Monthly Archives: June 2020

Jun 30

What to make of this stubbornly resilient market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 bounced off 3k support Monday morning and it continued that resilience today. The index now finds itself with a 100-points profit cushion as it continues defying all predictions of an imminent collapse.

The most prominent headlines scream “second wave”. This initially spooked the market into a 6% tumble a few weeks ago. But that single, fearful session was as far as this got and prices have remained “surprisingly” resilient ever since.

To those of us that have been paying attention, this resilience isn’t surprising. We know panicked sellers abandoned the market in droves two moths ago. But just as important as chasing off the weak, for every panicked seller, there was an opportunistic buyer who confidently ran into the fire to snap up those steep discounts.

Fast forward a few months and most of those confident dip buyers are still confidently holding for higher prices. If they bought during the “first wave”, doesn’t it make sense to assume they would continue holding through “second wave” too?

No matter what the critics claim, when confident owners don’t sell, scary headlines don’t matter. As long as prices remain above 3k support, the Covid rebound is alive and well. Savvy traders are buying this bounce off of support, not selling it. If prices tumble under 3k, we will be forced to reevaluate our outlook. But until then, continue giving this market the benefit of doubt.

Buy the dip and keep adding to what is working. If prices undercut 3,030, start peeling off longs and use 3k as a hard stop. If prices retest 3k over the next few days, buy the bounce and short the breakdown. It really is as easy as that.

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Jun 26

CMU: Three Traders on a Mountain Road

By Jani Ziedins | Free CMU

Cracked.Market University

Three traders find themselves standing on a road at the top of a mountain. All three are looking over a blind crest, wondering what is on the other side.

The first trader announces to the other two, “Look at how the camber of the road leans a little to the left. Obviously that means the road turns left on the other side of this crest.”

Confidently, the first trader jumps in his car, turns the wheel to the left, reves the engine, closes his eyes, and guns it.

A few seconds later, the other two traders flinch as they hear crashing sounds coming from the other side of the blind crest.

The second trader responds with, “Can you believe that idiot, what was he thinking? If you look at the terrain a little further down the valley, obviously the road turns to the right on the other side of this crest.”

Confidently, the second trader jumps in his car, turns the wheel to the right, reves the engine, closes his eyes, and guns it.

By now, the third trader is not at all surprised when he hears the sound of crunching metal coming from the other side of the blind crest.

Hopefully by now, everyone realizes the point of this story. Successful traders react to what the market gives them. They don’t just guess at what is ahead and blindly trade it. And as such, the third trader calmly gets in his car and with his eyes wide open, carefully navigates all the twists and turns on his way safely back down the mountain.

If you want to survive in this business, you must react to the market as it comes to you. There is nothing wrong with making educated guesses about what lies on the other side of a blind crest. But by no means commit to that position regardless of what you find when you get to the other side.

In our current environment, there is nothing wrong with having a bullish or bearish opinion about these Coronavirus shutdowns and the unlimited resources governments are throwing at the problem. It’s human nature to anticipate what’s coming. But when we get to the other side of the crest, we must follow the road, not our biases.

Three weeks ago that meant buying a relentless rebound no matter how far we were above the March lows. This week, that meant locking-in profits as prices slumped back to support.

What is coming next week? I’m not sure. But I do know that if we go up, I will be buying and if we go down, I will be selling. What will you be doing?

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Jun 25

Jani’s Trading Diary: June 25th, 2020

By Jani Ziedins | End of Day Analysis

My Trading Diary

The S&P 500 started the day in the red, but rather than accelerate lower like yesterday, prices quickly found support and are trying to get back to breakeven.

This is one of those half-full, half-empty situations. I like this market and I’m not worried about this dip. But at the same time, it keeps hitting some of my stops. At this point, I’m half in and half out and that is probably a good place to be given the uncertainty.

Will this emotional selloff accelerate or dry up? I have no idea and I’m currently playing both sides of the fence. If prices firm up this afternoon, then I’ll start adding back in. If we retreat under this morning’s lows, I’ll continue peeling off. No big deal. As long as I am in the right place at the right time, that’s all that matters.

My Trading Plan

Most Likely Next Move: This is a buyable dip and prices will return to the highs. The only question is how low we go first.

My Trading Plan: I’m half in and half out. If prices slump this afternoon, I’ll continue peeling off. If the market trades well, I’ll start adding back in.

If I’m Wrong: At this point, I’m ready for this market to go in either direction and I don’t really care which way it goes. Higher means profit. Lower means even more profit. I’m okay no matter what happens.

Jun 23

Is the market losing its mind?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Did someone forget to tell the Nasdaq we’re in the middle of the worst economic contraction since the Great Depression???

Talk about a major divergence from reality. While the cynics cannot help but argue with this market, never forget, we trade stocks, not headlines or the economy. If stocks want to go up, there is only one way to trade this. If you don’t agree, your only choice is to get out of way because if you don’t, you are going to get run over.

Without a doubt, this rebound will end at some point because they always do, but this is definitely not that point. This month’s 6% collapse was the perfect setup to trigger a much larger collapse. If this rally was overbought and vulnerable, that was more than enough to trigger a much larger avalanche of follow-on selling. Instead, confident owners shrugged and bought the dip. When stubborn owners refused to sell, headlines don’t matter. End of story.

At this point, keep an eye on Monday’s lows. If we fall to this level, start locking-in some profits. If we retreat back to the previous Monday’s close, peel off some more profits. And if we return to this June’s lows, get all the way out. Anything other than that and lookout above. I fully expect the S&P 500 to match the Nasdaq and reach new highs over the next few weeks. We buy higher-highs, we don’t sell them.

If everyone knows the Fed rigged this market to keep going up, quit complaining about it and enjoy the ride!

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Jun 19

Weekly analysis: Bad day, good week, and what it means

By Jani Ziedins | Weekly Analysis

Free Weekly Review and Lookahead: 

Friday’s price action was disappointing as a 40-point opening gain dissolved into a 20-point loss. But if you zoomed out to the weekly view, it was actually a good week and the market reclaimed 60-points that were lost the previous week.

Headlines continue obsessing over a “second wave” and Friday’s tumble was exacerbated Apple re-closing 11 of its stores in four states.

Hopes of a quick recovery could be thwarted by another government-imposed shutdown, but so far most states continue reopening despite the recent uptick in infections. At this point, there might not be the political will to force people to stay indoors indefinitely.

But even if the government doesn’t force us to stay indoors, people might be reluctant to resume their normal lives if every news broadcast starts with a body count. Fear-mongering and human nature are just as important to this recovery as government policy.

But when it comes to stock prices, investor sentiment is far more important than reality. As long as investors remain optimistic about the future and refuse to sell their favorite stocks at a discount, expect stock prices to remain stubbornly firm despite what the headlines keep shouting at us.

It has been a scary few months and stock owners who fear the Coronavirus and subsequent shutdowns have been given plenty of time to bail out. And not only that, these nervous sellers were replaced by confident dip-buyers who were buying despite the dire headlines. If these confident owners didn’t sell the “first wave”, what are the chances they will sell this “second wave”? When confident owners refuse to sell, headlines stop mattering.

As long as this market remains above 3k support, the larger Covid rebound remains alive and well. Even a dip and test of this level isn’t a reason to abandon ship. But if prices fall under this level and the selling accelerates, as nimble traders, it is our responsibility to get out and reassess. Until then, continue giving this rebound the benefit of doubt.

Next week is an important make-or-break week for the market. If the breakdown doesn’t happen next week, it isn’t going to happen. Keep your stops near 3k and let the market tell us what it wants to do next. Until the price action tells us otherwise, ignore all the cynicism and second-guessing.

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