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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
I wrote about ZM last week when the stock tumbled 15% after announcing 367% revenue growth last quarter. As well as the company is doing, investors were hoping for even more.
Last week’s post-earnings selling stalled just above $400 support. Unfortunately, that resilience only delayed the inevitable and today the stock finally retreated under $400. But this latest violation shouldn’t surprise anyone. As I wrote last week:
There are few things more worrying than a stock that falls on good news. That signals unrealistic expectations and once the selling starts, it usually doesn’t stop. The market loves symmetry and rallies that go too high are almost always followed by pullbacks that go too low.
While nothing is ever certain in the stock market, this chart looks as bad as it gets. Fall under November’s lows and we could see another wave of defensive selling push this stock back to $300 or even lower. As bad as a 35% retreat from all-time highs feels, this still has room to get a lot worse.
This stock is giving us a great short entry under $400 with a stop just above this level. But who knows, maybe this thing turns around and bounces back. It’s possible and it happens occasionally. But if ZM is going to return to the highs, the first thing it needs to do is retake $400. Until that happens, this stock is untouchable.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slipped into the red Tuesday morning, but rather than accelerate lower, the index turned around and finished the day up a quarter percent.
Equity owners are “fat, dumb, and happy” and ignoring every reason to sell. When stubborn owners refuse to sell, it doesn’t matter what the “experts” think the market should be doing.
Sentiment continues to be half-full and every dip bounces within hours. We are quickly approaching the final weeks of the year. If institutional money managers wanted to make major portfolio adjustments based on last month’s election or the latest Covid flareup, they have already done it. With all of those big trades behind us, we are setting up for a fairly quiet coast into year-end.
If equities were grossly overbought and set up for a collapse, there have been more than enough bearish headlines to trigger that collapse. The simple fact we are still standing near the highs confirms this is a strong market, not a weak one.
While it is easy to criticize this strength, the harder trade is usually the right trade. Everyone knows stocks should not be trading at record highs in the middle of a pandemic, but that’s exactly what they are doing. Rather than fight this strength, I’m riding this wave and only fools are fighting it.
Keep following this bounce higher with a trailing stop and see where it takes us.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
There was some interesting price-action in NFLX Monday. This was the third bounce off of $475(ish) support since this summer. (Or the fourth or fifth bounce, depending on you choose to count it.)
This resilience is all the more impressive since NFLX had two disappointing earnings reports during this period and the stock tumbled -6.5% and -6.9% the day after each earnings report. Yet here we stand, still within 10% of all-time highs.
Bad news and a resilient stock? That’s a textbook case for a stock that wants to go higher.
Anything that refuses to go down will eventually go up. And right now, NFLX is acting like it wants to go back to the highs. And if it gets back to the highs, expect it to keep on going.
This is buyable with a stop under $500. If it keeps rallying, great, move our stops up and see where this move takes us. If it stalls and retreats for the 4th time, no big deal, we sell at our stop and try again next time.
As always, start small, get in early, keep a nearby stop, and only add to a trade that is working.
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By Jani Ziedins | Weekly Analysis
Weekly Analysis:
It was another positive week for the S&P 500 with the index climbing 0.8% over the last five sessions. While no one is excited by a sub-1% week, given where we could be, this resilience is actually a noteworthy accomplishment.
Covid infection and hospitalization rates are off the charts and setting new records nearly every day. November hiring also tumbled dramatically from October’s levels due to expanding Covid restrictions. Either of these headlines could have triggered a stock crash, yet neither one did. Instead, stocks closed the week at record highs. Funny how that works.
This is another data point confirming this is a half-full market. Rather than sell the disappointing employment headlines, traders bought the increasing prospects of additional stimulus.
We don’t trade the news, we trade the market’s reaction to the news. At this point, there is nothing to do but go along with the trend and keep moving our stops up. Maybe this house of cards will come crashing down at some point, but we are not at that point yet. If this market was vulnerable to a collapse, it would have happened by now. Instead, most investors continue looking toward the future with optimism and that’s the way we need to trade this.
But none of this should surprise anyone who’s been reading this blog for a while. We know better than to trade what we think should happen. Instead, we always focus on what the market is doing. And right now, it is ignoring all of the bearish headlines. As traders, if the market doesn’t care about the headlines, then neither should we.
As with any bearish event, there always comes a point where the stock market has fully priced it in and it starts looking toward what is coming next. Everyone knows how bad this latest Covid flareup is and understands what it is doing to the economy. Yet these same investors keep holding because they know we are getting closer to the end of this mess.
I’m still concerned about the lingering collateral damage affecting the economy next year. But as long as investors are fixated on the recovery, that’s the only thing that matters and so far the recovery is progressing nicely. Once we get past Covid, investors might take a more critical eye of lingering unemployment and damage to corporate balance sheets. But as long as the stock market is not concerning itself over these things, then neither should we.
Stick with what has been working, which is owning this rebound and following it higher with a trailing stop. While we are vulnerable to a pullback at any time, at this point, it seems like most investors want to keep holding for higher prices. As long as this remains a half-full market, expect any weakness to be fleeting and to bounce back quickly.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Thursday was an up and down session for the S&P 500. The index rallied modestly after the open only to retreat back to breakeven later in the afternoon. This lethargic, uninspired trade is not a surprise given how far we’ve come since the election.
The rebound off the early November lows is in its 5th week and the big gains are already behind us. Momentum remains higher, but forward progress has definitely turned into a grind. As much as things have slowed down, it’s been an easy hold to this point with very few give-backs along the way. That said, we shouldn’t expect things to remain this easy for long.
Maybe we glid higher into Christmas. Or maybe the index stalls and churns sideways. Either wouldn’t be a surprise. The one thing that’s off the table (at least for the moment) is a large collapse. There has been an abundance of negative headlines regarding infection rates. If this market was fragile and looking for an excuse to tumble, these bearish stories have been more than enough to trigger a gigantic selloff. Instead, most stock owners read about infection rates and shrug. No matter what we think should happen, when the crowd refuses to sell a headline, that headlines stop mattering.
Sentiment could change once the calendar rolls over to 2021, but so far, I expect December to remain on autopilot. What we have now is what we should expect for the next few weeks. The only question remaining is if this keeps inching higher or stalls at current levels.
No matter what we think should happen, we trade based on what is happening. And right now this market is happy hanging out near the highs. If prices were vulnerable to a collapse, it would have happened by now. Up or sideways means the only two choices available to us are to buy this or sit it out.
Anyone trying to short this strength is getting killed and we definitely don’t want to join those ranks. A short is coming, we just don’t know if it will start next week, next month, or sometime next year. But no matter what, we need to see the weakness develop before we jump on it. Shorting simply because things are “too high” is a very expensive trading strategy, just ask any bear complaining about this “stupid market”.
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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 given the recent record highs, it’s time for an update.
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 holds above $10k, it is doing everything it needs 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.
I followed that up with:
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.
And you know what? Everything I said back then is just as applicable today as it was back then.
September’s bounce off of $10k support started this run, but breaking $13k and holding those gains was the first real sign his move was different from all the other fizzles. Exceeding $14k confirmed this was the real deal and this move wasn’t going to stop until it challenged the record highs. Something we finally did this week.
While all of this is obvious in hindsight, it wasn’t such an easy call to make at the time. But just like how we needed to give Bitcoin the benefit doubt above $10k, now that we are challenging the old highs, we smart money is betting on a continuation.
While this thing might roll over at some point, this is not that point. Obviously, we can consolidate for weeks or months near the old highs, but these huge rebounds almost never touch the old high and then simply give up. Even if the bubble eventually bursts, we are going to smash through the old highs before that happens. Maybe the top is $25k or maybe it is $30k. Either way, this latest buying frenzy is far from over.
That said, we could easily dip back to $15k on our way up to $30k and we need to ready for that. Rather than sit through a 25% pullback, it makes sense to lock-in some profits and wait to buy the next breakout above $20k. Sitting through a pullback is a lot easier when we have a pile of profits in our pocket and are riding the storm out with a smaller position. It is easy enough to buy back in when this finally breaks out, whether that is next week, next month, or next year. And if we are really good, we buy the pullback and make even more money.
But no matter what happens over the next few weeks (up, down, or sideways), this thing will go a lot higher before this rally is finished. Be ready for that $20k breakout.
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