You call that a taper tantrum?

By Jani Ziedins | End of Day Analysis

Sep 27

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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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.

Leave a Comment:

(6) comments

Gary Kogowski September 28, 2018

“On Thursday the S&P 500 recovered Wednesday’s late-day selloff and continues consolidating recent gains above 2,900 support.”

Sir, the market turned down at noon on Thursday, ending significantly lower. Friday morning S&P Futures are down. This is the second time in as many days your blog stated an up market, when it was in reality down. Why is this?

Reply
    Jim Smith September 28, 2018

    The reason is, this dude lives in his own fantasy world and rarely faces reality. He loves to tell you how right he is (after the fact) without tying himself to entries and exits. It’s the perfect way to write a blog – market does what he thinks, he wins and toots his horn, market doesn’t do what he predicted, and he’ll say “told you to stay in cash and wait for better opportunities”.

    Bottom line: follow someone else

    Full disclosure, I’ve been 100% cash since 8/30/2018 and no plans to re-enter the market anytime soon, on either bull or bear side.

    Reply
      Jani Ziedins September 28, 2018

      Hey, it’s you again. I was wondering what rock you crawled under. I told you the market would move to record highs, it moved to record highs, and now you are saying I was wrong??? LOL. Haters will be haters.

      Reply
        Jim Smith September 28, 2018

        Once again you are fixating on short term gyrations. I take a long term view.

        Your style is off putting as usual. Still Monday morning quarterbacking. I don’t think you understand that term….I take that back, you clearly do hahahhaha

        Reply
          Jani Ziedins September 28, 2018

          You said the market was topping over the medium/long-term, I said we were going higher. Let’s see where we are at the end of the year. I hope you do the honorable thing and eat crow when you are proven wrong. But trolls rarely do the honorable thing and no doubt you’ll just come up with more excuses.

          Reply
    Jani Ziedins September 28, 2018

    Futures are at 2,912. It’s been a few years since I took basic math, but I believe 2,912 is above 2,900 support. I don’t daytrade, so 0.1% and 0.2% declines over a few hours are not something I worry about. Good luck with whatever strategy you are using.

    Reply
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