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.

Aug 01

Keep doing what is working

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 added modest gains Tuesday. This strength largely puts last week’s “collapse” in the rear-view mirror. Sharp selloffs are breathtakingly quick and this is the fourth day we’ve held 2,460 support. If this market was vulnerable, we would have tumbled by now.

This resilience won’t surprise regular readers of this blog. Confident owners have ignored every other reason to sell stocks this year and nothing changed last week. In fact there really wasn’t any news driving Thursday’s dip. It was simply a case of reactive traders overreacting to each other. Once this brief bout of weakness passed, hours later dip buyers were back at it. If confident owners showed zero interest in selling rate-hikes and political dysfunction at home and abroad, why would they all of a sudden be spooked out of the market for no reason at all? Answer is they weren’t and that’s why Thursday’s selling reversed so quickly.

While conventional wisdom tell us to fear complacency, what it often leaves out is periods of complacency last far longer than anyone expects. Without a doubt this bull market will die like every other that came before it. But that doesn’t mean we cannot go higher in the meantime. These failed selloffs tell us the path of least resistance remains higher and smart traders keep doing what is working.

That said, this is the most nervous I’ve been since the 2009 lows. Last year’s paranoid, half-empty outlook has given way to this assume everything will work out, half-full outlook on the world. Markets are normally nervous and tend to fear the worst, but this market is anything but nervous. But this doesn’t come as a surprise. After years of regretting every defensive sale, traders have learned to ignore the outside noise. If sequesters, Greek collapses, Brexits, rate-hikes, Chinese bubbles, and all the other noise didn’t matter, then surely nothing going on right now is worse than that. Right now most owners are more afraid of being left behind than they are of losing money. While this cannot last forever, as long as confident owners don’t sell, supply stays tight, and prices remain firm.

Assuming everything will work out is typically the right decision and is why I’m a big fan of buying dips, but eventually we come across something that turns out worse than feared. I have no idea what will take us down, or when it will happen, but I know it is coming. I’m not ready to give up on this market because it is acting so well, but I am standing close to the door and ready to jump at the first signs of trouble. Normally a nervous market is priced at a discount and that compensates us for taking the risk of owning stocks. Unfortunately this market is priced for perfection and that leaves little margin for error. The path of least resistance remains higher, but this is the most dangerous the market’s been in nearly a decade.

The biggest advantage of being a small trader is we can close our positions in minutes. We don’t need to predict what will happen ahead of time because we have the luxury of being able to wait for the market to tell us what it wants to do. While it is tempting to argue with an overvalued, complacent market, resist that urge. Keep doing what is working, but stay vigilant and be ready to react when something changes.

Previously I thought Trump’s inability to enact meaningful tax reform would be the undoing of the Trump rally. But given how little the market reacted to the GOPs inability to agree on anything makes me think the market really doesn’t care about tax reform. If legislative progress was important, Trumpcare’s crash-and-burn would have taken some air out of this market. Instead we continue hanging out near the highs. Same goes for the expanding Trump/Russia investigation. Maybe these will matter at some point, but right now the market doesn’t care and neither should we.

Keep doing what is working. Stick with your buy-and-hold positions. These minor fluctuations are too small to swing-trade effectively, but it is wise to keep some cash ready for the next big trading opportunity. Even though this market is painfully boring, I expect things will liven up when big money managers return from summer vacation and start positioning for year-end.

We are up approximately 10% year-to-date, but I don’t expect us to finish here. Volatility will pick up this fall, I just don’t know whether that means underperforming money managers will be forced to chase price higher into year-end, or if the wheels will fall off the Trump rally and we come crashing back to earth. Most likely we will witness a chase into year-end, but remain wary of anything that doesn’t go according to plan. Complacency means most owners will be slow to react to changing conditions. That will give us plenty of time to get out before things get ugly.

Jani

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Jul 26

Fixed Link: Enjoy the calm, but don’t expect it to last

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 added modest gains Tuesday, easily erasing the last three days of nominal selling and pushing us back into record territory. Earnings reports were good enough and the Senate voted to allow debate on healthcare reform. That put traders into a buying mood and pushed us closer to the psychologically significant 2,500.

While today’s strength broke a three-day losing streak, a 4-point dip over three days hardly qualifies as a selloff. In fact the last three days of restrained selling is actually quite bullish. The market opened the door and gave owners an invitation to take profits, yet the vast majority chose to stay put. They don’t want to sell because they are patiently waiting for higher prices. No matter what the pundits tell us should happen when complacency is this widespread, when confident owners don’t sell, supply stays tight, and prices remain firm. This calm cannot last forever, but it will last far longer than most people expect.

While it is still early in earnings season, if there was a major problem with the economy, it would have shown up by now in the companies that have already reported. The same goes for the other side, if we were going to have a blowout quarter, we would know that by now too. Instead earnings have been good enough to keep our slow climb higher going, but not so great as to launch us higher.

Politics in D.C. is a circus as usual, but it hasn’t been bad enough to affect the markets yet. In fact the market seems to be largely ignoring politics. I’m not sure if that’s because traders are giving Trump and the GOP benefit of doubt and assume everything will work out in the end. Or the market has such low expectations for Trump and Co. that this shit show is hardly a surprise. Either way the market is ignoring politics for the time being and so should we. It will matter at some point, but this is not that point and a trader can lose a lot of money jumping on a good trade too early.

For most of the last eight years people have been saying buy-and-hold is dead, but paradoxically this has been one of the greatest times to buy-and-hold. This is especially true over the last few months. This half-full market simply won’t selloff and that makes it hard find swing-trading opportunities. Only the most nimble day-trader can take advantage of these five-point, two-hour long dips. The rest of us are better off sticking with our positions. That means continuing to hold our buy-and-hold stocks, or sticking with cash while waiting for a better trading opportunity. (Ideally a diversified trader has a bit of both.) The choppy nature and quick reversals in this market make trading dangerous because it is far too easy to get tricked into buying high and selling low. The key to long-term success doesn’t come from our winners, but avoiding giving back all of our profits during slow times. It is hard for a trader to sit on his hands, but that is the best call here.

The path of least resistance remains higher. Trade accordingly. 2,500 is easily within reach, even if it takes us a little while to get there. Things will get a lot more interesting this fall once big money managers return from vacation. The S&P500 is up 10% for the year, but the chances of us finish the year at these levels is highly unlikely. Either everything will go according to plan and Trump’s policies will shift the economy into the next gear. Or our leaders will fail us and the air will come out of the Trump rally. While I don’t know which way we will go, I do know good trading opportunities are just around the corner.

Jani

If you found this post useful, return the favor by Re-Tweeting it.
If you disagree, tell me why in the comments.

Jul 25

Enjoy the calm, but don’t expect it to last

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 added modest gains Tuesday, easily erasing the last three days of nominal selling and pushing us back into record territory. Earnings reports were good enough and the Senate voted to allow debate on healthcare reform. That put traders into a buying mood and pushed us closer to the psychologically significant 2,500.

While today’s strength broke a three-day losing streak, a 4-point dip over three days hardly qualifies as a selloff. In fact the last three days of restrained selling is actually quite bullish. The market opened the door and gave owners an invitation to take profits, yet the vast majority chose to stay put. They don’t want to sell because they are patiently waiting for higher prices. No matter what the pundits tell us should happen when complacency is this widespread, when confident owners don’t sell, supply stays tight, and prices remain firm. This calm cannot last forever, but it will last far longer than most people expect.

While it is still early in earnings season, if there was a major problem with the economy, it would have shown up by now in the companies that have already reported. The same goes for the other side, if we were going to have a blowout quarter, we would know that by now too. Instead earnings have been good enough to keep our slow climb higher going, but not so great as to launch us higher.

Politics in D.C. is a circus as usual, but it hasn’t been bad enough to affect the markets yet. In fact the market seems to be largely ignoring politics. I’m not sure if that’s because traders are giving Trump and the GOP benefit of doubt and assume everything will work out in the end. Or the market has such low expectations for Trump and Co. that this shit show is hardly a surprise. Either way the market is ignoring politics for the time being and so should we. It will matter at some point, but this is not that point and a trader can lose a lot of money jumping on a good trade too early.

For most of the last eight years people have been saying buy-and-hold is dead, but paradoxically this has been one of the greatest times to buy-and-hold. This is especially true over the last few months. This half-full market simply won’t selloff and that makes it hard find swing-trading opportunities. Only the most nimble day-trader can take advantage of these five-point, two-hour long dips. The rest of us are better off sticking with our positions. That means continuing to hold our buy-and-hold stocks, or sticking with cash while waiting for a better trading opportunity. (Ideally a diversified trader has a bit of both.) The choppy nature and quick reversals in this market make trading dangerous because it is far too easy to get tricked into buying high and selling low. The key to long-term success doesn’t come from our winners, but avoiding giving back all of our profits during slow times. It is hard for a trader to sit on his hands, but that is the best call here.

The path of least resistance remains higher. Trade accordingly. 2,500 is easily within reach, even if it takes us a little while to get there. Things will get a lot more interesting this fall once big money managers return from vacation. The S&P500 is up 10% for the year, but the chances of us finish the year at these levels is highly unlikely. Either everything will go according to plan and Trump’s policies will shift the economy into the next gear. Or our leaders will fail us and the air will come out of the Trump rally. While I don’t know which way we will go, I do know good trading opportunities are just around the corner.

Jani

If you found this post useful, return the favor by Re-Tweeting it.
If you disagree, tell me why in the comments.

Jul 21

Don’t fight what’s working

By Jani Ziedins | End of Day Analysis

End of Day Update:

Even though the S&P500 traded flat Thursday, holding near the highs was a win for bulls. We opened the day with modest losses, but little more than an hour later traders were enthusiastically buying a five-point dip. Selloffs that used to last multiple days and set us back several percent are now being bought within hours and a handful of points. But this shouldn’t come as a surprise. Any defensive sale over the last 12-months was a costly mistake and traders have learned their lesson. Hold no matter what. Headlines stop mattering when no one sells them.

Conventional stock market wisdom warns us about this type of complacency, but what conventional wisdom fails to mention is that these periods of complacency can last a long, long time. Confident owners don’t sell and that keeps supply tight. It is really hard for any selloff to build momentum when so few owners sell the weakness.

More recently this market transitioned from a fearful, half-empty outlook to today’s everything is fine, half-full attitude. Rate-hikes? Political dysfunction? Expanding investigation into our president? Meh, whatever. The market is giving the benefit of doubt to Trump, Congress, and the Fed. Since we trade the market we are given, we need to give them the benefit of doubt too. But that doesn’t mean we trust absolutely.

I get nervous when everyone else is calm and confident. And right now this is the most nervous I’ve been since the 2009 market bottom. This market used to be afraid of its own shadow and that uneasiness kept prices in check. But that is no longer the case. Risk is a function of height and these record highs make this the riskiest place to own stocks since the 2007 top. The path of least resistance remains higher and it is definitely premature to fight this market, but we need to be careful.

As small traders we have the nimbleness that allows us to jump in and out of the market at a moment’s notice so we don’t need to adopt a defensive strategy prematurely. Unlike big money managers, we can wait for the market to tell us it is time to take profits and start trading the other direction. But we are not there yet. This remains a buy-and-hold market at least until the end of summer. After that things will get a lot more interesting. Until then enjoy the slow climb higher.

Jani

If you found this post useful, return the favor by Re-Tweeting it.
If you disagree, tell me why in the comments.

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