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Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Tuesday was a mixed session for the S&P 500. The index opened with losses and the one-way selling knocked stocks down more than 50-points in midday trade.
The CDC reversed its guidance and now these alleged experts tell us vaccinated people should resume wearing masks in most of the country due to the pervasive Delta variant.
While this is a flip-flop from previous guidance and wearing masks is most definitely uncomfortable, this announcement was not an economic development. As we have seen over the last 12 months, mask-wearing is not a meaningful economic deterrent. The stock market rallied nearly 100% from the Covid lows while everyone was wearing masks and a return of those policies won’t make a difference to the stock market. Consumers (and investors) still have money burning a hole in their pockets and they will continue spending it regardless of their mask status.
And unsurprisingly, it didn’t take long for cooler heads in the market to prevail and the index bounced decisively off of those midday lows. Prices still closed in the red but they recovered more than half of those early losses and that resilience is considered a win for the bulls.
As I’ve been writing over the last few weeks, this remains a strong market and owners remain stubbornly confident. That is keeping a floor under prices and decisively rebutting things like last week’s selloff. But at the same time, we’ve come a long way and some sideways consolidation is long overdue.
The most important thing to remember about sideways consolidations, all of the ups and downs inside the consolidation are totally meaningless!!! Things will get more interesting this fall when big money managers return from summer vacation and start adjusting their portfolios ahead of year-end. Until then, these daily gyrations don’t matter.
The lone exception to the above analysis is if the index falls under last week’s lows. Slip under 4,250 and all bets are off. Until then, “this ain’t nothin’ but a thang.”
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Following last week’s brief bout of volatility, the S&P 500 slipped back into its more leisurely summer mood on Monday, adding a modest 0.24%. But that was good enough for yet another record close and last week’s second thoughts are quickly fading from memory.
More important than this almost imperceptible 0.24% gain is the index continues holding last week’s bounce. False bottoms fail quickly and they most definitely don’t keep making new highs. By those measures, last week’s selloff is clearly dead and this bounce is the real deal.
But as I wrote last week, I also don’t have high expectations for big gains over the near term. It’s been a good run over the last few months and the rally will likely stall and grind sideways into the fall. That said, this is just my opinion and the market is always willing to prove me wrong. At the moment, the rally is trading well enough to be worth sticking with, just come into this trade with measured expectations.
We are a few weeks into earnings season and while we still have a lot of important companies yet to report, if there was something structurally wrong with the economy, it would have shown up already in the first wave of earnings. While we will continue to see individual winners and losers, overall, the economy looks to be in pretty good shape.
Inflation, money printing, deficits, the Delta variant, and all of the other reasons stocks should tumble from these highs are still out there. But most investors don’t seem to care and when they don’t care, I don’t care.
Knowing what we know now, selling last week’s dip at our stops was not necessary, but there was no way to know that at the time. Smart money trades everything as if it is the real deal because you know what, it often turns out to be exactly that.
That said, we actually got lucky last week. Locking in some nice profits the previous week near the highs allowed us to jump in at lower prices during last Tuesday’s bounce. While that modest exchange isn’t making anyone rich, it is hard to beat protecting ourselves from a much larger selloff and getting paid to do it!
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Blink and you missed this week’s collapse and bounce-back in the S&P 500. While Monday’s tumble was the biggest one-day drop in three months, Tuesday’s rebound was equally impressive. And here we stand a few days later, right back where we started and wondering what the heck just happened?
But this pick-up volatility isn’t a surprise for readers of this blog. As I wrote over a week ago, we needed to approach this run to 4,400 with a healthy dose of skepticism and that proved to be valuable advice as the index shed nearly 150 points over the next three trading sessions:
Now to be clear, I’m not calling a top, simply pointing out the risk/reward is no longer skewed in our favor. In fact, following a 5% move over four short weeks, the risk/reward is most definitely skewed against us.
The first part of my comment, “I’m not calling a top”, is now the most relevant part for us going forward from here.
Three days later and Monday’s selloff is dead. Emotional selloffs need emotion to keep going and this one lost all of its momentum following this three-day bounce. Nervous owners are no longer nervous and that makes a world of difference when it comes to convincing people to make irrational trading decisions.
But just because owners are confident again doesn’t mean everything is back to the way it was last week. No, those with cash are still having second thoughts and reservations about chasing stocks near all-time highs.
Confident owners that don’t want to sell and gun-shy buyers afraid of these high prices is the perfect recipe for a prolonged sideways grind under 4,400 resistance. Something that will stretch out for the rest of the summer.
That said, while I don’t expect this market to go anywhere anytime soon, buying Tuesday’s bounce was still a great entry point. For anyone that got in early, they can move their stops up to their entry points, giving themselves a free trade. While the market might not go anywhere for a while, it is hard to beat the risk/reward of a free trade! (go up and we make money, go down and we get out at breakeven)
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday was another lazy summer session for the S&P 500 as it added a barely noticeable 0.12%.
Nearly a month ago things looked far less constructive as the index crashed through 4,200 support. But four short weeks later, we are a stone’s throw from 4,400. Funny how that works.
But just like how last month’s dip was bound to bounce, this months’ rally is going to stall. That’s how this game works. Buy when other people are fearful, sell when they are greedy.
Now to be clear, I’m not calling a top, simply pointing out the risk/reward is no longer skewed in our favor. In fact, following a 5% move over four short weeks, the risk/reward is most definitely skewed against us.
Sometimes it makes sense to buy the uncertainty. Other times it makes sense to sell the confidence. And the most important thing to remember is we only make money when we sell our winners. And often the best time to sell is when we are the most reluctant to let go.
Often the most reliable trading signals are buying when you don’t want to buy and selling when you don’t want to sell. Think about that for a second. How many great trades did you miss because you were too afraid to pull the trigger? And on the other side, how many great trades did you let implode because you didn’t want to lock in some nice profits when you had them?
Maybe stocks continue higher. Maybe they stall at 4,400 for a while. Or maybe they retreat and retrench a little before the next leg higher. But no matter what they do, the odds are most definitely stacked against another 5% rally over the next four weeks.
ZM is showing us what happens when we hang on a little too long. As I wrote a couple of months ago, the bounce off of $300 was an attractive buyable entry. But after the stocks rallied more than 30%, I told readers last week this was a good time to protect those profits. And here we are a handful of days later and the stock has already given back 40% of those nice profits. Easy come easy go.
As the stock market saying goes, “bulls make money, bears make money, and pigs get slaughtered”. Don’t be a pig.
If you find these posts useful, please return the favor by liking and sharing them!
Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every evening.
What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, receive actionable analysis and a trading plan every day during market hours
Follow Jani on Twitter @crackedmarket
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