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By Jani Ziedins | End of Day Analysis
Free After-Hours Update:
On Thursday the S&P 500 recovered Wednesday’s late-day selloff and continues consolidating recent gains above 2,900 support.
But this is failed selloff is no surprise for regular readers of this blog. This what I wrote a few days ago and Thursday’s rebound played out exactly as expected:
“This market most definitely doesn’t want to go down. All summer it refused countless opportunities to tumble on bearish headlines. As I’ve been saying for a while, a market that refuses to go down will eventually go up.”
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The Fed released its latest policy statement Wednesday and told us it was raising interest rates a quarter percent. This move was widely expected, and the market initially rallied on the news. But later the Fed chairman told us rate hikes would continue through next year, eventually pushing us to 3%. The market got cold feet and tumbled into the red, and the selling got worse after Powell commented he thought stocks were overpriced.
For anyone that lived through 2013’s “Taper Tantrum”, Wednesday’s 0.3% dip wasn’t even a bump in the road. Thursday’s resilient price-action further confirmed most owners are not worried about the Fed’s rate increases…as long as the economic forecasts remain strong. The Fed lifted interest rates eight times over the last few years and another three or four increases over the next couple of years won’t be any more shocking to the system.
As shorter-term traders, the only thing that matters is the market’s reaction to these headlines. And so far stocks are shrugging them off. Maybe this will turn into a bigger deal down the road, but until then we don’t need to worry about it. This is a strong market, and it wants to keep going higher. Until that changes, we stick with what has been working.
The consolidation above 2,900 remains intact. If we were overbought and vulnerable to a correction, this week’s trade war and interest rate headlines were more than bearish enough to send us tumbling. Maybe bears will be proven right eventually, but they are definitely wrong right now. Timing is everything in the stock market and early is the same thing as wrong.
The biggest advantage of being small investors is we don’t need to look months and years into the future like big money managers do. Our smaller size means we can dart in and out of the market and only need to look days and weeks ahead. Things still look great for a year-end rally and that is how we should be positioned. No doubt we will run into challenges next year, but we will worry about those things when the time comes. For now, we stick with what has been working.
There is not a lot to do with our short-term money. Either we stay and cash and wait for a more attractive opportunity, or we stretch our time-horizon and ride the eventual move higher. Of course, there is no free lunch and holding stocks is risky. Anyone waiting for the next move higher needs to be prepared to sit through near-term uncertainty and volatility.
Highflying tech stocks lead Thursday’s charge higher, and worries about this sector are fading from memory. Even FB and NFLX are joining the party and climbed off their post-earnings lows. This hot sector will peak at some point, but this is not that point, and these stocks will lead the year-end rally.
TSLA got hammered after the close when securities regulators sued Elon Musk for fraud and sought to remove him from Tesla. The stock tumbled 13% in after-hours trade as the “Musk Premium” evaporated. While this will be a much bigger story and no doubt the selloff could get larger, I actually think the market is getting this one wrong. TSLA is currently navigating the rocky transition from disruptor to operator. No doubt Musk is a great visionary, but his execution skills leave a lot to be desired. The company no longer needs bold ideas; it needs to deliver on the promises it already made. The company needs leadership to take it from small, niche producer to a global competitor. Many people thought Jobs’ departure from AAPL would end of the company’s ride at the top, but AAPL didn’t need more innovation, it needed execution. And since Tim Cook took the reigns, the stock is up 450%. Something very similar could happen at TSLA……assuming they don’t go bankrupt between here and there. But if the company recruits a world-class operator as its next CEO, this whole episode could actually be a good thing for the company and its stock.
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Jani
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By Jani Ziedins | End of Day Analysis
Free After-Hours Update:
The S&P 500 traded sideways for a second day as it consolidates last week’s breakout to all-time highs. Trump and his trade war continue dominating economic headlines, but so far our stock market doesn’t mind. As usual, confident owners refuse to sell and that is keeping a floor under prices. But stubbornly tight supply is only half of the story. To keep going higher, we need demand and right now that is in short supply.
This market’s restrained breakout isn’t a surprise to readers of this blog. Two weeks ago I wrote the following after prices finally reclaimed 2.900 support:
“Since we are not refreshing through a bigger dip, that means we should expect a prolonged sideways period. When the market doesn’t scare us out, it bores us out. Things still look great for a year-end rally, but we need to be patient and let those profits come to us. This is a slow-money trade and we will have to wait a while before the next fast-money trade comes our way.”
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This market most definitely doesn’t want to go down. All summer it refused countless opportunities to tumble on bearish headlines. As I’ve been saying for a while, a market that refuses to go down will eventually go up. And that is precisely what happened here. But at the same time, there is enough headline uncertainty to keep those with cash from chasing prices higher. Their lack of buying is keeping a lid on this market. No doubt we will keep going higher over the medium- and longer-term, but it will take time for those with cash to warm up to these record high prices.
There is nothing to do with our favorite long-term positions except keep holding them and letting the profits come to us. This is a slow-money market and it rewards patience. As for our short-term money, there isn’t a lot to do here. Either we sit in cash and wait for the next trading opportunity (we cannot buy the next dip if we don’t have cash!), or we stretch our time horizon a little and enjoy this ride higher. But if you are buying, be prepared to ride through a few dips along the way. Remember, this is a strong market and we buy the dips, we don’t sell them.
This market is still setting up nicely for a year-end rally and we should keep doing what has been working. Don’t let the bears convince you otherwise.
AMZN and AAPL continue consolidating following last month’s impressive, but ultimately unsustainable climb higher. Pullbacks and consolidations are a very normal and healthy part of every move higher. These stocks are acting well and I would be far more worried about them if they didn’t pause to catch their breath.
FB and NFLX are basing following last month’s disappointing earnings. But this is a good thing. Traders that missed these highfliers had been praying for a pullback so they could jump aboard. Unfortunately, many of these same people are now too afraid to take advantage of these discounts. The thing to remember is risk is a function of height. These are some of the least risky places to be buying these stocks in six months. Without a doubt, this is a better time to be buying than a few months ago when the crowd thought everything was great.
Bitcoin continues holding $6k support, but I wish I could say that was a good thing. While we held $6k support firmly for nearly six months, every bounce has been getting lower. First, we bounced to $17k. Then it was $12k. $10k came next. After that $8.5k. Earlier this month it was $7.5k and this weekend we stalled $6.8k. At this point, it is only a matter of time before we tumble under $6k support. As long as owners are more inclined to sell the bounces than buying them, prices will keep getting lower. It is only a matter of time before owners are kicking themselves for not selling when prices were above $6k.
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Jani
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By Jani Ziedins | End of Day Analysis
Free After-Hours Update:
The S&P 500 surged to fresh highs as investors chose to ignore trade war headlines and instead embraced optimistic third-quarter forecasts.
Fortunately, readers of this blog saw today’s breakout coming from a mile away. I wrote the following two weeks ago when the market was threatening to tumble under 2,870 support:
“The economy continues to hum along and that is the only thing that matters to the stock market. As long as the economic numbers look good, expect prices to keep drifting higher. Institutional money managers that were hoping for a pullback will soon be pressured to chase prices higher or else risk being left even further behind.Their buying will propel us higher through year-end. Unfortunately that doesn’t mean the ride between here and December 31st will be smooth and uneventful. Expect volatility to persist, but unless something new and unexpected happens, every dip will be another buying opportunity.”
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While it is easy to say the market doesn’t care about Trump’s trade war after we surged to record highs. It wasn’t nearly as obvious three weeks ago when a lot of owners were selling the fear and uncertainty, causing prices to fall four days in a row, and five out of six trading sessions. We get paid for seeing these things before everyone else, not after it is obvious to the crowd.
Nothing has been resolved between the US, China, Europe, and Canada and no doubt things will get worse before they get better. But our market has been telling us all summer it doesn’t care. These events haven’t put a noticeable dent in our economy or corporate profits, so most investors are ignoring the noise.
So far Trump’s trade war went from $15 billion in steel and aluminum tariffs to now we are taxing more than 50% of everything that comes from China, and they are taxing 85% of everything we send their way. The way both sides are going, a further escalation is inevitable, That means we are not far away from both sides taxing everything. But if the market doesn’t care about 50%, bumping it up to 100% won’t make much of a difference.
Without a doubt, we are living in a “half-full” environment where most traders assume things will turn out for the best. That’s why owners overlook negative trade headlines so quickly.
This is a typical trait of an aging bull market. Five years ago traders were afraid of their own shadow and panic-sold every bump in the road. The catastrophic injuries suffered during the 2008 financial crisis were fresh in most investors’ minds, and they lived in fear of a repeat. But here we are nearly ten years later and every defensive sale proved to be a costly mistake. After years of getting burned selling prematurely, most traders learned to stop reacting defensively. That’s how we ended up in this situation where the market refuses to sell off no matter what the headlines are.
While conventional wisdom tells us complacency precedes the fall, what conventional wisdom fails to mention is periods of complacency last far longer than anyone thinks possible. No doubt this bull market will die like all the others that preceded it, but it will not be dying anytime soon and we should enjoy the ride higher.
There is nothing to do with our longer-term investments expect to hang on and enjoy the ride. Things are a little more challenging with our short-term money. We are left with a choice of either staying in cash and waiting for the next buyable dip. (Cannot buy the dip if we don’t have cash!) Or shifting our time horizon and sticking with a medium-term buy-and-hold. Neither choice is wrong; it largely depends on a person’s trading philosophy and risk tolerance.
The next significant milestone is 3,000 and at this rate, it is only a few weeks away. Bad news won’t take us down and good news will push us higher. These record highs are scary, but a market that refuses to go down will eventually go up.
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Jani
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By Jani Ziedins | End of Day Analysis
Free After-Hours Update:
The S&P 500 popped Tuesday and reclaimed the psychologically significant 2,900 level as trade war rhetoric escalated. As it stands, the US will start applying tariffs to 50% of all Chinese imports and China will retaliate by taxing 85% of our China-bound goods. As bad as that sounds, the market doesn’t care.
But this reaction from the market is not a surprise for readers of this blog. Last week I wrote:
“Confident stock owners made it abundantly clear this summer that trade war headlines and White House scandals don’t matter. If nothing can take us down, it is only a matter of time before we go up.”
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Some pundits claim the market rallied because these headlines “were less bad than feared.” But that’s hogwash. Trump’s trade war keeps escalating, and it doesn’t look like it will stop until both sides are taxing everything. I’m not sure how a full-on trade war is “less bad than feared,” especially when it is crushing Chinese growth.
No, the real reason the market doesn’t care is a lot simpler than that. We didn’t dip today because everyone who fears Trump’s trade war sold months ago and were replaced by confident dip buyers who don’t mind holding these risks. When there is no one left to sell the news, it stops mattering.
Conventional wisdom tells us complacent markets are ripe for a pullback. But what conventional wisdom fails to mention is periods of complacency last far longer than even the bulls expect. When confident owners refuse to sell, it doesn’t take much demand to prop prices up, and that is exactly what is happening here.
As far as these events being less bad than feared, things could definitely take a turn for the worse. While Trump believes he has China backed into a corner, they still have the nuclear option. They could most definitely wreak total havoc on our economy, and many of Xi’s advisors are pushing him to use it.
While tariffs on imported Chinese goods are most definitely inconvenient and will affect corporate profits and consumer discretionary spending, that is far better than the alternative. Some Chinese advisors want to prevent Chinese companies from selling critical components to US manufacturers. Nearly overnight that would bring our manufacturing sector to a grinding halt. Ford, Chevy, Chrysler, Boeing, Caterpillar, and nearly every other manufacturer uses at least a few components made in China. Take those away, and our manufacturers would be forced to shut down for weeks and even months as they scramble to adjust. The temporary layoffs and inability to sell finished products would trigger a nearly instantaneous recession. “Less bad than feared” could quickly turn into “oh my god, what just happened?”
China’s nuclear option definitely qualifies as Mutually Assured Destruction because it would be equally crippling to the Chinese economy. But just the threat of such a move could send our markets tumbling and force Trump to reconsider his threats. While Trump might have China backed into a corner when it comes to tariffs, you never know what a cornered animal capable of.
I certainly don’t expect the above scenario to play out, but it would be incredibly painful if it did. The market isn’t even considering this, and its “half-full” outlook assume everything will work out in the end. But fear is contagious this is definitely something we need to keep an eye on.
Baring the above scenario, the market is acting exceptionally well. A market that refuses to go down will eventually go up, and we are setting up nicely for a rally into year-end. Assuming Trump and China come to a reasonable compromise, that will be the catalyst for the next leg higher. But if things get ugly and fear starts to spread, get out before things get worse.
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Jani
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By Jani Ziedins | End of Day Analysis
Free After-Hours Update:
Thursday morning the S&P 500 popped above 2,900 resistance after China said it was willing to talk with the U.S. This strength put last week’s dip in the rearview mirror and last week’s nervousness is turning into this week’s hope.
Even though the market fell five out of six sessions last week, the losses were modest and contained. As I wrote on Tuesday:
“I didn’t expect much out of this dip and that is exactly what it gave us. Since the market likes symmetry, we shouldn’t expect much out of this rebound either. The next move is most likely trading sideways near the psychologically significant 2,900 level. It will take time for those with cash to become comfortable buying these levels before we will start marching higher again.”
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Two days later the market inched its way above 2,900, but rather than trigger a surge of breakout buying and short-covering, the rally stalled and we traded sideways the rest of the day. Small dips lead to small rebounds, exactly as expected.
While there is solid support behind these prices, this market still struggles to find new buyers. There was almost no follow-on buying this morning when we broke through 2,900 resistance. Most of that breakout buying and short covering happened two weeks ago when we first crossed this line. That meant there were fewer people to buy today’s breakout. The slow summer months are winding down, but volume is still pathetically low and it will still take time before those with cash feel comfortable chasing prices higher.
Confident stock owners made it abundantly clear this summer that trade war headlines and White House scandals don’t matter. If nothing can take us down, it is only a matter of time before we go up. The biggest near-term catalyst is the U.S. reaching trade compromises with Canada, Europe, and China. That news will push through 3,000. Unfortunately, politics is a slow and dirty process and it will be a while before we can put this episode behind us.
This market is resting and refreshing following last month’s rally to all-time highs. This is a normal, healthy, and sustainable thing to do. But since we are not refreshing through a bigger dip, that means we should expect a prolonged sideways period. When the market doesn’t scare us out, it bores us out. Things still look great for a year-end rally, but we need to be patient and let those profits come to us. This is a slow-money trade and we will have to wait a while before the next fast-money trade comes our way.
FB is flirting with recent lows as it struggles to overcome the fear of government regulations limiting its ability to make money. But as I wrote the other day, these limitations won’t be as draconian as feared and the stock will recover once these headlines are behind us. Even though prices could slip further over the near-term, this is a buying opportunity, not an excuse to sell a good stock at a steep discount.
NFLX is doing a better job than FB in recovering from last month’s earnings fueled selloff. As expected, last month’s weakness was a buying opportunity and no doubt reactive sellers are already kicking themselves for being so weak.
AAPL is already recovering from Wednesday’s sell-the-news reaction to their new phone lineup. Nothing unexpected or exciting was announced, it was simply more of the same. But more of the same is a good thing because that is what pushed AAPL over a $1 trillion market cap a few weeks ago.
AMZN is recovering from last week’s dip, but this looks more like a consolidation than the start of the next surge higher. We came a long way over the last few months and sideways consolidations are a normal and healthy part of every sustainable move higher. Things still look good for further gains later this year as desperate money managers will be forced chase the biggest winners into year-end.
Bitcoin climbed to the mid-$6k level, but the total lack of demand continues to be a problem. Last month’s bounce to $7.5k fizzled and no doubt the same thing will happen here. We could drift up to $7k resistance over the next few days, but the downtrend is still very much intact. Nothing gets interesting until we recover the previous highs near $8.5k. Unless that happens, expect lower-lows to keep piling up.
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Jani
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
On Tuesday the S&P 500 slipped at the open after China filed a petition with the WTO to retaliate against US tariffs. But that opening weakness was as bad as it got and we quickly bounced into the green. This was the fourth day the market respected 2,870 support at the old highs. Traders are definitely more inclined to buy this dip than sell the weakness. As long as confident owners refuse to sell, supply stays tight and prices remain resilient.
But this strength doesn’t surprise regular readers. Last week I wrote the following:
“…this latest round of weakness will only be a modest dip, not the start of a bigger crash. We fear what we don’t know, not what everyone is talking about. If we were going to crash because of trade war headlines, it would have happened many months ago. The fact we keep holding up so well tells us this is a strong market, not a weak one.”
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Trade war headlines were priced in months ago and we don’t need to worry about them. Owners who feared these headlines bailed out months ago and there is no one left to sell this recycling of the news. When no one sells the news, it stops mattering.
The economy continues to hum along and that is the only thing that matters to the stock market. As long as the economic numbers look good, expect prices to keep drifting higher. Institutional money managers that were hoping for a pullback will soon be pressured to chase prices higher or else risk being left even further behind. Their buying will propel us higher through year-end. Unfortunately that doesn’t mean the ride between here and December 31st will be smooth and uneventful. Expect volatility to persist, but unless something new and unexpected happens, every dip will be another buying opportunity.
Buying this 2,870 dip was better than chasing last week’s 2,920 highs, but it is too bad the market didn’t slip further and give us a more attractive entry point. I didn’t expect much out of this dip and that is exactly what it gave us. Since the market likes symmetry, we shouldn’t expect much out of this rebound either. The next move is most likely trading sideways near the psychologically significant 2,900 level. It will take time for those with cash to become comfortable buying these levels before we will start marching higher again.
It’s been a rough few days for the FAANG stocks, but they bounced back Tuesday. AMZN and AAPL took a much-needed break following their breathtaking climb higher. Pauses and dips are a healthy part of every sustainable move higher and there is nothing unusual about their price-action.
FB and NFLX continue consolidating following their tumble after second-quarter earnings. But there is also nothing alarming or unusual about their behavior here. Those were big losses and it will take a while before the market starts trusting these stocks again. Months ago traders who missed this trade were begging for a dip so they could jump in. Hopefully those traders are taking advantage of these discounts.
Bitcoin keeps slipping and is barely holding $6k support. Last week’s rebound to $7.4k is dead and gave us another lower-high since we failed to match the previous $8.4k bounce. Lower-highs tells us the next lower-low is just around the corner. Since most owners refuse to sell, supply is scarce and we are getting into the grinding part of the selloff where each dip takes weeks and months to play out. The trend is most definitely lower, but we will continue seeing these short, tradable bounces higher. But each bounce is still a selling opportunity. The worst is still ahead of us.
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Jani
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