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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 Update:
Thursday morning the S&P 500 popped above 2,900 resistance after China said it was willing to talk with the U.S. This strength put last week’s dip in the rearview mirror and last week’s nervousness is turning into this week’s hope.
Even though the market fell five out of six sessions last week, the losses were modest and contained. As I wrote on Tuesday:
“I didn’t expect much out of this dip and that is exactly what it gave us. Since the market likes symmetry, we shouldn’t expect much out of this rebound either. The next move is most likely trading sideways near the psychologically significant 2,900 level. It will take time for those with cash to become comfortable buying these levels before we will start marching higher again.”
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Two days later the market inched its way above 2,900, but rather than trigger a surge of breakout buying and short-covering, the rally stalled and we traded sideways the rest of the day. Small dips lead to small rebounds, exactly as expected.
While there is solid support behind these prices, this market still struggles to find new buyers. There was almost no follow-on buying this morning when we broke through 2,900 resistance. Most of that breakout buying and short covering happened two weeks ago when we first crossed this line. That meant there were fewer people to buy today’s breakout. The slow summer months are winding down, but volume is still pathetically low and it will still take time before those with cash feel comfortable chasing prices higher.
Confident stock owners made it abundantly clear this summer that trade war headlines and White House scandals don’t matter. If nothing can take us down, it is only a matter of time before we go up. The biggest near-term catalyst is the U.S. reaching trade compromises with Canada, Europe, and China. That news will push through 3,000. Unfortunately, politics is a slow and dirty process and it will be a while before we can put this episode behind us.
This market is resting and refreshing following last month’s rally to all-time highs. This is a normal, healthy, and sustainable thing to do. But since we are not refreshing through a bigger dip, that means we should expect a prolonged sideways period. When the market doesn’t scare us out, it bores us out. Things still look great for a year-end rally, but we need to be patient and let those profits come to us. This is a slow-money trade and we will have to wait a while before the next fast-money trade comes our way.
FB is flirting with recent lows as it struggles to overcome the fear of government regulations limiting its ability to make money. But as I wrote the other day, these limitations won’t be as draconian as feared and the stock will recover once these headlines are behind us. Even though prices could slip further over the near-term, this is a buying opportunity, not an excuse to sell a good stock at a steep discount.
NFLX is doing a better job than FB in recovering from last month’s earnings fueled selloff. As expected, last month’s weakness was a buying opportunity and no doubt reactive sellers are already kicking themselves for being so weak.
AAPL is already recovering from Wednesday’s sell-the-news reaction to their new phone lineup. Nothing unexpected or exciting was announced, it was simply more of the same. But more of the same is a good thing because that is what pushed AAPL over a $1 trillion market cap a few weeks ago.
AMZN is recovering from last week’s dip, but this looks more like a consolidation than the start of the next surge higher. We came a long way over the last few months and sideways consolidations are a normal and healthy part of every sustainable move higher. Things still look good for further gains later this year as desperate money managers will be forced chase the biggest winners into year-end.
Bitcoin climbed to the mid-$6k level, but the total lack of demand continues to be a problem. Last month’s bounce to $7.5k fizzled and no doubt the same thing will happen here. We could drift up to $7k resistance over the next few days, but the downtrend is still very much intact. Nothing gets interesting until we recover the previous highs near $8.5k. Unless that happens, expect lower-lows to keep piling up.
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Jani
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
On Tuesday the S&P 500 slipped at the open after China filed a petition with the WTO to retaliate against US tariffs. But that opening weakness was as bad as it got and we quickly bounced into the green. This was the fourth day the market respected 2,870 support at the old highs. Traders are definitely more inclined to buy this dip than sell the weakness. As long as confident owners refuse to sell, supply stays tight and prices remain resilient.
But this strength doesn’t surprise regular readers. Last week I wrote the following:
“…this latest round of weakness will only be a modest dip, not the start of a bigger crash. We fear what we don’t know, not what everyone is talking about. If we were going to crash because of trade war headlines, it would have happened many months ago. The fact we keep holding up so well tells us this is a strong market, not a weak one.”
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Trade war headlines were priced in months ago and we don’t need to worry about them. Owners who feared these headlines bailed out months ago and there is no one left to sell this recycling of the news. When no one sells the news, it stops mattering.
The economy continues to hum along and that is the only thing that matters to the stock market. As long as the economic numbers look good, expect prices to keep drifting higher. Institutional money managers that were hoping for a pullback will soon be pressured to chase prices higher or else risk being left even further behind. Their buying will propel us higher through year-end. Unfortunately that doesn’t mean the ride between here and December 31st will be smooth and uneventful. Expect volatility to persist, but unless something new and unexpected happens, every dip will be another buying opportunity.
Buying this 2,870 dip was better than chasing last week’s 2,920 highs, but it is too bad the market didn’t slip further and give us a more attractive entry point. I didn’t expect much out of this dip and that is exactly what it gave us. Since the market likes symmetry, we shouldn’t expect much out of this rebound either. The next move is most likely trading sideways near the psychologically significant 2,900 level. It will take time for those with cash to become comfortable buying these levels before we will start marching higher again.
It’s been a rough few days for the FAANG stocks, but they bounced back Tuesday. AMZN and AAPL took a much-needed break following their breathtaking climb higher. Pauses and dips are a healthy part of every sustainable move higher and there is nothing unusual about their price-action.
FB and NFLX continue consolidating following their tumble after second-quarter earnings. But there is also nothing alarming or unusual about their behavior here. Those were big losses and it will take a while before the market starts trusting these stocks again. Months ago traders who missed this trade were begging for a dip so they could jump in. Hopefully those traders are taking advantage of these discounts.
Bitcoin keeps slipping and is barely holding $6k support. Last week’s rebound to $7.4k is dead and gave us another lower-high since we failed to match the previous $8.4k bounce. Lower-highs tells us the next lower-low is just around the corner. Since most owners refuse to sell, supply is scarce and we are getting into the grinding part of the selloff where each dip takes weeks and months to play out. The trend is most definitely lower, but we will continue seeing these short, tradable bounces higher. But each bounce is still a selling opportunity. The worst is still ahead of us.
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Jani
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By Jani Ziedins | Free Content
Free After-Hours Analysis:
On Thursday the S&P slipped for the fourth time out of the last five trading sessions. But this shouldn’t surprise anyone. It was a strong run following August’s decisive rebound off 2,800 support. Markets cannot go up like that indefinitely and a cooldown was inevitable.
Regular readers of this blog saw this coming a mile away. I wrote the following last Tuesday, one day before we rolled over:
If the best trade is buying weakness and selling strength, no matter how safe 2,900 feels, this is definitely the wrong time to be buying. Resist the temptation to chase these prices higher because recent gains make this a far riskier place to be adding new money. The risk/reward shifted away from us because a big chunk of the upside has already been realized while the risks of a normal and healthy dip increase with every point higher. In fact, if the best trade is buying weakness and selling strength, this is actually a darn good time to start thinking about locking-in profits. Remember, we only make money when we sell our winners and it is impossible to buy the next dip if we don’t have cash.
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I don’t have a crystal ball and I cannot predict the future, but when the market keeps doing the same thing over and over again, it isn’t hard to figure out what comes next.
As I wrote last week, it was inevitable the Canada trade deal wouldn’t be fast or easy. Missing Friday’s arbitrary deadline is all it took for last week’s hope to turn into this week’s disappointment. But to be honest, Canada’s refusal to be Trump’s lap-dog shouldn’t surprise anyone. The fact most people saw this coming means this latest round of weakness will only be a modest dip, not the start of a bigger crash. We fear what we don’t know, not what everyone is talking about. If we were going to crash because of trade war headlines, it would have happened many months ago. The fact we keep holding up so well tells us this is a strong market, not a weak one.
Thursday’s dip found support at the old highs near 2,870, but that doesn’t mean this dip is over. While I like buying 2,870 a heck of a lot more than 2,920, I still don’t feel the need to rush in at these levels.
Sometimes markets consolidate gains by pulling back. Other times they do it by trading sideways. It is still a little premature know which way this consolidation will go. Maybe we dip a little further, maybe we bounce back to 2,900 but struggle to climb back above. Either creates an effective consolidation, unfortunately right now the only thing we can do is wait for more clues. The good news is we should know more over the next couple of days.
At this point it is still a little too early to buy the dip. The discounts are modest and the profit potential is limited. I prefer better risk/rewards and am willing to wait a little longer. In a perfect world, we crash all the way down to 2,800 support before bouncing. That would give us a second opportunity to profit from the move up to 2,900. If only we can be that lucky.
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Jani
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
On Tuesday the S&P 500 got off to a rocky start following the Labor Day weekend. Trump and Canada couldn’t come to terms on a new NAFTA and that let air out of last week’s hope-filled rally to all-time highs.
Tuesday’s weak price-action fits perfectly with what I wrote last week:
If the best trade is buying weakness and selling strength, no matter how safe 2,900 feels, this is definitely the wrong time to be buying. Resist the temptation to chase these prices higher because recent gains make this a far riskier place to be adding new money. The risk/reward shifted away from us because a big chunk of the upside has already been realized, while the risks of a normal and healthy dip increase with every point higher. In fact, if the best trade is buying weakness and selling strength, this is actually a darn good time to start thinking about locking-in profits. Remember, we only make money when we sell our winners and it is impossible to buy the next dip if we don’t have cash.
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It is little surprise Canada didn’t roll over for Trump and Friday’s arbitrary deadline came and went without a deal. Both sides threw barbs at each other in the press over the weekend, but this is little more than grandstanding for the cameras that accompanies all political negotiations.
Even though we didn’t get a deal this weekend, there is no reason we shouldn’t expect one over the next few weeks. Canadian and American businesses are far too reliant on NAFTA and it would be incredibly disruptive to both economies to throw it out. Even the president of the powerful AFL-CIO union came out strongly against excluding Canada. If the unions are against it, you know it must be really bad for business.
While the market dipped Tuesday, the losses were modest and we are still at levels that were all-time highs last week. This is more of an exhale following a strong run than the start of a bigger correction. This is an incredibly resilient market and owners have refused to sell far more dire headlines this spring and summer. There is no reason to think anything changed this week.
As I wrote last week, there are plenty of good reasons to take profits at these highs, but selling because Canada didn’t jump aboard Trump’s ‘new and improved’ NAFTA deal by an artificially imposed Friday deadline is not one of those reasons.
We take profits because it’s been a nice run. We take profits because we are running into resistance. We take profits because we buy weakness and sell strength. We take profits because we need cash to buy the next dip. But we definitely don’t sell because we are afraid of Canada collapsing this market.
Personally, I would love it if this selling spiraled out of control so that we could jump in at much lower levels. Unfortunately, I doubt we get that lucky. Instead, I expect this dip to bounce quickly. Support at the old highs near 2,870 is as far as this goes, and most likely we won’t even get that far. This is simply an exhale after a nice run and we shouldn’t read too much into this normal, healthy, and periodic gyration.
Until further notice, keep doing what has been working. That means buying weakness and selling strength in our short-term trading account and sitting on our favorite stocks with our longer-term investments.
If you found this post useful, join the thousands who follow me on Twitter so you don’t miss future updates: Follow @crackedmarket
Jani
What’s a good trade worth to you?
How about avoiding a loss?
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By Jani Ziedins | End of Day Analysis
Free After-Hours Update:
Tuesday morning the S&P 500 poked its head above 2,900 for the first time in history. The market continues basking in the after-glow of Trump’s Mexican deal that triggered Monday’s breakout to all-time highs. Unfortunately Mexico is only one piece in a much larger puzzle. Canada’s, Europe’s, and China’s trade deals remain elusive. All the work ahead of us is why the celebration was shortlived and we slipped under the psychologically significant 2,900 level in late-morning trade.
That said, 2,900 is a major milestone no matter how you cut it. This strength is impressive and caught a lot of people off guard. Not long ago the crowd was overrun by doom and gloom and predictions of the market’s collapse were everywhere. Between trade wars, rate hikes, rising interest rates, Turkey, Italy, Iran, and all the other drama thrown our way this year, it is no surprise traders were so negative.
Luckily regular readers of this blog knew better. Four months ago when the market was teetering on the edge of collapse and on the verge of making new lows for the year, I wrote the following:
Predicting the market isn’t hard if you know what to look for because the same thing keeps happening over and over. But just because we know what is going to happen doesn’t make trading easy. Far and away the hardest part is getting the timing right. That is where experience and confidence comes in. Several months ago investors were begging for a pullback so they could jump aboard this raging bull market. But now that prices dipped, rather than embrace the discounts, these same people are running scared. Markets dip and bounce all the time, but we only make money if we time our trades well.
The most important thing to remember is risk is a function of height. The higher we are, the greater the risks. By that measure, Tuesday’s dip near the 2018 lows was actually one of the safest times to buy stocks this year. Did it feel that way? Of course not. But that is why most people lose money in the stock market. If most people were selling Tuesday, and most people lose money, then shouldn’t we have been buying? Given the market’s reaction today, the answer is a pretty resounding yes.
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The S&P 500 is up 10% since I wrote those words back in April. 10% is a great result by itself. It is even better if a person took advantage of leveraged ETFs. But far and away the best trade of the year was profiting from these fantastic swings between optimism and pessimism by buying weakness and selling strength. Buy the dip, sell the rip, and repeat until a good year becomes a great year.
While it is fun to look back at my successful trading calls, what readers really want to know is what comes next. Luckily for us today’s strength doesn’t change anything. The best trade is still buying weakness and selling strength. The problem with today’s hope is it will be replaced by disappointment in a few days. Today we see light, in a few days we come across another stumbling block. And like clockwork, the market continues its swings between hope and despair.
If the best trade is buying weakness and selling strength, no matter how safe 2,900 feels, this is definitely the wrong time to be buying. Resist the temptation to chase these prices higher because recent gains made this a far riskier place to be adding new money. The risk/reward shifted away from us because a big chunk of the upside has already been realized while the risks of a normal and healthy dip increase with every point higher. In fact, if the best trade is buying weakness and selling strength, this is actually a darn good time to start thinking about locking-in profits. Remember, we only make money when we sell our winners and it is impossible to buy the next dip if we don’t have cash.
While I am cautious with my short-term swing-trades, this market is acting well and there is no reason to abandon our favorite medium- and long-term investments. We are still setting up for a strong rally into year-end and the only thing to do is patiently watch the profits pile up in our favorite long-term investments.
If you found this post useful, join the thousands who follow me on Twitter so you don’t miss future updates: Follow @crackedmarket
Jani
What’s a good trade worth to you?
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