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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:
The S&P 500 slumped 1.2% after weekly unemployment claims saw their first increase since late March. This triggered the biggest equity decline in nearly a month. Is the market telegraphing worse things to come? Or was this a trivial wobble ahead of the next leg higher?
Clearly the economic rebound stalled. But this isn’t news. We’ve been dealing with surging infection rates since last month and the inevitable return of business restrictions. Today’s employment numbers only confirm what we already knew was coming.
Was today finally the wakeup call the bears have been waiting for? Is the evidence so incontrovertible that even the most oblivious bull can no longer continue living in denial? That’s what the cynics are hoping for anyway. But if the fastest economic collapse in modern history and the highest unemployment rate since the Great Depression didn’t spook these oblivious investors, why would anyone assume a modest uptick in initial unemployment claims would be the thing that finally breaks this market?
While today’s loss felt dramatic because volatility has been nonexistent over the last few weeks, a 1.2% Covid fueled dip hardly qualifies as the start of anything. As long as this market remains above 3,200, the rebound is alive and well. Even a dip under 3,200 isn’t that big of a deal if supply dries up quickly. A nimble trader will start peeling off some profits if we dip under 3,200, but this more of a risk management decision than concern about an impending collapse.
Until further notice, I will continue giving this market the benefit of doubt. But, if the selling feeds on itself and prices dip further, it’s not a big deal. We liquidate at our trailing stops and buy the next bounce. As much as I root for our country, economy, and stock market, the more this market dips, the more money I make so I don’t mind.
As I wrote yesterday, TSLA‘s lackluster reaction in after-hours trade to yesterday’s record-setting fourth consecutive profit was an ominous sign. Prices opened green this morning, but that was as good as it got. While the earnings were fantastic, the stock rallied in anticipation of these headlines and it fell into the “sell the news” trap.
Keep holding for higher prices if we bounce tomorrow, but if prices fall under $1,500 get defensive. Even if the future is bright, there is no reason to ride a near-term dip down $500. Lock-in some profits and get ready to buy the next bounce.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Wednesday modestly higher as it continues setting new highs for the Covid rebound.
Infection rates remain elevated but scientists are making progress on a vaccine. Unemployment is off the chart but governments continue handing out free money. For every negative, there is an offsetting positive. While the cynics obsess over the negatives, the market continues focusing on the positives. Stocks are not racing higher like they were in March, April, and May, but they are amazingly resilient. 3k support was rock solid in June and we keep bouncing back to the rebound’s highs. As I often write, a market that refuses to go down will eventually go up.
We make money following the market’s lead, not reacting to headlines. If this market doesn’t want to breakdown, there is no arguing with it. There is no room for “should” in the market. Either it does or it does not. Anyone trading “should” is losing a lot of money right now and we don’t want to join that group.
Keep moving stops up and waiting for higher prices. We are still on track to challenge all-time highs over the next few weeks. If this market was going to breakdown, it would have happened by now. The road won’t be fast or straight, but as long as we keep experiencing more up than down, everything remains on track.
TSLA reported earnings after the close and pleasantly surprised investors by producing the fourth consecutive quarterly profit. The big news is this achievement qualifies the stock for admission into the S&P 500. But more surprising than the profit was the lackluster performance in the after-hours session. While most CEOs would love their stock to pop 4% following earnings, TSLA makes bigger moves on a random Monday. To be honest, 4% is fairly disappointing given the headlines.
If TSLA rallies 10% tomorrow, then I read too much into this. But if TSLA slips into the red tomorrow, it is best to start taking profits before the losses accelerate. While gaining admission into the S&P 500 would be a huge boost for the stock, there is a good chance this event is already priced into the stock and we could easily fall into a “sell the news” letdown.
It is okay to hold for higher prices but keep your trailing stop close.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 started the day with nice gains as attention shifted toward the start of earnings season. The index even challenged June’s highs just over lunchtime. Unfortunately, that was as good as it got and a late-day selloff slashed 85 points from those midday highs, transforming a great morning into a very disappointing afternoon.
Normally, it is incredibly bearish to see stocks retreat so decisively from a retest of prior highs. Rather than chase prices even higher, most owners took this opportunity to lock-in profits. That’s not unexpected given how far we’ve come since the March lows and the start of earnings season adds a new dimension of risk to the calculus. That said, if nothing else thrown at this market has been able to dent it, do we really believe some disappointing earnings will change the market’s mind?
Everyone knows earnings will be dreadful. We very easily could see some of the worst quarter-on-quarter declines in a generation, if not market history. But that’s the thing, everyone knows earnings will be dreadful and these results won’t catch anyone off guard. The same phenomena happened when we experienced the biggest jump in unemployment claims in modern history and the highest unemployment rate since the Great Depression. Did the market flinch following those appallingly bad reports? Nope. It shrugged them off and continued higher.
As I’ve written previously, we continue giving this market the benefit of doubt until it gives a compelling reason not to. This afternoon’s fizzle was definitely a warning sign. But so far it was also only a single warning sign and this rebound has ignored countless similar signals over the last few months. For those reasons, I need further confirmation of a change in trend before I’m willing to abandon this rally.
For the time being, keep holding but move our stops up. 3k is major support but we should be out long before prices retest this level. Consider locking in some profits if prices open weak tomorrow morning and continue skidding in early trade. The next level to lock in further profits is if prices slip under 3,140. Cut through those and close weak again and we should be all the way out.
But just because a dip squeezes us out doesn’t mean we give up on the rally. If prices recover these support levels, we jump back in. Without a doubt, getting caught in a little whipsaw is annoying, but it sure beats holding a bigger loser or missing the next leg higher.
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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