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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 | Free CMU
Cracked.Market University
Three traders find themselves standing on a road at the top of a mountain. All three are looking over a blind crest, wondering what is on the other side.
The first trader announces to the other two, “Look at how the camber of the road leans a little to the left. Obviously that means the road turns left on the other side of this crest.”
Confidently, the first trader jumps in his car, turns the wheel to the left, reves the engine, closes his eyes, and guns it.
A few seconds later, the other two traders flinch as they hear crashing sounds coming from the other side of the blind crest.
The second trader responds with, “Can you believe that idiot, what was he thinking? If you look at the terrain a little further down the valley, obviously the road turns to the right on the other side of this crest.”
Confidently, the second trader jumps in his car, turns the wheel to the right, reves the engine, closes his eyes, and guns it.
By now, the third trader is not at all surprised when he hears the sound of crunching metal coming from the other side of the blind crest.
Hopefully by now, everyone realizes the point of this story. Successful traders react to what the market gives them. They don’t just guess at what is ahead and blindly trade it. And as such, the third trader calmly gets in his car and with his eyes wide open, carefully navigates all the twists and turns on his way safely back down the mountain.
If you want to survive in this business, you must react to the market as it comes to you. There is nothing wrong with making educated guesses about what lies on the other side of a blind crest. But by no means commit to that position regardless of what you find when you get to the other side.
In our current environment, there is nothing wrong with having a bullish or bearish opinion about these Coronavirus shutdowns and the unlimited resources governments are throwing at the problem. It’s human nature to anticipate what’s coming. But when we get to the other side of the crest, we must follow the road, not our biases.
Three weeks ago that meant buying a relentless rebound no matter how far we were above the March lows. This week, that meant locking-in profits as prices slumped back to support.
What is coming next week? I’m not sure. But I do know that if we go up, I will be buying and if we go down, I will be selling. What will you be doing?
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By Jani Ziedins | End of Day Analysis
My Trading Diary
The S&P 500 started the day in the red, but rather than accelerate lower like yesterday, prices quickly found support and are trying to get back to breakeven.
This is one of those half-full, half-empty situations. I like this market and I’m not worried about this dip. But at the same time, it keeps hitting some of my stops. At this point, I’m half in and half out and that is probably a good place to be given the uncertainty.
Will this emotional selloff accelerate or dry up? I have no idea and I’m currently playing both sides of the fence. If prices firm up this afternoon, then I’ll start adding back in. If we retreat under this morning’s lows, I’ll continue peeling off. No big deal. As long as I am in the right place at the right time, that’s all that matters.
My Trading Plan
Most Likely Next Move: This is a buyable dip and prices will return to the highs. The only question is how low we go first.
My Trading Plan: I’m half in and half out. If prices slump this afternoon, I’ll continue peeling off. If the market trades well, I’ll start adding back in.
If I’m Wrong: At this point, I’m ready for this market to go in either direction and I don’t really care which way it goes. Higher means profit. Lower means even more profit. I’m okay no matter what happens.
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Did someone forget to tell the Nasdaq we’re in the middle of the worst economic contraction since the Great Depression???
Talk about a major divergence from reality. While the cynics cannot help but argue with this market, never forget, we trade stocks, not headlines or the economy. If stocks want to go up, there is only one way to trade this. If you don’t agree, your only choice is to get out of way because if you don’t, you are going to get run over.
Without a doubt, this rebound will end at some point because they always do, but this is definitely not that point. This month’s 6% collapse was the perfect setup to trigger a much larger collapse. If this rally was overbought and vulnerable, that was more than enough to trigger a much larger avalanche of follow-on selling. Instead, confident owners shrugged and bought the dip. When stubborn owners refused to sell, headlines don’t matter. End of story.
At this point, keep an eye on Monday’s lows. If we fall to this level, start locking-in some profits. If we retreat back to the previous Monday’s close, peel off some more profits. And if we return to this June’s lows, get all the way out. Anything other than that and lookout above. I fully expect the S&P 500 to match the Nasdaq and reach new highs over the next few weeks. We buy higher-highs, we don’t sell them.
If everyone knows the Fed rigged this market to keep going up, quit complaining about it and enjoy the ride!
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By Jani Ziedins | Weekly Analysis
Free Weekly Review and Lookahead:
Friday’s price action was disappointing as a 40-point opening gain dissolved into a 20-point loss. But if you zoomed out to the weekly view, it was actually a good week and the market reclaimed 60-points that were lost the previous week.
Headlines continue obsessing over a “second wave” and Friday’s tumble was exacerbated Apple re-closing 11 of its stores in four states.
Hopes of a quick recovery could be thwarted by another government-imposed shutdown, but so far most states continue reopening despite the recent uptick in infections. At this point, there might not be the political will to force people to stay indoors indefinitely.
But even if the government doesn’t force us to stay indoors, people might be reluctant to resume their normal lives if every news broadcast starts with a body count. Fear-mongering and human nature are just as important to this recovery as government policy.
But when it comes to stock prices, investor sentiment is far more important than reality. As long as investors remain optimistic about the future and refuse to sell their favorite stocks at a discount, expect stock prices to remain stubbornly firm despite what the headlines keep shouting at us.
It has been a scary few months and stock owners who fear the Coronavirus and subsequent shutdowns have been given plenty of time to bail out. And not only that, these nervous sellers were replaced by confident dip-buyers who were buying despite the dire headlines. If these confident owners didn’t sell the “first wave”, what are the chances they will sell this “second wave”? When confident owners refuse to sell, headlines stop mattering.
As long as this market remains above 3k support, the larger Covid rebound remains alive and well. Even a dip and test of this level isn’t a reason to abandon ship. But if prices fall under this level and the selling accelerates, as nimble traders, it is our responsibility to get out and reassess. Until then, continue giving this rebound the benefit of doubt.
Next week is an important make-or-break week for the market. If the breakdown doesn’t happen next week, it isn’t going to happen. Keep your stops near 3k and let the market tell us what it wants to do next. Until the price action tells us otherwise, ignore all the cynicism and second-guessing.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Thursday was the fifth trading session since the S&P 500 collapsed 6% in a single day. As dire as the situation felt last week, the market is doing a remarkable job of holding it together.
In the five sessions since last week’s collapse, the index already reclaimed 2/3s of those losses. If there is one thing we know about larger selloffs, they are breathtakingly fast. Compare this week’s reaction to the five sessions that followed February’s original Coronavirus breakdown. There, indexes fell another 12% during those next five trading sessions.
Without a doubt, we need to stand up and pay attention any time the market sheds 6% in a single day. But what happened last week was definitely different from what started back in February. That means we need to be careful drawing connections between the two events.
Even more important than the initial loss is how traders respond to it over the next few days. February’s first drop telegraphed the impending collapse that would eventually shave 35% off the index. The last few days has seen traders respond by buying the dip, not adding to the weakness.
As paradoxical as this dip buying seems given the widespread headlines proclaiming “a second wave”, it actually makes a lot of sense when you breakdown the supply and demand occurring under the surface.
The last few months have seen a tremendous amount of selling. Anyone scared of the Coronavirus and the ensuing shutdowns abandoned ship a long time ago. And not only that, when these panicked owners were selling, confident dip buyers were snapping up those discounts despite the headlines.
If confident dip buyers didn’t care about the “first wave”, do we really expect them to be scared by a “second wave”? No, of course not. That stubborn confidence is why stocks have been so steady despite predictions of a bigger selloff.
As long as the market remains above 3k support, everything is going according to plan and all-time highs are still in our near-term future. What happens after we get there is still undecided, but for the time being, enjoy this rebound, don’t fight it. Keep your stops near 3k and quit worrying about it.
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 day.
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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