All Posts by Jani Ziedins

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About the Author

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.

Jul 12

The reason we rallied in the middle of a trade war

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P500 surged to the highest levels in nearly six-months, erasing almost all of this winter’s big selloff. What’s driving this strength? If you go strictly by the headlines, it seems the market loves Trump’s trade war. That can’t be right, can it???

No of course not. The stock market hates anything that gets in the way of free trade and the only one winning this trade war is the taxman who is enriching himself at the expense of hard-working Americans. But if the market hates this trade war, why is it rallying so strongly after Trump started taxing $36 billion in Chinese imports and is threatening to add another $200 billion?

First, lets be perfectly clear, the market most definitely isn’t rallying because of Trump’s trade war. It simply isn’t selling off on the news because these headlines are already priced in. Rational traders sell the first hints of bad news. No one waits for the inevitable to happen before they react to it. When we see a rock flying toward our head, we move before it hits us, not after. The same goes for the stock market. Traders reacted to Trump’s trade war months ago when he first announced it. Anyone waiting until now to sell the trade war headlines clearly doesn’t understand how this works. All of this selling ahead of time meant there was no one left to sell the news when it finally happened. Remember, we fear what we don’t know, not the things everyone is talking about. Trump’s trade war is old news and is why the market doesn’t care about it anymore.

While this strength is obvious after the fact, these things are far harder to see ahead of time. But luckily regular readers of this blog saw this coming. (Don’t miss out next time, signup for FREE email alerts!) Two-weeks ago I wrote the following as this market teetered above 2,700 support:

Bears claim their time is coming, but is it really? If they couldn’t deliver the goods with such a perfect setup, what makes them think waiting a little longer will make a difference? Trade war headlines are as dire as they can get with Trump and China already threatening to tax all the trade between the world’s two largest economies. At this point things cannot escalate any higher. How did the market respond to this latest round of bearish headlines? With a lethargic, drawn out, two-week slide that barely gave up 2%. Everyone who has been doing this for any length of time knows market crashes are breathtakingly fast. Sell first and ask questions later affairs. Yet here we are two-weeks later, still waiting for the promised crash. The cold, hard truth is if it was going to crash, it would have happened by now.

And not only did we not crash, we rebounded to the highest levels in nearly half a year! People often claim the market is fixed when it doesn’t do what they think it should. The brutal truth is the market is most definitely not fixed, these people are simply looking at the wrong things. Everything makes perfect sense if you know what to look for. This was a strong market, not a weak one. Anyone who realized this wouldn’t have been surprised when the market brushed off stale headlines that had been priced in months ago.

But that was then and this is now. Most people already know what happened, what they really want to know what comes next. If this market was signaling strength two-weeks ago, it was shouting strength over the last several days as it defied conventional wisdom and rallied in the face of bearish headlines. If this market was fragile and vulnerable, there have been more than enough excuses to send us tumbling. Instead it is holding up incredibly well. Just imagine what will happen when we move past these negative headlines. This market most definitely wants to go higher and it won’t let anything get in its way.

I don’t expect a strong surge higher from here because we are still stuck in the slower summer months. Breaking 2,800 resistance is all but a done deal and no doubt that will trigger a short-squeeze as bears give up in frustration. But expect the gains to slow down after that because even though this market doesn’t want to go down, headlines are negative enough that those with cash will remain reluctant to chase prices higher. That won’t happen until big money returns from their summer cottages this fall. Those deep pockets will fuel the chasing into year-end and things are setting up for a strong finish to 2018. What doesn’t kill this market only makes it stronger.

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Jani

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Jul 10

Here we go again

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

Tuesday was a good day for the S&P500 as it extended its win streak to a fourth day. But that hardly matters anymore because after the close Trump announced tariffs on another $200 billion in Chinese goods. That sent after-hours markets tumbling nearly 1%.

Thus far U.S. stocks have largely ignored Trump’s trade war and Tuesday we closed within 3% of all-time highs. The same cannot be said for Chinese markets that are quickly approaching a bear market. The question for us is if this latest escalation is the straw that finally breaks the camel’s back and we join the Chinese with our own bear market. Or if this is just one more thing our “oblivious” market ignores and we continue defying gravity.

For a historical perspective, we only need to look back a few days. Last Friday Trump launched his second round of tariffs on the Chinese and they immediately responded in kind with their second retaliation. What did our market do? It had one of the biggest up days this summer. How could something so negative lead to such a positive reaction? Was this market even paying attention? No sane market would rally in the middle of an escalating trade war, would it?

Luckily for regular readers of this blog, the market’s strength came as no surprise. We know markets are always looking ahead and quickly price in new information as soon as it becomes widely known. Trump launched his trade war this spring and Friday’s escalation didn’t surprise anyone, even the bears saw this one coming. But here’s the thing about rational traders, they don’t wait for something to happen before they sell it. Instead they start selling as soon as the rumors surface. Since we’ve been talking about this trade war for awhile, owners who feared these headlines bailed out months ago and were replaced by confident dip buyers who demonstrated an obvious disregard for these headlines. The more we talk about a trade war, the less it matters to the market.

I’m not claiming the trade war doesn’t matter to the economy and the stock market. Without a doubt this is a negative event and will hurt businesses and consumers alike. The stock market hates barriers to trade because they create inefficiencies and only enrich the government. But the thing to remember is stocks don’t need to fall for something to get priced in. Going sideways is often enough to compensate for a headwind.

The market was on fire last year and Trump’s tax cuts added fuel to the fire. In fact the Fed is worried about the economy overheating. But what has the stock market done while the economy continued ramping up this year? A lot of nothing. We got hit by waves of rate hike fears, rising interest rates, Trump’s trade war, and the icing on the cake is a growing investigation into the White House. Take these things away and without a doubt the stock market would be significantly higher. If we are lower than where we would have been otherwise, then these negative headlines are actually priced in even though we haven’t crashed.

Back to the present, not only did the U.S. stock market ignore Friday’s escalation, it’s been ignoring the trade war for months. Overnight futures would dip on a negative headline. But the thing to remember is overnight futures are an extremely thin market and easily influenced by a small number of players. As soon as the regular market opened and real volumes returned, prices rallied from their opening lows. No doubt something similar will happen Wednesday or Thursday. If this market was going to crash on trade war headlines, it would have happened months ago. If it didn’t happen then, it’s not going to happen now. Prices could slip a little further over the next couple of days, but these are buyable dips and no one should be bailing out “before things get worse”.

Before anyone accuses me of being a perma-bull, I am most definitely not. I’m an opportunist and personally I wish the market would crash so that I could make even more money riding these waves down and back up again. Unfortunately this market keeps telling us it doesn’t want to selloff. I’ve been doing this too long to argue with a strong market and am more than happy to play along. Without a doubt the latest round of trade war headlines could trigger further near-term weakness (and I would love it if it did), but this market has told us time and time again it simply isn’t interested in these headlines. I would be surprised if we dip much lower than 2,650 and no doubt we will hear bears howling in pain again when prices bounce back and they claim the market is fixed. There is nothing fixed about this market and everything makes perfect sense if you know what to pay attention to. If this market was going to crash on trade war headlines, it would have happened months ago. Instead any near-term weakness is simply another dip-buying opportunity.

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Jani

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Jul 05

What to do on the eve of Trump’s trade war

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

On Thursday the S&P500 closed higher, erasing Tuesday’s pre-holiday slump. Trump’s trade war continues to dominate headlines, but to the great frustration of bears, these negative stories have been unable to dent this market. Are we on the verge of collapsing as bears claim, or do they have this all wrong?

Trump’s Chinese tariffs go into effect Friday and China promised immediate retaliations. At this point the first round of tariffs is unavoidable and I don’t know anyone still hoping for a last-minute reprieve. Yet on the eve of the trade war, paradoxically the market finished higher. Something doesn’t seem right.

Either we stubbornly argue with the market, or we try to understand why the market is doing what it is doing. I learned a long time ago that no one wins an argument with the market, so I always go for the latter option. Rather than insist the market should be crashing, I want to understand why it is is holding up so well in the face of these obviously negative headlines.

Anyone who has been reading this blog already knows the answer since I have been talking about this market’s resilience for weeks. I wrote the following June 26th when we first tested 2,600 support and it is every bit as valid today:

News gets priced in over time and we have been talking about Trump’s trade war for months. Anyone who feared these headlines bailed out months ago and was replaced by far more confident dip buyers. This turnover in ownership created a far more resilient market and explains this lack of a crash. If owners don’t sell a headline, it stops mattering. Since we trade the market and not the news, if the market doesn’t care, then neither should we.

Anyone can identify the reasons the market did something weeks after the fact when everyone knows what happens. But it takes far more thoughtful insight and analysis to figure out what is going to happen before it happens. I wish I had a crystal ball, but after doing this long enough and learning the eccentricities of the market, I don’t need one because the market always tells us what it wants to do before it does it. This time the market was definitively telling us it wanted to go higher, not lower, and that made this latest bout of weakness a buying opportunity, not a time to bailout before things get worse.

Quite simply, if this market wanted to crash, it would have happened by now. We have been living under the clouds of a trade war for months. If it didn’t matter before, that tells us it is already priced in and we don’t need to worry about it. Without a doubt we could slip a little further, but that would just give us an even better buying opportunity. If this market was afraid of Trump’s trade war, we would have crashed months ago. If the market doesn’t care, then neither should we.

If you found this post useful, return the favor by sharing it on Twitter, Reddit, Facebook and StockTwits!

Jani

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Jun 28

Don’t give up on this bull yet

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday was another frustrating session for bears as a day that started with so much potential failed to deliver that big draft lower. This was the third day the market challenged 2,700 support, but rather than accelerate lower, supply dried up and prices rebounded.

Bears claim their time is coming, but is it really? If they couldn’t deliver the goods with such a perfect setup, what makes them think waiting a little longer will make a difference? Trade war headlines are as dire as they can get with Trump and China already threatening to tax all the trade between the world’s two largest economies. At this point things cannot escalate an higher. How did the market respond to this latest round of bearish headlines? With a lethargic, drawn out, two-week slide that barely gave up 2%. Everyone who has been doing this for any length of time knows market crashes are breathtakingly fast. Sell first and ask questions later affairs. Yet here we are two-weeks later, still waiting for the promised crash. The cold, hard truth is if it was going to crash, it would have happened by now.

Bears have been gifted everything. Horrible headlines. Violating key support levels. The largest one-day selloff in months. Yet they are unable to do anything with it. Instead of crashing, this market is holding up amazingly well. Respecting 2,700 support for four days demonstrates strength, not weakness. If this market was fragile and vulnerable, there has been more than enough to send us tumbling. Yet here we stand.

Bears claim this market is too complacent and that alone is proof we are on the verge of a collapse. And I don’t dispute that this market is crazy complacent. But that’s not a surprise. After years of getting burned selling dips, only to watch prices rebound higher without them. Traders learned to ignore the bad news because they assume everything will work itself out in the end. But even though this market is extremely complacent, bears fail to realize complacency can last for years before it becomes a problem. As we are witnessing, complacent owners don’t sell spooky headlines. Without supply, it is near impossible for selloffs to build momentum and it only takes modest dip-buying to prop it up. And that is exactly what is happening here. Confident owners are refusing to sell the trade war fear mongering and that lack of supply is keeping a floor under prices. No doubt this bull market will die like every one that has come before it. But this is not that time. I fear markets that cannot rally on good news, not ones that refuse to go down on bad news.

Before anyone accuses me of being a perma-bull, two-weeks ago I warned readers to be careful as we approached 2,800 resistance:

Even though the market is acting well and the path of least resistance is definitely higher, we cannot forget risk is a function of height and the market moves in waves. If this is the highest we’ve been in several months, that also means this is the riskiest place to be adding new money in the same number of months. In addition, the strong move over the last week leaves us vulnerable to a subsequent down-wave. We are quickly approaching 2,800 resistance and we should at the very least expect the market to pause. We entered the slower summer season and many big money managers have flow off to their summer cottages. Without their big buying, we shouldn’t expect a large directional move. Things still look good for our medium-term stock positions and long-term investments and we should leave them alone, but for short-term swing-trades, this is a better place to be taking profits than adding new money.

This has been a mostly sideways market since the March lows and the best trade has been buying weakness and selling strength. Nothing has changed. Two-weeks ago we should have taken profits into that strength and this week we should be buying the subsequent dip. Everyone knows markets move in waves, so get with the program and trade the waves! The market could stumble a little further and even test the 200-dma near 2,670, but that is just a test and it is still a buyable-dip. I know I sound like a broken record, but some things are worth repeating. If this market was fragile and vulnerable to a crash, it would have happened by now.

If the broad market is setting up for a bounce, then the FAANG stocks are in even better shape. They have led us higher in the first six months of the year and they will keep leading us higher over the next six-months. Keep doing what is working and that is buying-and-holding the market’s best performing stocks. Everything will likely continue consolidating through the summer, but we are setting up for a strong fall season.

The same cannot be said for Bitcoin. What is already low keeps getting even lower. This time we fell under $6k support. That means virtually every buyer over the last nine months is sitting on losses. Many of them breathtakingly large losses. BTC has turned from the thing that will make everyone rich to the butt of every joke. No one is heaping praise on bitcoin anymore. Instead most people are too embarrassed to talk about their BTC losses. These things reverse in a sharp capitulation bottom. Given this meandering wallow lower, we definitely haven’t reached capitulation levels yet. This thing won’t be over until we plunge dramatically lower and then rebound decisively. Maybe that will happen following a dip to $4k. Or maybe we need to fall even lower than that. Until then, expect the pattern of lower-lows to continue.

If you found this post useful, return the favor by sharing it on Twitter, Reddit, Facebook and StockTwits!

Jani

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Jun 26

Is it time to give up on this bull market?

By Jani Ziedins | End of Day Analysis

The S&P500 treaded water Tuesday, the day after the biggest drop in a couple of months. Volume was average, but it was similar to Monday’s relatively benign volumes.

Trade tensions flared up over the weekend as Trump and China continue escalating their rhetoric. But even with Monday’s losses, we are still only a couple of percent from recent highs. As much noise as these trade war headlines create, they don’t seem to be affecting the market much.

And this won’t come as a surprise to anyone who has been reading this blog for a while. News gets priced in over time and we have been talking about Trump’s trade war for months. Anyone who feared these headlines bailed out months ago and was replaced by far more confident dip buyers. This turnover in ownership created a far more resilient market and explains this lack of a crash. If owners don’t sell a headline, it stops mattering. Since we trade the market and not the news, if the market doesn’t care, then neither should we.

Bears will say the crash is coming, we just need to wait for it. Unfortunately crashes don’t work that way. Significant stock market selloffs are breathtakingly fast; sell first and ask questions later affairs. They happen before most traders understand what is going on. Compare that to these trade war headlines that we’ve been talking about for months. Trump and China already threatened to tax all of the trade between the world’s two largest economies. While things could still get worse, it is hard to think of how much further it can go than it already has.

No doubt the market assumes we will avoid that worst-case scenario and that is only natural. Selling any negative headline over the last nine-years proved to be a costly mistake as regretful sellers watched the market bounce back even higher. These traders learned their lesson and now keep holding no matter what. While bears claim this complacency is signs of a top, what they don’t realize is periods of complacency can last for years. When confident owners refuse to sell, supply stays tight and it doesn’t take much dip-buying to prop prices back up. This bull market will die like every one before it, but the time is not now and these are not the headlines.

While we can safely take “crash” off the table, as regular readers of this blog already know, risk is a function of height and this month’s rally up to 2,800 resistance left us vulnerable to a normal and healthy pullback to support. The thing to realize is by rule every dip feels real. That’s because if it didn’t, no one would sell and we wouldn’t dip. Prices could slip a little further and undercut 2,700 support, but this is a buying opportunity, not a reason to bailout “before things get worse”. Bull markets rebound countless times through their life, but they can only die once. Looking strictly at the odds, what is more likely, this week’s dip is the thing that happens countless times, or we are watching the death that only occurs once? I know which one I am putting my money on.

AAPL rebounded nicely and recovered its 50dma. The stock has been weighed down because China is an important market for the company, both as a manufacturer and a buyer for its high-end phones. The other FAANG stocks have been less affected by these headlines because they don’t have the same level of Chinese exposure. But as a group, these stocks have been incredibly resilient and that won’t change anytime soon. The same reasons that propelled these high flying stocks to these heights in the first six months of the year will keep pushing them higher in the second half of the year.

Bitcoin is barely hanging on to $6k support and another failure is inevitable. $9k support failed. Then it was $8k. After that $7k couldn’t hold us up and now $6k is on the verge of going down. Lower-lows keep piling up and the chart look downright horrible. Most bursting bubbles make new lows for more than a year and BTC doesn’t look like the exception. I don’t expect us to find any relief until we fall under $5k. And even from there any bounce will be a short-term trade. It will take years for this to be investible again, if it ever is.

If you found this post useful, return the favor by sharing it on Twitter, Reddit, Facebook and StockTwits!

Jani

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Jun 21

Should we fear Trump’s trade war?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

On Thursday the S&P500 stumbled again as trade war nervousness persists. While things definitely feel ominous, don’t lose sight of the fact we are only 4% from all-time highs and prices barely slipped 1% since this latest round of trade war headlines flared up on Monday.

As with everything in the market, there are two ways to look at this muted reaction. The lack of a larger selloff could be telling us most owners don’t care about the escalating trade war because it is already priced in. Alternately, holding near recent highs leaves us vulnerable to further weakness as last week’s relief turns into this week’s anxiety.

The truth ultimately lies somewhere between those two opposing views. Clearly equities are holding up remarkably well given the headline uncertainty. Stock market crashes are brutally quick and typically happen before most people figure out what is going on. The classic “sell first, ask questions later.” That is definitely not happening here since this selloff has only managed to shave off a couple dozen points in nearly a week. Bears are telling us the crash is coming, unfortunately for them crashes don’t work like that. No doubt the trade war situation could get worse, but it is hard to imagine how much worse it could get worse since both sides are already threatening to tax nearly everything they import from the other.

For anyone still tempted to argue we are on the verge of collapse and missed what I wrote on Tuesday, let me share it again because it is just as relevant today as it was then:

Pundits love to tell us complacent markets are bearish. But what they forget to tell us is complacency can last an awful long time. Confident owners don’t sell and the resulting tight supply makes it easy for modest demand to prop up prices. And that is exactly what has been happening here. Rather than argue with a market that isn’t doing what we think it should be doing, we should try to understand why it is acting the way it is. If we used this approach, it wouldn’t take long to realize this is an incredibly strong market. We are not vulnerable. We are not overbought. Anyone who understood these things wouldn’t have been overly concerned by this morning’s headlines and weak open. Complacency will eventually catch up with us, but this is not that time.

The market’s muted reaction thus far means we can take “crash” off the table because if it was going to happen, it would have happened by now. But there is a big difference between a shocking crash and a drawn out grind lower. Even though we might not crash, we can still give back a large chunk of the latest gains. Risk is a function of height and this month’s gains left a lot of air underneath us and it wouldn’t take much to slip back to 2,700 support.

Most people would rather the market keep going up, but we knew that wasn’t reasonable given that we are in the middle of the slow summer season. 2,800 resistance was always going to be a hurdle and if we didn’t slip on trade war fears, something else would have knocked us down. So far the market is acting well. Resilience in the face of bad news is a good sign and means we should stick with what has been working. Don’t fall for all the misleading noise swirling around us. If this market was fragile and vulnerable, we would have crashed by now. Instead, view this weakness as a simple and routine dip. If this is nothing but a routine dip, then that means it is creating buyable entry point for those of us that are paying attention.

The headlines are predominately bearish, but the price-action remains constructive. Everyone knows markets trade sideways most of the time, but that is easy to forget when we are looking at the far right edge of a chart. Too often we convince ourselves every headline and price gyration means something. But the truth is today’s price-action will most likely be as inconsequential as any other random day over the last 12 months.

If there was something fundamentally wrong with this market, it would have shown up in the price-action by now. Instead we are holding up remarkably well and that tell us we are still standing on solid ground. But solid ground doesn’t preclude us from dipping modestly over the near-term. As I wrote on Monday, these things are rarely one-day events and we should expect uncertainty to persist. But I would be surprised if we failed to hold 2,700 support. In fact I doubt we even get that far. Which is unfortunate because I’d love to buy those discounts. Instead this dip will most likely bounce way too soon and won’t give us that great entry point.

As for our favorite buy-and-hold investments, there isn’t much to do except ignore the noise and keep holding.

Apple is the only FAANG stock struggling with these trade war headlines, but that’s not a surprise. They are the only one with huge Chinese manufacturing exposure. The rest of the FAANG stocks are escaping this uncertainty and are a good place for investors to hide out. Most likely this trade war stuff will blow over, but if it doesn’t and AAPL keeps slipping, that would be a better place to be buying more, not getting defensive and selling. People beg for a discount and any further weakness in AAPL would be answering our prayers. Don’t be afraid to take advantage of it.

Bitcoin is muddling along in the $6k’s, but the same thing happened in the $9k’s, $8k’s, and $7k’s. Unless we can find buyers willing to pull us out of these lows, it is almost inevitable another negative headline will come along and send us tumbling lower. At this point dip buyers don’t want to (or can’t because they are already fully invested) save this cryptocurrency and that means lower-lows are ahead.

If you found this post useful, return the favor by sharing it on Twitter, Reddit, Facebook and StockTwits!

Jani

What’s a good trade worth to you?
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