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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished in the red for the second day in a row and finds itself down four out of the last six trading sessions.
As awful as that sounds, the index remains within 0.1% of its all-time closing high. Funny how that works.
If bears are going to kill this bull market, they need to do a lot better than -0.03% and -0.06%. If that’s all they got, then bulls have nothing to worry about.
We’ve had plenty of bearish headlines over the last several weeks and months. If bad news was going to take this market down, it would have happened by now. As I often say, a market that refuses to go down will eventually go up.
The way this is going, 4,000 is only days away.
Stick with what has been working. Keep holding for higher prices and continue moving our trailing stops up.
This bull market will die like all of the others that came before it. But this is not that time.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
TSLA finds itself at a critical inflection point Tuesday, closing under the increasingly significant $800 level.
$800 has been supporting this stock since early January. We tested this level a couple of times since then, but both flirtations were quick and prices bounced decisively the next day. Will this time turn out any different? That’s the $764 billion dollar question.
TSLA reported record-breaking earnings late last month and the company threw fuel on the fire last week when it announced a $1.5 billion investment in bitcoin. (Its purchase is already up nearly 50%!)
Surely the stock would be sharply higher following two-pieces of such bullish news… Yeah, no. The stock tumbled 8% following earnings and coincidentally enough, it is also fell 8% after the bitcoin news.
Two pieces of great news and the stock fell both times. A stock that cannot go up on good news is a huge red flag. Either investor expectations are unreasonably high and even great news is no longer good enough. Or we are reaching the saturation point where everyone who wants to buy TSLA has already bought the stock and there is no greater fool left to keep pushing prices higher.
I’m not ready to give up on the stock simply because it closed a measly $3 under $800 on Tuesday. But it is enough to force me to take a more defensive posture. This stock is definitely ownable above $800, but we need to be really careful under this key support level. The stock surged $400 since November and even good stocks experience routine and even healthy step-backs on their way higher. The scary thing is a routine and healthy step-back could lop $200 off the price.
I’m not turning against TSLA, but as long as it stays under $800, this becomes a prove-it situation. The prudent move is to lock-in some profits and see what happens. If prices bounce back above $800 tomorrow or the next day, it is easy enough to buy back in. On the other hand, if prices challenge $600 support over the next few weeks, even better. Take those profits and buy the next bounce.
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By Jani Ziedins | End of Day Analysis
Free Weekly Analysis:
It was another good week for the S&P 500 as it added 1.2% and continues grinding its way into the record books.
It’s only been two weeks, but the meme stock feeding frenzy is definitely over. GME retreated 89% from the highs and AMC is down 73%, with both stocks slipping another 20% this week.
It was spectacular while it lasted, but anyone with even the smallest amount of market sense knew this spectacular collapse was inevitable. The market loves symmetry and what races higher with breathtaking speed ends up crashing down just as quickly. No conspiracy needed.
As for the indexes, they are relieved the meme frenzy left as quickly as it came. The old rules still apply and conventional investors don’t need to worry about these bubbles infecting to the rest of the market. Those reassurances put the nearly year-long rally back on track and pushed the index back to record highs.
That said, most of the index’s strength is coming from beaten down, garbage stocks catching up as the economy starts rebounding from Covid. The FAANG stocks have been stuck in neutral lately, but this was expected.
The strongest stocks bounced early in the recovery and they have less room left to go. I don’t mind this underperformance as long as the FAANG stocks keep treading water. But for the entire market to start the next meaningful leg higher, we need the best-of-the-best companies to wake up and start leading the charge. Until then, expect further index gains to be slow and fitful.
If stock prices were overbought and vulnerable, we would have crashed by now. This market still wants to go higher and there is only one way to trade it. Keep holding for higher prices and lifting our trailing stops up.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
While meme stocks dominated the financial press over the last few weeks, an old favorite came back to life under the radar.
As the world fixated on GME and AMZ, ZM quietly went about its business, reclaiming the all-important $400 support level. This was a major technical achievement and back in mid-January I told readers to be on the lookout for it:
Now I’ll be honest, I was pretty hard on the stock back in early January because its price action was absolutely dreadful. But as opportunistic traders, no matter what we think, we need to keep an open mind when the evidence changes.
Rather than extend the selloff, ZM found a floor and actually started challenging $400 resistance not long after I wrote my last post.
I was skeptical about this bounce at first. But as I wrote in January, getting above $380 broke the downtrend and things really started looking good once it reclaimed $400 last week.
If a person was short, there have been plenty of clear and obvious signals to cover and lock-in those nice profits. And for the patient dip buyer, clearing $400 last week gave us a very sensible entry with a low-risk stop-loss just under this level.
Will this bounce stick and turn into a larger recovery? I don’t know. But as long as this stock remains above $400, it deserves the benefit of doubt.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
There was a little up and a little down, but by the time it was all said and done, the S&P 500 finished Wednesday almost exactly where it started.
This week’s pause is nothing more than cooling off following last week’s long string of up-days. Two-steps forward, one-step back. It doesn’t get any more complicated than that.
Confident owners are stubbornly holding for higher prices and that means every dip bounces within hours. In today’s case, the selling was measured in minutes.
This calm and gentile climb higher cannot last forever and there will be multiple cases of extreme fear and uncertainty this year, but this is not one of those times. Until further notice, this bull market is alive and well and there is only one way to trade this.
No doubt, readers crave deep insights and criticizing the herd is one way pundits make themselves sound sophisticated. But more often than not, successful trading is as simple as going with the flow. There is nothing sophisticated about that. In fact, it’s downright boring and unimaginative. But as long as I’m making money, I’m okay with boring and unimaginative.
No doubt more challenging times are ahead of us. And chances are we will be longing for these boring and easy trades soon enough. But until then, stick with what has been working and that is riding this grind higher.
If this market was fragile, overbought, and on the verge of breaking down, it would have happened by now.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Yesterday, I wrote about TSLA buying $1.5 billion worth of bitcoin from TSLA’s perspective. (TL;DR I’m not a fan.) Tonight, I’m looking at this transaction from bitcoin’s point of view.
For the millennial, Robinhood vigilante, this marriage between two of their favorite momentum darlings is a match made in heaven. The only way this could get any better is if it turns into a three-way with GME getting invited to the party. (Maybe Elon will surprise us with this announcement next week!)
Anyway, Elon Musk putting his money (actually, his shareholders’ money) where his mouth is was a huge boost in bitcoin’s credibility. This is far and away the largest and most mainstream embrace of bitcoin by corporate America yet. It’s no surprise the cryptocurrency surged 20% on the news.
As I wrote previously, Bitcoin was consolidating in the $30k’s after last year’s breakout above $10k resistance. I expected this consolidation would last a little longer than a few weeks, but that’s why we trade the price action, not what we think. Bitcoin broke above $40k and that immediately made it buyable.
And as long a bitcoin remains above $40k it is ownable. Keep holding for higher prices and lifting our trailing stops.
As for what this deal means for bitcoin long-term, don’t expect many corporations to follow TSLA’s lead. Most CEOs are not as brash as Elon and there is no way they would put their reputation or their job on the line for something as volatile as BTC. All it takes is a very normal dip in BTC prices and TSLA will be forced to report hundreds of millions of dollars in quarterly losses during their next earnings report. (Mark-to-market reporting required by the SEC.) Once that happens, any potential interest in BTC will vanish along with TSLA’s profits.
What this means for bitcion is it is still up to individual speculators to keep pushing prices higher. Are there enough people willing to buy bitcoin above $40k? We will find out soon enough.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Bitcoin surged 20% and hit $47k after Elon Musk announced TSLA bought $1.5 billion worth of the cryptocurrency.
While this is great news for bitcoin owners, it is borderline negligent for TSLA shareholders. TSLA is a car/battery/solar panel company. It is most definitely not a hedge fund. It doesn’t have the mandate from shareholders or the skillset necessary to speculate in cryptocurrencies.
If the highest and best use of TSLA’s cash is to buy cryptocurrency, then it should sell its car division and invest the proceeds into Bitcoin. Or even better, give that money to back shareholders and let them decide the best way to invest it.
But no, Elon is gambling shareholders’ money and chances are good this will end in a giant writedown at some point. And given TSLA’s modest 1.3% gain today, shareholders were not overly enthused about this idea either.
Decisions like this show a lack of fiscal discipline and while Elon has gotten away with big risks in the past, the problem with luck is it always runs out. While this $1.5 billion is largely immaterial to the company’s long-term prospects, it demonstrates a carelessness with shareholder money and no doubt that will come back to haunt the company when Elon’s luck runs out.
But this is a problem for another day. Until then, the Cult of Elon is strong and as much as I disagree with this move on principle, most shareholders put Elon on a pedestal and he can do no wrong. Momentum is higher and there is no reason to think today’s announcement changes the upward trajectory of this stock.
The near-term outlook is for higher prices but never get far from the exits because there is a frightening amount of air underneath us. The question isn’t if this stock falls, but when. If you have a solid plan for protecting your profits, you will be fine.
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What’s a good trade worth to you?
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