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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:
Wednesday was a good day for the S&P 500 as it pushed toward 3,500 for the first time in history. As bad as the real world is around us, no one in the stock market seems to care. Investors are far more concerned about missing this latest runup than they are about what could go wrong this fall. And who can blame them? Anyone that bought June’s dip using a 3x ETF is up more than 50% in only two months.
While anyone can point out great trades after they happen, it if far more useful (and profitable) to see these trades coming before they make their big move. Lucky for regular readers of this blog, this is exactly what I told them June 11th when the market collapsed 6% in a single session:
Two months later, here we are, standing at those all-time highs. Trading isn’t hard if we know what to look for. While that post helped readers two months ago, it is old news and now everyone wants to know what comes next.
While I loved riding this wave higher, it’s gotten a little too easy and obvious. Buying June’s dip was hard and that’s why it worked. On the other hand, buying this breakout to record highs is far too obvious. In fact, most people are more afraid of missing the next leg higher than they fear the next dip lower. And that’s exactly what makes me so nervous right now.
Everyone cognitively knows stocks go up and stocks go down, but all too often people forget these simplest ideas in the moment. As great as things feel right now, this is not the time to fear being left behind. It is the time to fear holding something that could go down.
I’m not ready to pull the plug on this breakout just yet, but I keep moving my trailing stops up. With profits this big, it would be foolish to let greed wipe all of those away. I don’t mind riding this higher for a few more days or weeks, but I’m definitely itching to lock-in my profits and get ready for the next trade.
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By Jani Ziedins | End of Day Analysis
Free After Hours Analysis:
TSLA popped at the open and gapped to all-time highs above $2,100. Unfortunatly, that was as good as it got because minutes later, agressive selling slashed nearly 10% off those lofty highs. But rather than devolve into a truly dreadful bloodbath, dip buyers raced in and reclaimed a big portion of those losses. By the end of the day, the stock managed to close back above the psychlogically significant $2k level.
Good day, bad day, or mixed signals? By all rational accounts, it is impossible to classify a 10% intraday crater a good thing. But at the same time, the fact such a shocking move didn’t trigger wider selling tell us many owners are not afraid of a little (or a lot!) of volatility and are confidently waiting for higher prices “no matter what”. That limited the damage and dip buyers were able to pick up the pieces and get the stock to close well above those initial lows.
Some bad, stir in some good and that leaves us with a mixed day. And as is usually the case, we cannot read too much into a single day’s price action. Today was definitely a signal to pay attention to, but unless it is followed up by other cautionary move, the previous trend higher remains fully intact.
As I wrote last week, this stock is extrely frothy and what goes up this fast, comes down even faster. As long as this stock remains above $2k, it is ownable, but anytime it falls under $2k, proceed with extreme caution. Today’s $200 tumble could easily turn into $300 or $500 before we know what hit us.
I love trading bubbles, but that also means knowing when to get out. Way too many people are going to ride this all the way up and then hold it all the way down. It happens every…single…time. Don’t be one of those people. Have a plan to protect your profits and then when everyone else is crying about the next TSLA tumble, you will be there with a pile of cash, ready to buy the next dip. But you have to get out first before you can do to do that.
And you know what, if we get out too soon, we can always jump back in. The nimblenss of our size if the greatest ability of being an independent trader. Remember, we only make money when we sell our winners. Buy TSLA above $2k and sell it under $2k. If we get tossed around in some whipsaws, no big deal. It sure beats holding a huge crash or missing out on the next pop.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
TSLA continues smashing all sensible expectations and closed above $2k for the first time ever.
Stocks that are hight tend to get even higher and that is definitely the case here. Back in June I accused TSLA of being in a bubble and with prices 100% higher today, I stand by that assessment. But unlike most people, I don’t fear bubbles, I chase them. That is exactly what I told readers two and a half months ago when TSLA first broke $1k:
This is a red-hot stock and there is a very good chance this is another bubble. While that scares some people, what should we do when we see a bubble? Why, buy it of course! What a silly question.
I’ve long since lost count of how much more TSLA is worth than all of the other auto manufactures combined. Obviously, this kind of insane valuation isn’t sustainable, but as traders, we don’t concern ourselves with these long-term outlooks. Instead, if the market doesn’t care about sensible valuations, then neither do we.
Now, don’t get me wrong, I’m not saying we should buy this and hold it no matter what. In fact, that is the exact opposite of what a savvy trader does. But we definitely shouldn’t let this insanely high valuation scare us off.
While buying TSLA at $1k would have been great, now that we are at $2k, people want to know what comes next.
First, this is a crazy volatile stock and we should be prepared for anything. While we’ve seen this huge surge higher, don’t forget markets love symmetry and spectacular moves higher are often accompanies by spectacular moves lower. With TSLA, we don’t have to go back very far to see examples of this stock collapsing more than 50%. And even a couple of weeks ago it was down more than 20% from its previous highs.
Because of this insane volatility, it makes a lot of sense to trade smaller sizes to limit our risk and to be ready to take profits proactively if prices violate key support levels. As I often remind readers, most of the people who hold this all the way up will also hold it all the way down. Please don’t be that guy.
$2k is our new highwater mark. The most adventurous speculator can buy this level if we see prices continue racing higher tomorrow, but keep a stop near $2k and be ready to abandon ship at the first signs of weakness. The thing about selling defensively is we can always buy back in if the dip proves to be a false alarm.
For anyone that is sitting on a 100%, 200%, or 300% profit, remember, we don’t make money until we sell our winner. We can continue riding this higher with a tight trailing stop, but given the size of the move over the last few days, it even makes sense to take a portion of your profits off the table proactively. Half of your profits guaranteed and half riding higher with a tight trailing stop is not a bad place to be. If prices continue trading well, we can always buy back in.
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Follow Jani on Twitter @crackedmarket
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slipped modestly following Tuesday’s record close. There were not any definitive headlines driving today’s weakness, instead, this was nothing more than a little profit-taking and “selling the news” after yesterday’s push to all-time high.
One day up, the next day down. That’s what markets do. But as long as we keep experiencing more up than down, this rebound remains alive and well. For months I’ve been saying markets go where people are looking. That little quirk made this unthinkable rally possible despite the greatest health crisis of our lifetimes. Does it make sense? Of course not. But anyone who’s been doing this for a while knows the market doesn’t always make sense. In fact, more often than not, it does the exact opposite of what most people expect, hence why contrarian investing is such a successful strategy.
Unfortunately, with yesterday’s record close, the crowd is no longer fiated on a singular level and figuring out what comes next is a little less clear. But as is always the case, there are three possibilities; up, down or sideways.
Down is the most widely anticipated outcome given the dreadful economic environment surrounding us. But paradoxically, that’s exactly why down is the least likely outcome over the near-term. Everyone knows the economy is dreadful. (Duh!) But if confident equity owners refused to sell those headlines last quarter, last month, and last week, why would anyone assume their mood changed all of a sudden? Confident owners remain stubbornly confident and that isn’t going to change anytime soon. If they were not fazed by the sharpest economic decline since the Great Depression, I cannot think of anything more spectacular that will finally convince them to abandon ship.
Up, that’s a strong possibility. Momentum is a very real thing in markets because people love joining the herd, especially when that herd is making money. But given how far, consistently, and slowly this rebound has been traveling, everyone’s seen this move coming from a mile away. If a person wanted to buy this rally to all-time highs, they already bought it. While that buying was enough to get us here, I don’t expect there will be enough to keep us going for a whole lot longer.
My best guess is momentum carries us higher for a week or two before prices settle back and consolidate near 3,400 for a month or two. From there, it all depends on how the fight against the virus progresses this fall. A big second wave and stocks will slump. If the situation remains status quo, then stocks will continue edging higher into year-end. (With some obvious and temporary volatility surrounding the election.)
But most people don’t care why the market is doing what it is doing, what they really want to know is how to trade it. Easy, keep doing what has been working. That means holding for higher prices and keep moving our trailing stops up, now spread between 3,320 and 3,360. If prices race higher in an unsustainable way, I’ll consider locking in some profits proactively ahead of a pullback to 3,400 support. But more important than anything is protecting the mountain of profits we collected this summer. Remember, we only make money when we selling our winners.
If you find these posts useful, please return the favor by liking and sharing them!
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What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have actionable analysis and a trading plan delivered to your inbox every day during market hours
Follow Jani on Twitter @crackedmarket
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