t have a crystal ball, but I have been doing this long enough to recognize these patters and profit from them as they happen. If you learn what to look for, you can do it too.
If you found this post useful, return the favor by sharing it on Twitter, Reddit, Facebook, and everywhere else traders gather.
Jani
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Volatility came roaring back Tuesday as the S&P500 plunged 1.3%. The most noteworthy headline was 10-year Treasuries topping 3% for the first time in several years.
Rising interest rates are one of those half-full, half-empty things. Interest rates are recovering to more normal levels as we finally put last decade’s financial crisis behind us. But a big portion of the stock market’s strength comes from high valuations due to ultra low-interest rates. Stocks and bonds compete for investment dollars and when bond returns were laughable, a lot of bond investors turned to equities for better returns. But now that bonds are becoming more attractive, some of that money is flowing back into bonds.
The thing to remember about today’s 3% headline is bond prices have been rising since Trump’s election. For practical purposes, 3% is no more significant than 2.9% or 3.1%. The round number simply makes for a better headline. Will 3% change anything, probably not. If the market didn’t care about 2.5%, 2.7%, or 2.9%, then 3% won’t matter either. This market has been incredibly resilient because confident owners refused to sell every bearish headline thrown at it over the last three months. Will this time be different? Not likely.
Two weeks ago I wrote the following in my Free-After Hours Analysis and it still every bit true today:
“Technically we are at the upper end of the latest trading range and that leaves us vulnerable to a dip back to the lower end of the range and even a test of support. But that won’t change anything. This weakness would be a buying opportunity, not an excuse to sell stocks. This is a resilient market and these discounts are attractive. A couple of months ago people were begging for a dip so they could get in at cheaper prices. The market answered our prayers. Don’t lose your nerve now.”
The thing to remember about market crashes is they are brutally quick. We’ve been trading sideways since February’s selloff. That is in the face of relentless bearish headlines. If this market was going to crash, there have been more than enough excuses to send us tumbling a long time ago. Instead of selling these bearish headlines, confident owners are holding for higher prices. When owners don’t sell bad news, it stops mattering. That is what happened over the last 90 days and it is what is going to happen here.
If the market is in a trading range, should we be buying this weakness or selling it? Most people lose money in the stock market because they buy when they feel safe and they sell when they get nervous. Obviously buying high and selling low is a horrible strategy. What we really want to do is buy low and sell high. But that is a lot easier to say than it is to do. That means we need to zig when everyone else zags. That means buying when everyone else is selling. The best trades are often the hardest to make.
Everyone’s favorite FAANG stocks got hammered today. But this isn’t a surprise. These highfliers magnify the market’s move in both directions. They go higher than everything else, but that also means they get hit the hardest on bad days too. Weeks ago people were begging for a pullback so they could get in. The market answered their prayers. The question is if any of those people have the courage to buy. While we could see a little more near-term weakness, months from now people will be kicking themselves for not buying more at these levels.
Jani
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
On Thursday the S&P500 bounced back from Wednesday’s modest weakness and continues hovering near 2,650 resistance. Headlines remain overwhelmingly negative. Wednesday added a potential military response in Syria and confirmation from the Fed to expect three more rate-hikes this year. That is on top of Trump’s trade war and Muller’s growing investigation.
But rather than fear these waves of bad news, the market is holding up remarkably well. Owners have been given more than enough excuses to drop everything and run for the exits. Yet most of them seem content holding for higher prices. Strong price-action in the face of bad news is typically very bullish. If this market was going to crash, it would have happened by now. That tells us the path of least resistance is higher, not lower.
While it is tempting to argue with the market and insist it must go down because of all of these bearish headlines, the thing to remember is we trade the market, not the news. If the market doesn’t care about these headlines, then neither should we. The trade war and Muller’s investigation has been with us for weeks, even months. Everyone who fears these headlines has been given plenty of time to get out. Every one of these nervous sellers has been replaced by confident dip buyers who demonstrated a willingness to hold these risks. Once all the people who are afraid of a headline are out of the market, then the headline stops mattering because it is priced in.
Technically we are at the upper end of the latest trading range and that leaves us vulnerable to a dip back to the lower end of the range and even a test of support. But that won’t change anything. This weakness would be a buying opportunity, not an excuse to sell stocks. This is a resilient market and these discounts are attractive. A couple of months ago people were begging for a dip so they could get in at cheaper prices. The market answered our prayers. Don’t lose your nerve now.
The thing to remember is we cannot pick a bottom and it isn’t even worth trying. Once we come to terms with that idea, then we are left choosing between buying too early, or buying too late. If prices slip a little further over the next few days and weeks, all that means is we bought a little too early. No big deal. As I said earlier, if this market was fragile and vulnerable to a crash, it would have happened by now. Instead we should be impressed by how well it is holding up despite these waves of negative news. That tells us this market is strong, not weak. These are attractive discounts attractive even if prices slip a little further, which they might not. Wait too long and you will miss this opportunity.
Bitcoin surged today on news that some high-profile money managers are buying. While on the surface that sounds like good news, it probably isn’t as bullish as it seems. First, these guys are really good at keeping secrets when they are buying. They only let it out after they finished accumulating their positions because obviously they don’t want the price to surge while they are buying. Second, if these whales have been buying over the last few weeks and months, shouldn’t prices have bounced more meaningfully? If this is the best BTC could do while these big money managers were accumulating positions, what happens when they finish buying? The knee-jerk reaction was to send prices higher on the news, but unless other people follow these big names into Bitcoin, prices will resume their down-trend. I don’t expect prices to bounce until we get in the $4k range and all today’s headlines do is delay the inevitable.
Much like the broad market, the FAANG stocks are basing and are on solid ground. These are the discounts we’ve been waiting for and months from now people will be kicking themselves for not buying more at these levels. Have we put in the bottom yet? Maybe. Maybe not. But either way this will be a profitable position months from now. Our P&L doesn’t care if we buy early or we buy late, as long as we buy.
Jani
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P500’s whipsaw continues as Monday’s fizzle turned into Tuesday’s surge. On Monday the market opened strong following a weekend where tariff headlines cooled. Unfortunately the relief was short-lived because a FBI raid on Trump’s personal lawyer sent the market tumbling from its early highs. But Monday night the president of China took a conciliatory tone in a speech about trade and that was enough to kick off Tuesday’s buying frenzy. What does Wednesday have in store? If overnight futures falling 0.5% are any indication, it looks like another whipsaw is headed our way.
Lets discuss the big headlines one at a time. Stocks popped Tuesday when China’s president said he wanted to open the country up to more free trade. While that was a good start, it is a long way from a done deal. As they say, talk is cheap. What these promises of freer trade don’t include is a timeframe and Trump has often accused China of appeasing previous administrations with phony promises it never delivered on. Chances are good Trump will brush off these Chinese overtures and keep applying pressure. And more than that, let’s remember this is the “Art of the Deal” president. If the Chinese really are willing to give an inch, expect Trump to demand a mile. Without a doubt the trade headlines are anything but over and we should expect a bumpy road as we approach next month’s tariff deadlines.
The second story dominating headlines is Muller’s investigation into the Trump administration. The knee-jerk reaction was for owners to sell the news of the FBI raid. But reality is most of that reactionary fear is misplaced. Trump already delivered on tax and regulatory reforms, so most of the good stuff from the market’s perspective is already behind us. If Trump gets bogged down by a scandal, it won’t really affect the things the market cares about. In fact, given Trump’s strong nationalist bent lately, it could actually be a good thing for stocks. If a scandal consumes Trump’s time, energy, and political capital, that means there is less he can do to screw thing sup. As strange as it sounds, a paralyzed Congress and White House is actually bullish. Two decades ago when the Clinton White House was embroiled in a scandal that eventually lead to Clinton’s impeachment, the stock market actually went up. That’s because our government was too busy discussing a blue dress to mess up the economy. Most likely the same thing will happen here. The less our politicians do, the better off we are.
Technically speaking, the market continues hovering near the lows and is falling into a 2,600ish-2,650ish trading range. The problem with sticking near the lows is it makes it more likely that we will stumble under them. Violating widely followed technical levels near 2,600 and 2,550 will trigger swift waves of stop-loss selling and send us tumbling. On the other side, breaking 2,650 overhead resistance is unlikely to trigger waves of breakout buying. Instead demand will most likely dry up as those with cash adopt a wait-and-see approach given all the volatility and uncertainty that surrounds the market. Remember, stocks fall a lot faster than they go up. whi
While the near-term prognosis for stocks is cautious, the economic outlook is actually quite positive. That means any near-term weakness is simply another dip buying opportunity. This is especially true of the vaunted FAANG stocks. These tech highfliers are carving out a base and a few months from now people will be kicking themselves for not buying these discounts. These are attractive levels for anyone with a longer time horizon even if we fall a little lower over the near-term. Remember, no one can consistently pick a bottom. That means either we buy too-early, or we buy too-late. What a trader chooses to do largely depends on their personality and risk tolerance.
It seems like everyone has forgotten about bitcoin and it hardly gets mentioned in the mainstream financial press anymore. That’s a problem for bitcoin bulls because they need the exposure to encourage new buyers to come into the market. As I’ve been writing about for a while, bursting bubbles take six months or more to play out. That happened during the first three major corrections in bitcoin and there is every indication that is what is happening here. At best we are in the middle innings and we should expect further weakness to come. While $6k seems to be providing support, let’s not forget we said the same thing about $14k, $12k, $10k, $9k, $8k, and $7k. I hope everyone sees the pattern here. Expect bitcoin to undercut February’s lows over the next few weeks and for that to trigger a wave of defensive selling that doesn’t stop until we slip into the $4k range. Then and only then can we buy the dip for a quick bounce.
Jani
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By Jani Ziedins | Scorecard
Weekly Analysis and Scorecard:
It was one hell of a week for the S&P500. Trump’s escalating trade war and the Chinese retaliations dominated headlines. At last count we ran through three rounds of tit-for-tat tariffs and subsequent retaliations. Combined both sides are looking at $300 billion in products being taxed at up to 25%. If the two largest economies battling a trade war doesn’t send a shiver through global growth, I don’t know what will.
Early in the week there was optimism this was little more than posturing ahead of far more sensible negations and compromises. By midweek the markets surged higher in relief and left Monday’s lows in the dust. But any feelings of relief were short-lived because Thursday night Trump lashed out at China’s “unfair retaliations” and tripled the size of his proposed tariffs. That sent markets into a tailspin Friday and we finished the week near the lows.
Trump promised us he didn’t want a trade war, but his actions say otherwise. What started as a complaint about Chinese policies is now threatening hundreds of thousands of American jobs and higher prices will plunder middle America’s discretionary income. If that is how Trump looks out for hard working Americans, they would probably be better off if he stopped trying to help them.
I wrote a fairly critical post Thursday evening. If Trump is your guy, then you probably won’t like it. But if you want to understand what is going on and how it affects the stock market, it is a worthwhile read.
As for next week’s outlook, expect the volatility to persist. The market was willing to give Trump the benefit of doubt and is why prices rebounded nicely in the middle of the week. But Thursday night’s betrayal will stick with traders for a while and they will be far less willing to give him a pass next time. Even though this trade war will most likely cool down over the next few weeks, don’t expect traders to chase stock prices higher anytime soon.
Weekly Scorecard
Even though it was a challenging week for the market, my analysis proved to be quite insightful and profitable.
Last week I warned subscribers:
While the market’s resilience is impressive, we could still see a little more near-term weakness before this is over. Rebounds from oversold levels are shockingly fast. Instead of rebounding higher, we seem to be drifting sideways. The market rarely gives us this long to buy the bottom and that means we might not be at the bottom yet. This is still an attractive level to buy the discounts, but any dip-buyers need to be patient and be prepared for a little more weakness.
This was the Friday before Monday’s dramatic, 2.3% plunge.
But rather than run for the hills, on Monday I told subscribers:
Most likely this [trade war] won’t amount to much over the near-term and prices will rebound once the headlines cool off. But until then, expect volatility to persist. Thing will get ugly if Trump and China turn this into a major trade war, but that is the worst case scenario and is weighing on the market today. Anything short of that will be a relief and prices will rebound. We could see further near-term weakness, but most likely this is the time to be buying, not selling.
Two days later the market was 100-points.
Tuesday’s analysis proved to be prophetic in both directions:
Trump is the biggest wild card in this. If he says the wrong thing, that could lead to another 3% down-day. If he says nothing, then prices rebound and dip-buyers make a lot of money. Without a doubt that makes this a challenging time to own stocks, but the only way to make money is by taking risks. By the time things are safe, the discounts will be gone.
That afternoon stocks exploded higher when Trump held his tongue following China’s second retaliation. For a brief moment in time traders thought the worst of the trade war headlines were behind us. And Wednesday the surge higher continued. But Thursday night Trump proved everyone wrong by tripling down on his trade war. Thursday Night I told free blog readers:
Are today’s threats simply more political posturing ahead of negotiations? I wish I knew. But the one thing I do know is the market hates uncertainty and I don’t think the stock market is going to forgive Trump as easily this time. Fool me once, shame on you. Fool me twice, shame on me. It will be interesting to see how this turns out, but this is one of those things that is better watched from the safety of the sidelines…
…I was one of those confident dip buyers and everything looked awesome this afternoon as my profits were piling up. But all of a sudden I’m not as confident anymore. I have a reasonable profit cushion, but I’m definitely less confident than I was this afternoon and I will seriously think about locking in profits tomorrow. If too many people feel the same way, Friday could be an ugly day. The only thing we can do is wait for China’s response and hope that confident owners stay that way.
On Friday the stock market actually recovered a big chunk of those overnight losses. But that was as good as it got because not long after the stocks rolled over and we didn’t stop until we fell more than 2%, erasing nearly all of the week’s prior gains. I was lucky the market opened fairly strong and I was able to lock-in profits before things got a lot worse.
Now I will be the first to admit I was a bit lucky in calling this week’s moves so well and it often isn’t this easy. But the better we understand the market, the more lucky we tend to be.
Looking ahead, even though I locked-in profits this week, Friday’s volatility is setting up another buyable dip and I will be looking to jump back in soon. The best profit opportunities come from the scariest markets. Not all that long ago people were begging for a pullback. Now that the market has answered our wishes, don’t lose your nerve.
Jani
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By Jani Ziedins | End of Day Analysis
Free After-Hours Update:
Thursday was another strong day for the S&P500. Unfortunately that doesn’t matter anymore because after the close Trump announced he wants to triple the Chinese tariffs. It seems China hurt his feelings when they “unfairly retaliated” against his first and second rounds of tariffs.
Clearly someone doesn’t understand how trade wars work. Unfortunately that person is the president of the United States. To save one-thousand jobs in the steel and aluminum industry, Trump is now threatening hundreds of thousand, if not millions of Americans jobs in other industries. Even the steel and aluminum industries are opposed to his trade war because it doesn’t matter what aluminum and steel prices are if their manufacturing customers’ businesses are crumbling.
The overnight futures plunged 1.5% on the news. If that’s all that happens, then we should count ourselves lucky. The market’s latest rebound was based on the idea that the worst of the trade war is behind us. That the last couple of weeks of threats were nothing more than posturing ahead of far more reasonable negations and thoughtful compromises. Unfortunately Trump threw cold water on that idea and now the market has been thrown back into turmoil.
I wish I could say this will turn out fine and this is nothing more than the start of another buyable dip. An opportunity for those that missed Tuesday’s rebound to jump aboard the rally. Unfortunately no I longer have those convictions. Things would be different if I knew we were dealing with a “rational actor”. Someone who made sensible decisions based on the facts and chose what was in his own best interests. But clearly Trump is not acting this way. Nearly every member of Congress, both Democrats and Republicans alike are unified against this trade war. Very rarely do both sides of the aisle agree on anything, but they are quickly coming together over this. The business community is equally unified in their opposition to Trump’s trade war. And 100 years of economic experience learned the hard way taught us it is impossible to win trade wars. Too bad Trump isn’t listening.
Are today’s threats simply more political posturing ahead of negotiations? I wish I knew. But the one thing I do know is the market hates uncertainty and I don’t think the stock market is going to forgive Trump as easily this time. Fool me once, shame on you. Fool me twice, shame on me. It will be interesting to see how this turns out, but this is one of those things that is better watched from the safety of the sidelines.
There is a chance Trump could quickly backtrack on his threats. And maybe China’s leadership will be the bigger man and won’t respond to Trump’s threats. But no matter what, traders are quickly learning to distrust Trump. The market hates uncertainty and the way Trump handles himself does nothing but stir up controversy and uncertainty. Mr. Trump, thank you for the tax cuts, but the rest of us would appreciate it if you didn’t touch anything else.
It’s really hard to say how the market will respond to these headlines. A lot of nervous owners have been selling the tariff headlines over the last few weeks. They have been replaced by confident dip-buyers who were unafraid of these headlines because they assumed everything would work out. Which until this evening looked like it was happening. Will these confident dip buyers remain as confident when Trump is threatening to escalate the trade war for a third time? Will they confidently sit through China’s inevitable retaliation? Maybe. Or maybe they will lose their nerve and “get out before things get worse”.
I was one of those confident dip buyers and everything looked awesome this afternoon as my profits were piling up. But all of a sudden I’m not as confident anymore. I have a reasonable profit cushion, but I’m definitely less confident than I was this afternoon and I will seriously think about locking in profits tomorrow. If too many people feel the same way, Friday could be an ugly day. The only thing we can do is wait for China’s response and hope that confident owners stay that way.
Jani
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