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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:
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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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 reclaimed nearly all of yesterday afternoon’s tumble after traders realized Trump’s threats to suspend stimulus negotiations were more bark than bite. Within hours, Trump backpedaled and promised to sign any bill that put money into voter’s taxpayer’s pockets.
This reversal alleviated investors’ fears and prices quickly returned to recent highs. And we should have seen this coming. Yesterday evening I wrote, “the dip might even turn out so modest and fleeting it could be hard to take advantage of.” Well, there you go. Blink and you missed it.
Tonight we have the vice presidential debate. If there is anything more inconsequential than the vice presidential debate, I can’t think of it. So yeah, expect investors to forget about this nearly as quickly as bored voters flip the channel.
The market continues trading well and has been above 3,300 support for nearly two weeks. If stocks were fragile and vulnerable, we would have crashed by now. Instead, September’s pullback is just that, a pullback. Nothing unusual or alarming about a step-back and cooling off following a 6 month, nearly non-stop run from the March lows. Two-steps forward, one-step back.
Expect the sideways chop to continue until the election. But as long as we get more up than down, things are going well. If the index crashes back under 3,300, we will have to reevaluate, but until then, there is nothing to stress about. (This is our last-line-of-defense stop-loss. That said, a savvy and nimble trader will recognize looming weakness and get out long before the market reaches our last-line-of-defense.)
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
Tuesday started out well enough. Early sideways trade transitioned into a decent afternoon rally. That is until Trump threw cold water on the market and surprised everyone by announcing all stimulus negotiations are suspended until after the election. That proclamation sent stocks crashing more than 2% from those afternoon highs in a matter of minutes.
If there is a silver lining to this afternoon’s tumble, stocks quickly found support between Monday’s open and Friday’s close and held in this region through the final hour of the day. The index slumped a little further in after-hours trade but not dramatically so. At least to this point, this looks more like concern than panic.
We will learn a lot more about the market’s mood Wednesday. Dramatic corrections like early September and huge crashes like last February get started and they don’t stop going for several days. If prices hold up reasonably well Wednesday afternoon, this latest development is not turning into the next crash.
For a fundamental analysis of the market’s disappointment, this is a delay and not a termination. A stimulus deal will eventually get done, it just won’t happen as quickly as investors were hoping. Delayed gratification leads to dips, not crashes. As long as the market remains above 3,300, stocks are in pretty good shape. And who knows, the dip might even turn out so modest and fleeting it could be hard to take advantage of.
As for how to trade this, the market has been acting well since September’s bottom and smart money was riding this wave higher. This afternoon’s sharp tumble threw a wrench into those plans. Even though stocks didn’t undercut recent lows near 3,320, it still made sense to take some risk off the table and lock-in a portion of our recent profits.
As I often remind readers, it is much better to be out of the market wishing you were in than in the market wishing you were out. There is nothing wrong with taking some risk off the table when we get blindsided by something we don’t fully understand. Our clearest thoughts and analysis comes when the pressure is off and sometimes it only takes selling a small fraction of our position to gain that clarity.
As for Wednesday, wait to see what happens tonight and tomorrow morning. If the market finds its footing, get back in. If we get hit by another round of reflexive selling, get out of the way and wait for the next bounce. My hard stop is near 3,320 and if we fall under that, I’m out no matter what*. (The lone exception is if we gap under that level at the open. I will give the market 15 minutes to find a bottom and bounce before selling.)
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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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