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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 Content
End of Day Update:
Tuesday gave us the first truly dramatic S&P500 session of the new year. We gapped higher at the open and briefly poked our head above 2,800. There was not a clear headline driving this strength and instead it appeared to be another wave of buying because other people were buying. But nine up-days turned out to be one too many and this time traders were more inclined to sell the strength than chase prices even higher. That early fizzle continue through the day, eventually pushing us deep into the red. All told, the intraday range spanned nearly 40-points and was the most volatile day in months. Volume followed the volatility, turning this into the highest volume day of the year by a big margin.
In an ordinary market, this gap higher and subsequent fizzle would be a huge red flag and a strong short signal. Unfortunately this is not an ordinary market and normal rules do not apply. We’ve seen horrid price action over the last few months, but prices rebounded decisively within days, if not hours. Today’s fizzle is still a significant concern, but shorting this market based on technical signals has proven to be quite costly. Today’s reversal could be the start of a near-term dip in, but without a bearish headline catalyst to drive fear into otherwise confident bulls, I don’t expect this selling to go very far. Complacency will eventually get us into trouble, but over the near-term confident owners keep supply tight by refusing to sell every bearish headline and any negative price-action. I don’t expect today’s reversal to dampen bulls’ conviction and if they refuse to sell, then it is much harder for a dip to take hold.
That said, at some point this unsustainable climb higher will falter. There is only so much money willing to chase these record highs even higher and today’s reversal suggests we are getting close to that point, at least over the near-term. At best we consolidate recent gains by drifting sideways for an extended period of time. At worst, we stumble back to 2,700 support.
I don’t trust this market, but it keeps doing the right thing and that means we stick with it. Continue holding your favorite buy-and-hold positions, but keeps some cash on hand so you can buy any dips that come along. And if you are sitting on short-term trading profits, this is a great time time to start locking them in.
Jani
By Jani Ziedins | End of Day Analysis
End of Day Update:
The S&P500 closed higher for the 6th day in a row and extends 2018’s breakout. Volume was average and tells us most traders are back at work following the holiday layoff. There were no clear headlines driving today’s price-action and this is simply a continuation of the positive feelings that fueled this week’s breakout and last year’s rally.
No matter which sentiment measure you look at, bullishness is at extreme levels. The latest AAII survey is 60% bullish versus 16% bearish. Stocktwits’ $SPY stream it 78% bullish. Put/Call ratios and newsletter writers are all at frothy levels. Yet prices keep going higher.
The thing to remember about sentiment is it is a secondary indicator, meaning that while useful, it cannot be used by itself to time trades. It tells us when to be careful or aggressive, but it doesn’t tell us when to trade. What this means is the stock market can keep going higher over the near-term, but these extreme bullish sentiment levels are warning us to be extremely careful.
The problem with most “overly bullish” markets is all the bulls are already fully invested. Once they dump all of their savings into the market, from that point forward they lost the ability to push the market higher. The best they can do is convince their friends, relatives, neighbors, and coworkers to dump all their savings into the market too. Attracting new investors how bullish levels can stay elevated for extended periods of time while the market continues to rally. Everyone in the market is fully invested, but non-investors keep streaming into the market and are the fuel that keeps pushing prices higher. This new money is why these extreme bullishness levels have not resulted in a more typical dip back to support.
As long as bulls are able to convince everyone they know to invest in the stock market, prices will continue climbing. The problems is these investing rookies typically get to the party just before it ends. They show up just as smart money starts leaving.
Over the near-term the market looks great and momentum will likely keep us drifting higher. But the market has been far too easy for way too long and that makes me nervous. Something will come along at some point that will remind everyone the stock market is most definitely not easy. No one knows what that will be and when it will happen, but it is a virtual certainty that something will upset this apple cart. Those of us that are paying attention will be able to collect our profits and get out of the way just before bullishness turns ugly.
Keep doing what has been working, and that is sticking with your favorite buy-and-hold stocks. But stay close to the door. The question isn’t if, but when.
Jani
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By Jani Ziedins | End of Day Analysis
End of Day Analysis:
The S&P500 finished modestly lower on the first day back from the Christmas holiday. No real news to speak of and we should expect more of the same as we finish off 2017.
Now that Tax Reform is law, there isn’t much for traders to talk about or look forward to. And without big ideas to latch onto, the market has been treading water these last few weeks. Unfortunately for bulls the window for a Tax Reform pop has already closed. If it was going to happen, it would have happened by now. Gains over the last several months priced in tax cuts and there was no one left to buy the news. Now that Tax Reform is old news, we need turn our gaze to what comes next.
Strong earnings reports next month could extend this rally, while any bad news could trigger a dip back to 2,600. High probability of small gains versus a low probability of bigger losses. The problem for bulls is everything needs to go right to beat these already lofty expectations. Bears only need one thing to go wrong. Perfection versus the messiness that is the real world. Markets move in waves and it’s been a while since we cooled off. I don’t know what will trigger the next dip, but I do know it is coming. The only question is when.
Most likely momentum will keep us drifting higher over the near-term, but it is only time before the next problem crops up and we fall into a long overdue dip and consolidation. 2017 was a great year for stocks, but unfortunately the rarest thing is for two years to be exactly the same. If 2017 was a gentile ride higher, that tells us 2018 will be anything but easy. No don’t get me wrong, I’m not bearish. I just expect the market to consolidate recent gains and that means we will have to work for our profits in 2018.
Jani
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