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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
It’s been a while since I wrote about bitcoin and it has largely been flying under the radar this summer. Rather than act as a safe haven during the Covid crash, it tumbled alongside everything else. Since then, most pundits gave up on it and it isn’t attracting much coverage in the financial press. Maybe today’s run-up to $13k will change that.
As I’ve been telling my premium subscribers this fall, $10k has been the key level for this cryptocurrency. I’m not a big fan of virtual currencies by any stretch of the imagination, but as long as this held above $10k, it was doing everything it needed to do to earn our respect. It took a few months, but it finally delivered on that promise, surging nearly 30% in a month, most of that happening over the last few days. Not bad.
What’s behind this strength? There are a lot of opinions being thrown around between Paypal integration and a mountain of U.S. stimulus coming our way, but if I had to guess, a lot of nervous Republicans and Democrats are hedging their portfolios in case “the other guy” wins the election.
It doesn’t matter who you talk to, but it seems everyone is convinced the apocalypse is coming if their guy loses. While I have opinions about both candidates, I’m pragmatic enough to know the presidency isn’t nearly as important as most people believe. I’ve traded under both Democrats and Republicans alike and markets go up and down regardless of who sits in the oval office and this election cycle won’t be any different.
By the time December and January roll around, most of the reflexive sour-grapes selling will have passed and the market’s attention will long have since shifted to something else. The same goes for Bitcoin. When the world doesn’t collapse after the election, BTC will lose its appeal and will most likely retreat back to $10k support.
There is nothing wrong with riding this latest wave higher but be sensible and follow this rally with a trailing stop. Remember, we don’t make money until we take profits in our best trades.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Tuesday turned into a decent day for the S&P 500. While the index only gained a modest 0.5%, more important is Monday’s selling didn’t continue. At least for the moment, the market seems to be finding its footing near 3,425 support.
The big talking point continues to be the next round of Covid stimulus. Nancy Pelosi put a Tuesday deadline in order to pass something before the election. While that now seems unlikely, a few days here or there doesn’t matter that much to the market. More important is a deal gets done and so far all things are pointing in that direction, even if it turns out a little delayed.
That said, I don’t think the market is placing a lot of emphasis on these stimulus negotiations anyway. If it was, we would see far larger swings following these deal/no-deal headlines. While a 1% pop or drop feels like a big deal in the moment, this is more meaningless noise than the catalyst for the next big directional breakout or breakdown.
The market is expecting something around $2T in stimulus. If it doesn’t happen today, then it will come shortly after the election. If it gets delayed into next year, that is most likely because Democrats won the election and Republicans are dragging their feet. But even a multi-month delay isn’t that bad for stocks because a Democrat-led stimulus will almost certainly be larger than anything allowed by Republicans today. The stimulus could be late, but the size will more than make up for it.
No matter what happens, there seems to be more upside than downside as everything turns out less bad than feared. The election will go off without a hitch. Our politicians lack the will to lock the country down again. And more stimulus is coming. All of those things are near-term bullish for stocks.
That said, anything could happen over the near-term and that includes a pullback under 3,425 support. But Monday’s dip to could easily be “close enough” to check that box and the market never looks back. If the index trades well Wednesday, all is forgotten and forgiven. If we get another dip under Monday’s lows, prices will most likely undercut 3,400, even if just momentarily. As soon as the index retakes 3,400, that is our signal to jump back. As always, start small, get in early, keep a nearby stop, and only add to something that is working.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Monday started off well enough after the S&P 500 rallied nearly 20 points shortly after the open. Unfortunately, that was as good as it got. By the end of the session, prices had retreated 75-points from those early highs in the biggest single-day decline in nearly a month.
As ugly as Monday looked, it shouldn’t surprise anyone. Stocks were approaching the old highs and some near-term resistance was inevitable. Cognitively everyone knows markets move in waves, yet people are still surprised every time stocks take a near-term step back.
Hopefully, everyone who bought September’s bounce was following this rebound with a trailing stop and were able to lock-in some really nice profits over the last few days. If a person bought September’s rebound using a 3x ETF, they locked-in a pretty easy 20% gain over the last few weeks. Not bad.
The key to buying dips is starting small, getting in early, keeping a nearby stop, and only adding to what is working. Even if we got shaken out in September’s first couple of failed bounces, our losses were small and easily offset by riding this 300-point wave higher.
As always, the key is being willing to act when everyone else is afraid of making a mistake. Fortune favors the bold.
As for what comes next, we could see some near-term weakness, especially if our politicians fail to agree on a Covid stimulus bill this week. But if we’re in cash, the lower we go now, the better. It means we make even more money buying the next bounce. That said, unfortunately, I’m not expecting prices to fall a lot further. The market will most likely remain rangebound leading up to the election and the next big trade won’t happen until November.
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By Jani Ziedins | Weekly Analysis
Free Weekly Analysis:
The S&P 500 finished the week higher by nearly 4%, giving us the biggest weekly gain in several months. Not bad for a market that many people had given up for dead little more than two weeks ago.
As I’ve been saying for a while, this is a volatile market and that means big moves in both directions. Markets love symmetry and as quickly as prices fell in early September, we should have expected an equally impressive rebound. An 8% advance from the lows in little more than two weeks is not something we see very often. Hopefully, most readers recognized this strength early and find themselves sitting on a nice pile of profits.
As I often remind people, no matter what we believe, our plan always needs to account for the possibility we are wrong. It was fair to be bearish and think the market was on the verge of collapse a few weeks ago. But more important than up or down was having an exit in mind if a short didn’t go according to plan. There is nothing wrong with trying a trade, but always have a clearly defined point, decided ahead of time, where you will admit defeat and close your positions. No one is right all the time, myself included. This is why I spend far more time planning my exits than my entires.
For those that missed the rebound, unfortunately, one of the characteristics of sharp rebounds is the bulk of the gains arrive early. While there still more upside left in this move, the gains will be slower and take longer. That said, as long as the index remains above 3,400, keep giving this the benefit of doubt. In a few more weeks we should be challenging all-time highs.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Exactly two weeks ago the stock market was “on the verge of collapse”. Today things look far different. Amazing what a 250-points rebound will do for the market’s mood.
I caught grief on social media for claiming September’s dip was buyable. While the crowd insisted the next leg lower was imminent, I kept buying the bounces. The first bounce didn’t stick. But that’s not a big deal. If we start small, get in early, and get out early, the losses are minor. In fact, if we are good at this and move quickly, we can get out at breakeven, making these free trades. It’s hard to beat that risk/reward.
The second bounce didn’t stick and neither did the third. But all of this was expected and part of the plan. Sometimes the market bounces quickly. Other times it takes a few false starts before it gets its mojo back. This time the fourth bounce was the magic number.
No doubt a lot of optimistic dip-buyers gave up after the second or third failed bounce and they ended up missing the real one. That’s the way this goes sometimes. Just because a trade doesn’t work the first time doesn’t mean we should give up. As long as we focus on sensible entries and exits, we have the ability to test all of these rebounds with relatively low risk.
Long-term success in the market is nothing more than sticking to our trading plan and ignoring all the useless opinions surrounding us. Stick to what we know and we will always come out ahead in the end.
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