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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 | 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.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 rallied for the third day in a row and continues recovering from last week’s devastating 6% tumble.
One large bearish collapse followed by three smaller bullish responses. Which signal is legitimate and which is misleading? That’s the question everyone wants the answer to.
Thursday’s crash was the worst day since the original Coronavirus meltdown. What started as a disappointing open quickly morphed into a mad dash for the exits. But as quickly as the selling started, it exhausted itself and stocks have already recovered a big chunk of those shocking losses.
If there is one thing we know about crashes, they are breathtakingly fast. No one has time to think and if you pause even for a second, you get run over. That’s what occurred Thursday. But rather than extend the panic selling the runaway selling like we saw back in March, the subsequent price action has been far more orderly and thoughtful.
Few things calm nerves like rising prices and the last three days of gains has a lot of people feeling better. Last Thursday’s second thoughts are quickly fading from memory and confidence is returning.
As I wrote previously, until further notice, we give this rebound the benefit of doubt. Trends continue countless times but they reverse only once. Going strictly off the probabilities, last week’s dip was far more likely to bounce than it was to continue. And that’s exactly what we are seeing.
And as long as this market remains above 3k support, we continue giving it the benefit of doubt. Fall under this level and all bets are off.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
It was a dreadful day for the S&P 500. In fact, this nearly 6% loss was the worst day for the index since the depths of the Coronavirus collapse back in March.
There was no definitive headline driving today’s selling. Instead, this was one gigantic tidal wave of second-guessing that hit all at once. Between the struggling economy and signs of a second wave of infections in Asia, many investors slammed on the brakes and those second-thoughts were contagious.
As well as the market has done over the last few months, it is was actually surprising it took this long for stocks to take a meaningful step-back. But as I’ve been writing, investors have largely been ignoring headlines and this remains an emotionally driven market. Those blinders propelled us on the way higher and this group-think contributed to today’s simultaneous, mega-collapse.
But as bad as today felt, did anything change? No. The economy is still in shambles and a second wave of infections is inevitable. All things we knew yesterday and none of this is new to anyone. If these things didn’t matter before, then it probably doesn’t matter now. Stocks made a huge run since the March lows despite these fears and periodic waves of profit-taking like this are inevitable.
But just as important to this market is the nearly unlimited amount of money and resources governments are throwing at this problem. If we learned anything over the last decade, it’s that stocks absolutely love free money and by that metric, the good times are still rolling. The free money is flowing out of control and despite today’s temporary dip, expect those unprecedented flows to keep propping up stock prices.
This pullback was long overdue, but this was just a normal and healthy step-back on our way back to all-time highs. This is not the start of some much bigger collapse. Expect this selloff to bounce like every dip that came before it this spring. If the bounce doesn’t occur Friday, then look for it early next week.
But just because this market will bounce doesn’t mean we should ride this wave lower. Every responsible trader uses stops to protect themselves in case they are wrong. Earlier this week I suggested last Thursday’s close was a good level for a trailing stop. We undercut that level early in the day and that was our signal to get out no matter what we thought was going to happen next.
Now that savvy traders are in cash, it is time to start looking for the next buying opportunity. If prices bounce tomorrow morning, test that opening strength with a small buy and stop under the early lows. (It doesn’t matter if we open red or green, just which direction the market moves after the open.) If prices rally through the day, keep adding more. If prices finish near the daily highs, hold over the weekend.
On the other end of the spectrum, if prices fall from opening levels tomorrow morning, stay in cash and wait for the bounce. (An aggressive trader can short the weakness, just stay nimble and take profits early and often) As bad as today felt, traders should be excited to see this volatility. As much fun as it was riding this spring’s wave higher, we make a lot more money from this back-and-forth.
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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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