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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 stumbled into Tuesday’s close, shedding more than 20 points in the final hours of trade. Was this the break bears have been waiting for? As ominous as that late fizzle appeared, the index closed solidly above 3,200 support yesterday. And even more important, the selling didn’t resume today.
Despite all of the “common-sense” reasons stocks should crash, the S&P 500 continues hovering near the rebound’s highs. Oblivious stock owners remain stubbornly confident and are holding for higher prices. From the basic laws of supply and demand, when confident owners refuse to sell the headlines, the headlines stop mattering. It doesn’t get any more straightforward than that.
As is always the case, all of our current headlines can be dissected into half-full and half-empty arguments. The economy is in shambles but corporate earnings are not as bad as feared. Infection rates are spiking but deaths are not seeing the same rise. Governments are reimposing lockdowns but scientists are making good progress on vaccines. The federal government is drowning in debt but the Fed is not even considering raising rates.
Thus far, most owners continue focusing on the half-full side of this situation. That’s because all of the half-empty people abandoned ship during the initial Covid collapse and were replaced by confident dip buyers. Out with the weak and in with the strong. It shouldn’t surprise anyone why this market has been so resilient these last few months.
As long as prices remain above support, there is only one way to trade this. Stick with what has been working and that is holding for higher prices. While the gains have slowed over recent weeks, as long as there is more up than down, expect the S&P 500 to challenge all-time highs this August or September.
That said, few things shatter confidence like tumbling stock prices. Keep updating your trailing stop and be ready to pull the plug if the selling accelerates. As nimble investors, it is far easier to buy back in following a false alarm than it is to watch all of our profits evaporate because we held too long.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slumped 1.2% after weekly unemployment claims saw their first increase since late March. This triggered the biggest equity decline in nearly a month. Is the market telegraphing worse things to come? Or was this a trivial wobble ahead of the next leg higher?
Clearly the economic rebound stalled. But this isn’t news. We’ve been dealing with surging infection rates since last month and the inevitable return of business restrictions. Today’s employment numbers only confirm what we already knew was coming.
Was today finally the wakeup call the bears have been waiting for? Is the evidence so incontrovertible that even the most oblivious bull can no longer continue living in denial? That’s what the cynics are hoping for anyway. But if the fastest economic collapse in modern history and the highest unemployment rate since the Great Depression didn’t spook these oblivious investors, why would anyone assume a modest uptick in initial unemployment claims would be the thing that finally breaks this market?
While today’s loss felt dramatic because volatility has been nonexistent over the last few weeks, a 1.2% Covid fueled dip hardly qualifies as the start of anything. As long as this market remains above 3,200, the rebound is alive and well. Even a dip under 3,200 isn’t that big of a deal if supply dries up quickly. A nimble trader will start peeling off some profits if we dip under 3,200, but this more of a risk management decision than concern about an impending collapse.
Until further notice, I will continue giving this market the benefit of doubt. But, if the selling feeds on itself and prices dip further, it’s not a big deal. We liquidate at our trailing stops and buy the next bounce. As much as I root for our country, economy, and stock market, the more this market dips, the more money I make so I don’t mind.
As I wrote yesterday, TSLA‘s lackluster reaction in after-hours trade to yesterday’s record-setting fourth consecutive profit was an ominous sign. Prices opened green this morning, but that was as good as it got. While the earnings were fantastic, the stock rallied in anticipation of these headlines and it fell into the “sell the news” trap.
Keep holding for higher prices if we bounce tomorrow, but if prices fall under $1,500 get defensive. Even if the future is bright, there is no reason to ride a near-term dip down $500. Lock-in some profits and get ready to buy the next bounce.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Wednesday modestly higher as it continues setting new highs for the Covid rebound.
Infection rates remain elevated but scientists are making progress on a vaccine. Unemployment is off the chart but governments continue handing out free money. For every negative, there is an offsetting positive. While the cynics obsess over the negatives, the market continues focusing on the positives. Stocks are not racing higher like they were in March, April, and May, but they are amazingly resilient. 3k support was rock solid in June and we keep bouncing back to the rebound’s highs. As I often write, a market that refuses to go down will eventually go up.
We make money following the market’s lead, not reacting to headlines. If this market doesn’t want to breakdown, there is no arguing with it. There is no room for “should” in the market. Either it does or it does not. Anyone trading “should” is losing a lot of money right now and we don’t want to join that group.
Keep moving stops up and waiting for higher prices. We are still on track to challenge all-time highs over the next few weeks. If this market was going to breakdown, it would have happened by now. The road won’t be fast or straight, but as long as we keep experiencing more up than down, everything remains on track.
TSLA reported earnings after the close and pleasantly surprised investors by producing the fourth consecutive quarterly profit. The big news is this achievement qualifies the stock for admission into the S&P 500. But more surprising than the profit was the lackluster performance in the after-hours session. While most CEOs would love their stock to pop 4% following earnings, TSLA makes bigger moves on a random Monday. To be honest, 4% is fairly disappointing given the headlines.
If TSLA rallies 10% tomorrow, then I read too much into this. But if TSLA slips into the red tomorrow, it is best to start taking profits before the losses accelerate. While gaining admission into the S&P 500 would be a huge boost for the stock, there is a good chance this event is already priced into the stock and we could easily fall into a “sell the news” letdown.
It is okay to hold for higher prices but keep your trailing stop close.
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What’s a good trade worth to you?
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Follow Jani on Twitter @crackedmarket
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