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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
End of Day Analysis:
The S&P500 collapsed Tuesday in one of the worst selloffs in over a month. Of course “collapse” is a relative terms since today’s weakness didn’t even knock a full percentage point off of the S&P500. But given how benign the stock market has been recently, 0.8% is shocking enough to grab everyone’s attention. The tech heavy NASDAQ took a bigger hit, shedding 1.6%, but to put things in perspective, both indexes are still within a few points of all times highs.
The headline that turned early weakness into a waterfall selloff was the GOP abandoning the planned health care vote because they didn’t have to votes to pass it. Health care is not that important to the market, but that the lack of unity on this issue puts the entire Republican agenda in jeopardy. The post-election stock market rally was built on expectations of tax cuts and today’s legislative logjam is not the narrative the market was hoping for.
The question traders have to answer is if today’s weakness is the first hints of a much larger selloff. Or if this is simply another dip on our way higher. On the surface these headlines don’t seem any worse than the ones the market brushed off previously. Brexit? So what. Rate hike? Who cares. Special investigator looking into the president’s administration? No big deal. If the market didn’t care about those things, why should it care about this health care vote? In fact this isn’t even the first time a health care bill failed to pass. The House stumbled several times before they finally passed their version of Trumpcare. There is no reason to think the Senate won’t be able to do the same.
Most likely today’s weakness will turn out to be a false alarm. Traders have been burned countless times every time they defensively sold weakness, only to see the market rebound even higher not long after they bailed out. It’s gotten to the point where so few people are selling headlines that dips barely last more than a few hours and go further than a handful of points. Right or wrong, headlines no longer matter if people stop selling them. Without supply, it is hard for any dip to build momentum. And that has been the story of this half-full market. No matter what the headlines have been, traders assumed everything will turn out fine and to this point that has been the right call.
As a trader I love a little uncertainty and volatility. These create great trading opportunities because someone else’s fear becomes my payday. Unfortunately this has been a painfully boring market and I don’t think today’s headlines changes that. I fully believe this market is skating on thin ice, but this isn’t the headline that is going to take us under. The market will continue to give our politicians the benefit of doubt and Tuesday’s botched vote will be forgotten by Thursday. If we find support Wednesday, the selloff is done and we can go back to our summer naps. I wouldn’t be concerned until this market crashes through 2,400 support and keeps going. But even then I still think it is simply creating a larger buyable dip. Trends continue countless times, but they only reverse once. Fight this bull at your own risk.
Jani
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By Jani Ziedins | End of Day Analysis
End of Day Analysis:
The S&P500 rebounded from Friday’s early selloff and finds itself right back near all-time highs. Anyone who sold Friday’s dip is kicking themselves for overreacting to that weakness. If they were paying attention to the way this market has been behaving, they would have known better and not made that mistake.
“While this market makes me nervous, the path of least resistance is clearly higher. If we were vulnerable to a crash, it would have happened by now. There have been plenty of excuses for traders to sell defensively. But when no one sells the headlines, they stop mattering. These things rarely end well, but they also last longer and go higher than anyone expects. I don’t trust this market, but it will most likely continue creeping higher for the foreseeable future.”
A few hours the market “crashed” in one of the biggest dips in nearly a month, but that was clearly a place to be buying the dip, not selling the weakness. To be honest, I cannot even remember what traders were so spooked over Friday morning it was that trivial. If interest rate hikes, a presidential scandal, and the U.K. government in disarray didn’t bother the market, why should some nominal headline Friday morning make a difference? And a few hours later, it turned out those headlines didn’t matter and we find ourselves right back near the highs.
Risk is a function of height, meaning this is the riskiest the market been in quite some time. But just like skating on thin ice, it’s only dangerous if you fall through. Right now the market continue skating on thin ice without a care in the world. The path of least resistance remains higher…….until it doesn’t.
While I’m skeptical of this market and don’t trust it, it will keep going higher until is has a good reason not to. So far it has refused every reason we’ve thrown at it. That’s because this market is built on high hopes for generous tax cuts. At this point it is clear nothing else matters. The market doesn’t care that a special counsel has been appointed to investigate our preside. That doesn’t have anything to do with tax cuts, so it doesn’t matter…..right?
But if this market is built on a foundation of tax cuts, that is also the thing we are most vulnerable to. If the Republican coalition in Congress devolves into party infighting, or this looming Russia/Trump scandal erodes all of the president’s political capital, expect this market to give back a big chunk of the post-election gains. At this point that is the only thing that will kill this rally. But until this happens, enjoy the slow glide higher and ignore all the other noise along the way.
Clearly this is a buy-and-hold market. Anyone trying to trade this crap is getting their ass kicked. Traditional breakout and breakdown signals mislead us when they fail hours later. The only trade to make is either sticking stocks, or staying in cash. Anyone trying to outsmart this market by jumping in and out is doing nothing but accumulating losses. There are trading markets and there are buy-and-hold markets. This is definitely a buy-and-hold. But don’t despair. This won’t last long and great trading opportunities will come to those who are patient enough to wait for them.
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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