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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:
2020 is a year for the record books and this election is no exception. 24 hours later and we still don’t know who won. And whoever takes it will do so by the slimmest of margins.
As disruptive as this appears, the stock market doesn’t seem to mind. In fact, it cheered the results, surging more than 3% in midday trade.
Some people think investors are excited Trump proved the pollsters wrong and made this an incredibly close contest. And while this might be true for small, retail investors who are big Trump supporters, institutional money is far more excited Democrats didn’t take over the entire government.
The stock market loves split governments. As much a people complain about political gridlock, markets love it because no one is changing the rules on them in the middle of the game. Good news or bad news, the stock market can price anything in and move past it. What the market cannot deal with is constantly moving goalposts.
Dems seem poised to keep the house. Republicans will probably keep the Senate. And that means president Biden/Trump is less important because the opposing party in Congress will keep a lid on their boldest ambitions.
Anymore it seems like “compromise” is a dirty word in our highly partisan society, but the only thing the market loves more than sensible compromise is total gridlock. Here’s to wishing for four years of absolutely nothing.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
At some point, hopefully soon, we’re going to know who won the election. For the sake of this analysis, it doesn’t really matter who wins, just what the market does next and how we’re going to trade it.
I don’t subscribe to the conventional wisdom that Republicans are better for stocks. I’ve been trading for more than 30 years and some of the market’s best years occurred when Democrats occupied the White House and some of the worst bear markets started on Republican’s watch.
Trading through countless economic and political cycles, the one thing I learned a long time ago is the stock market and the economy are far larger than any one man. The initial knee-jerk might be lower or higher based on deeply ingrained cliches, but within weeks and sometimes even days, the market forgets about the election and start focusing on what’s coming next. In our case, Covid and the next round of economic stimulus. Those things matter far more than the (R) or (D) that follows our president’s name.
Stock futures are all over the place as I write this. One minute we’re up 1%, the next minute we’re down 1%, only to be back up 1% a few minutes later. Four years ago stock futures plunged 5% after Trump won Florida. And you know what happened the next day? Stocks finished in the green. Don’t pay attention to this overnight noise. Only inexperienced, impulsive retail traders are participating in this after-hours nonsense. The only thing that matters is what big money thinks and we won’t know their opinions until tomorrow afternoon.
As a trader, I don’t care who wins the election, only what the market does. Regardless if stocks open up or down, use those early few minutes as a starting point and then trade based on the market’s next move. If it rallies from the open, buy it. If prices retreat from the open, short it. Start small, get in early, and place a stop on the other side of the open.
There is a very good chance the first move will fizzle and reverse within an hour. If the opening dip bounces or the early rally fizzles, close the initial position near breakeven and flip the other way. More often than not, this second move is the real move and given how volatile the market’s been lately, expect this next move to cover multiple percent. If the market continues to trade strongly in that direction through the afternoon, add more and consider holding overnight. Most likely once this freight train starts moving, it will keep moving in the same direction for a few days.
After a couple of days, if the above trade is a short trade, look to lock in profits because short trades tend to be strong and fast. Take profits and get ready to buy the bounce. But if stocks rally over the next few days, these moves take longer to play out and expect near-term strength to stick around for a while, most likely taking up to and past the old highs.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Stocks rebounded Monday, reclaiming 1.2% of last week’s 5.6% decline. There was not any obvious news driving Monday’s strength, in fact, the weekend’s international headlines were quite the opposite with portions of Europe headlined back into Covid driven lockdowns. Luckily, those overseas headlines didn’t bother U.S. investors who are far more focused on Tuesday’s election.
As I wrote last week, Monday’s contrarian strength was largely predictable and a combination of “a little too far” and “less bad than feared”.
Most likely, prices will bounce Monday morning after nothing bad happens this weekend. Buy that bounce and ride it higher through the day. But remember, volatility is off the charts and that means every bit of up is followed by a bit of down. Take profits Monday afternoon and get ready to throw the tripwires out again Tuesday morning.
As for the election, my plan is to keep limited overnight exposure and trade the next couple of days as day-trades. There is a lot of uncertainty ahead of Tuesday night/Wednesday morning’s vote counting. I’m fairly certain things will go smoothly, but this is one of those situations where it is better to be a little late than a lot early.
And to be honest, part of the reason I don’t want to hold anything over election night is because I can easily envision the market going either way Wednesday morning. We could bounce on relief of a clean election. Or we could fall on sour-grapes selling as the losing side takes their toys and goes him. Both factors will be at play Wednesday morning, I just don’t know which one will be more dominant.
But no matter what happens Wednesday morning (rally or fall), I expect stocks to do well over the last few weeks of the year and that means any near-term weakness is a buying opportunity. But as is always the case when buying a bounce, start small, get in early, keep a nearby stop, and only add to a position that is working.
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By Jani Ziedins | Weekly Analysis
Free Weekly Analysis:
The S&P 500 shed nearly 6% over the last five sessions in the worst weekly loss since this spring’s Coronavirus collapse.
A recent spike in Covid infection rates and the looming presidential election created a risk cocktail many equity owners could no longer tolerate. The selling kicked off Monday with a 2% tumble and it peaked Wednesday following another 3.5% collapse. To put a bow on all of it, we finished near the weekly lows.
Sell first, ask questions later became many people’s trading plan and they were offering steep discounts to get out at any price. But as bad as all of this seems, the selling largely climaxed Wednesday and the last two sessions were testing but not exceeding the weekly lows in a meaningful way.
Nervous owners often place stop-losses under recent lows and crossing those widely followed levels triggers waves of autopilot selling. We saw that phenomenon at work on Monday and Wednesday in those multi-percent tumbles. But Thursday and Friday turned out differently. Both days undercut the prior lows but that violation did not trigger another cascading wave of defensive selling. That absence of auto-pilot selling suggests we are finally running out of nervous owners. At least for the time being.
As is always the case, few things shatter confidence like screens filled with red. While we might have exhausted this week’s supply of nervous sellers, tumbling next week on a hung election or spreading lockdowns could create an entirely new category of nervous sellers. That said, we got rid of a lot of nervous sellers this week and to trigger that next leg lower we need something new. If next week turns out to be more of the same, or even better, “less bad than feared”, the lows are already behind us.
For the more nimble-minded trader, expect this volatility to persist for a while. Remember, volatility means large swings in both directions. Set a tripwire on either side of Monday’s open and ride the next wave higher or lower, take profits in the afternoon and do it again Tuesday, Wednesday, and Thursday.
Most likely, prices will bounce Monday morning after nothing bad happens this weekend. Buy that bounce and ride it higher through the day. But remember, volatility is off the charts and that means every bit of up is followed by a bit of down. Take profits Monday afternoon and get ready to throw the tripwires out again Tuesday morning.
On the other hand, if the Covid situation gets worse this weekend and prices slump Monday morning, short that weakness and ride that wave of selling lower. But just like above, take profits Monday afternoon and be ready to set tripwires again Tuesday morning.
This is a volatile market and no matter which way it goes, expect these intraday moves to be fast and one-way. That makes this the perfect environment for directional day trading. Jump on the early move and take profits later that day. Avoid holding large positions overnight because one day’s up turns into the next day’s down.
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By Jani Ziedins | Free CMU
Free After-Hours Analysis:
Stocks bounced back Thursday and recovered a respectable chunk of Wednesday’s losses. In fact, it even got to the point where anyone who shorted Wednesday’s crash was left sitting on a pile of losses. Ouch! So much for chasing an easy short. But that’s not unusual. Anyone that shows up late to the party is often left holding the bag.
Crashes by nature are breathtakingly quick and they usually end with sharp bounces. Hold a few hours too long and nice short profits evaporate before our eyes. That’s exactly what bit everyone who shorted Wednesday’s tumble and didn’t harvest profits.
That’s not to say bulls don’t also commit the same foul. The indexes are down in Thursday’s after-hours session and virtually every bull that bought Thursday’s bounce is now sitting on a pile of losses. How’s that for equal opportunity humiliation!
And so continues the meatgrinder, a.k.a. the stock market. This is an extremely volatile period for equities and that means big swings in both directions. Every day of up is inevitably followed by a day of down.
There is nothing wrong with being aggressive and grabbing ahold of these large intraday swings. But be smart enough to recognize these profits are fleeting and they will be gone within a few hours. Take worthwhile profits and be ready to do it again in the other direction a few hours later.
As for what comes next? Expect more of the same. Wednesday’s 3.5% tumble was far too large to brush off with a single up-day. This volatility will stick around until at least after the election and probably a couple of weeks beyond that too.
That said, there is no reason to fear this volatility as long as we are smart about it. Put tripwires on either side of the open and grab ahold of that early move, whichever direction it happens to be. Place your stop-loss just on the other side of the open and be ready to lock-in a pile of worthwhile profits later that afternoon. Rinse and repeat the next morning.
If the trade doesn’t work and we get stopped out, no big deal, especially if we got in early enough and were able to move our stop to our entry point. That turns this into a free trade. It’s hard to beat that risk/reward.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 entered free-fall territory Wednesday, producing the biggest single-day decline since June’s 6% plunge.
Coronavirus infection rate headlines overwhelmed most coverage in the financial press of stimulus and the election. But that’s not a huge surprise.
At this point, a follow-on round of $2 trillion in stimulus appears inevitable, the only question is if happens in a few weeks with Republican support or an even bigger package passes in a few months if Democrats take control. Either way, the free money is coming!
As for the election, most people believe they already know who is going to win; either they believe the polls or they believe the polls are wrong. Either way, neither side has any doubt about the outcome.
And that leaves us with this runaway surge in Covid infections as the biggest uncertainty in front of us.
That said, I don’t know anyone headed for the hills because of this spike in Covid. In fact, I don’t know anyone that changed their behavior because of this latest surge. National and international infection rates have never been higher, yet most people seem to be going about their lives like they were earlier this summer when infection rates were far lower.
Sure, wash your hands, cover your face, avoid large crowds, and all the other sensible things people did this summer. But even in the face of this surge in infections, most people are still going to work and most people are still shopping. And let’s be honest, those are the only things the stock market cares about.
Even in Europe, where infection rates are far higher and their willingness to aggressively lock down the continent earlier this spring, not much is changing because of this surge in infections. It seems most people are already doing everything they are willing to do for themselves and other people and they are comfortable with the risks.
And that leads us to today’s stock market meltdown. I bet most of the people abandoning stocks today at big discounts are not afraid of Covid either. And I bet they are not even predicting another wave of widespread lockdowns. Instead, these people are selling because they think other investors are afraid of Covid and lockdowns.
This is classic herd psychology. I didn’t see the lion, but everyone around me is freaking out so I’m going to freak out too. After all, the one person who didn’t freak out and run was eaten by the unseen lion. Unfortunately, survival instincts that worked so well in the caveman days compel us to do the exact wrong thing at the exact wrong time in financial markets.
Smart money sells because they don’t like their thoughtful outlook. They don’t sell because other people around them are selling. In fact, if they have a positive outlook, they are the first to line up and buy the discounts.
And we don’t need to look far to see the aftereffects of panic selling. Twice since the Covid lows, the market has been hit by big waves of panic selling. Once in June (-6% in one day) and another time in September (-7% over 3 days). And you know what? Both times the bottom was near and that big collapse was a better time to be buying, not selling.
Will this time be any different? Probably not. Prices could fall a little further and volatility will remain elevated until after the election. But the bottom is not far. Maybe we slip and test 3,200 over the next week or two, but don’t expect prices to fall a lot further than that. That said, don’t be foolish and rush out to buy this dip. Smart money buys the bounce and protects itself with a nearby stop. If prices keep falling, no big deal. Their stop gets them out and they try again during the next bounce.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slipped a modest 0.3% on Tuesday and it finds itself down another 0.5% in after-hours trade. Not what I was hoping for and it seems like this weakness ants to stick around a little longer.
As I wrote Monday evening, retaking 3,425 Tuesday would have been a great entry point. Remember, we don’t buy dips, we buy bounces. Reclaiming 3,425 support would have done two things. First, it would have demonstrated resilience and proved dip-buyers were back in control. Second, it would have given us a clear entry-point with a sensible nearby stop-loss. Buy the bounce with a nearby stop and the risk/reward is skewed heavily in our favor. If the bounce returns to the upper end of the trading range, we make a few bucks. If it fizzles and retreats, we lose a few pennies. I really like that risk/reward.
Alas, it wasn’t to be. Stocks never reclaimed 3,425 and I was left watching this listless grind from the sidelines. While I didn’t get the bullish trade I was hoping for, by having a clearly defined prerequisite for entering the market, I never bought the dip and I avoided this subsequent weakness.
Going forward, if prices fall even further, no big deal. In fact, additional weakness works out even better for me because the lower prices fall now, the more profit opportunity there is buying the next bounce.
Adjusting this trade for the more aggressive trader on Wednesday: If prices undercut Monday’s lows (3,365ish) and continue falling, short that weakness with a stop just above this level. If prices gap under Monday’s lows at the open but quickly bounce back above, buy that bounce with a stop just under this key level.
As volatile and emotional as this market is getting, expect the next directional move to be swift and decisive. That means jumping in early and hanging regardless of which direction it is headed.
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, receive actionable analysis and a trading plan every day during market hours
Follow Jani on Twitter @crackedmarket
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