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.

May 11

Why today’s selloff failed

By Jani Ziedins | End of Day Analysis

End of Day Update:

Thursday provided a dramatic ride for the S&P500. We started the day with the biggest losses in several weeks. Within minutes of the open we undercut 2,390 support and that triggered a wave of reactionary stop-loss selling. But just as quickly as the selloff started, the rush for the exits stalled and we bottomed near 2,380 support. And just like that, the selloff was over and we spent the rest of the day climbing out of that hole. While we didn’t quite reach breakeven, the intraday reversal was impressive and told us most owners continue to believe in this market and won’t be spooked out so easily.

The biggest headline continues to be Trump’s dismissal of the FBI director. While the media is making a huge deal out of it, the stock market doesn’t care that much. Even at today’s lowest point, we were still within 1% of all-time highs. Hard to call such a small blip panicked selling.

While it felt awful in the moment, all selloffs feel that way. If they didn’t, no one would sell and we wouldn’t dip in the first place. But given how quickly we bounced off the lows, that tells us few owners were spooked by this price-action. Most owners have been rewarded by patiently waiting for higher prices and every bounce makes it easier to hold through the next dip. This confidence is infectious and the VIX is hovering just above all-time lows as traders continue to believe in this market’s strength. While it is easy to claim this market is too complacent, the harder part is figuring out when that complacency will become a problem. At the moment complacency is keeping supply tight because owners are not selling and that is propping up prices. While this might be the calm before the storm, the calm can last for an extended period of time. It is good to be cautious, but shorting just because the market is complacent is costing a lot of smart people a lot of money.

Expect prices to be resilient as long as owners remain confident. Until some headline comes across that makes the crowd start second-guessing their optimistic outlook, expect every dip to keep bouncing. Even though the market is vulnerable with so many people standing on one side, we need a significant event to trigger the panic. Until then the smart money is sticking with the rally.

Jani

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May 09

Should we fear this complacency?

By Jani Ziedins | End of Day Analysis

End of Day Analysis

The S&P500 poked its head above 2,400 resistance in early trade for a second consecutive morning, but just like Monday, we were unable to hold those highs on Tuesday. But before we get too pessimistic, both the gains and losses were small and mostly insignificant, measuring only a handful of points in either direction. While 2,400 has been a ceiling for the last few weeks, few traders were enthusiastically buying this breakout and that lack of demand is keeping a lid on prices.

On April 27th I wrote in my free blog:

Currently we are at the upper end of the trading range, meaning this is a better place to be taking profits than adding new positions. The longer we hold near these highs, the more likely it is we will break through 2,400 resistance, but without a substantive headline driving the breakout, expect the buying to fizzle and prices to tumble back into the heart of the trading range.

And so far this is exactly how things have played out. Stubbornly confident owners are keeping supply tight and propping up prices, but new money isn’t willing to chase prices higher and the breakout fizzled. But that was then, and this is now. What people really want to know is what comes next.

The post-election rally has been built on the back of expected tax cuts. We came a long way in anticipation of these cuts, but now we are getting to the point where traders need to see our politicians start delivering on their campaign promises before they will push prices any higher. Confident owners are keeping supply tight, but new money is no longer willing to push us any higher.

It is tempting to point to the record low VIX and claim this market is complacent. And I don’t disagree, this market is incredibly complacent. But the thing about complacency is it can persist for long periods of time. If confident owners haven’t sold any of the bearish headlines and price-action over the last several months, why are they going to start selling now? The simple answer is they won’t. Not until they have a good reason to change their mind. This bull market will die like every other one before it, but it needs something more than complacency to take it down and right now we don’t have that.

Markets like symmetry. We find ourselves in a very unemotional period, meaning traders on both sides are not very engaged in this market. We go up a few points, we go down a few points. No one is getting too excited in either direction. Even though the market is stalling at 2,400 resistance, we shouldn’t expect prices to tumble from here. Instead look for a pullback that matches the intensity with which we broke out. A few points higher and a few points lower.

Unfortunately for us traders, it is hard to profit from these small moves. But that is the way this goes. Sometimes we have great opportunities, other times not so much. It turns out this is one of those not so much times. But don’t despair, good trades are never far away. I don’t know what and when the next market moving event will be, but I do know it is coming. The challenge is for us to resist the temptation to over-trade this sideways chop and give back our hard-earned profits. Long-term success in the market doesn’t come from our winners, but minimizing our losers. It is easy to make money, the hard part is keeping it.

Jani

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Apr 27

Near all-time highs, what happens next

By Jani Ziedins | End of Day Analysis

End of Day Analysis:

The S&P500 stalled at 2,400 resistance Thursday, ending an impressive streak of gains that kicked off the week. Investors cheered the positive result from the French elections, but after the initial euphoria faded, there wasn’t enough substance behind the headlines to justify buying above recent highs.

As I wrote in Tuesday’s free blog post “the thing about “not-bad” news (the French elections) is it doesn’t do anything to improve corporate earnings in the U.S. We experienced a brief period of relief this week when we avoided a worst-case scenario, but now that we traversed those waters, we are largely left where we were a couple of weeks ago. We remain near the highs as hope for tax and regulatory reform remains high, but we are still waiting for Trump and the GOP to deliver on those promises. We couldn’t break through 2,400 in March and not much has changed since then.” And up to this point, the market is reacting exactly as I expected.

Now that we are at the upper end of the trading range, we need something new to keep this going. The Trump administration unveiled “the biggest tax cut in U.S. history”, but the market didn’t react because there is zero chance he will get this by Democrats and fiscally conservative Republicans. While 15% tax rates make a great soundbite, he might as well be promising the moon because neither one is going to happen.

Right now the market is trading in opposite world. Meaning it does the opposite of what conventional wisdom says it should do. Rather than selling a violation of support, we should buy it. Instead of buying the breakout, we sell it. When it feels like the market is about to collapse, buy. If everything is right in the world, sell.

The reason traditional rules do not work is because the wider crowd of investors is not joining these directional moves. Overactive day-traders jump from one extreme to the other and cause these daily gyrations, but when the wider group of investors doesn’t join in, the move fails and reverses. As long as the larger group of bulls and bears remain stubbornly attached to their outlook, we shouldn’t expect these directional moves to take hold. Instead, keep buying weakness and selling strength.

Currently we are at the upper end of the trading range, meaning this is a better place to be taking profits than adding new positions. The longer we hold near these highs, the more likely it is we will break through 2,400 resistance, but without a substantive headline driving the breakout, expect the buying to fizzle and prices to tumble back into the heart of the trading range. At this point the only thing that will support sustainable breakout is the GOP getting their act together and coming up with a passable tax plan. Until then expect us to stay in this trading range and keep selling strength and buying weakness.

Jani

Apr 25

Are Bulls Wrong this Week?

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 added to recent gains Tuesday and is within a few points of all-time highs. This is a long way from the anxiety and uncertainty traders felt last week. In my April 18th free blog post, “Don’t Let the Bears Scare You”, I wrote that weakness was “a better place to be buying stocks than selling them”. Given this week’s strong performance, that was definitely the prudent trade. While it feels good to pat ourselves on the back, the most important trade is always the next trade. Now that we returned to the highs, everyone wants to know what comes next?

The first thing we need to analyze is what brought out of last week’s doldrums. This rebound kicked into overdrive Monday when the French election went according to the market’s plan. While it was nice to eliminate this risk factor, “not-bad” news is a lot different than good news. The market would have been upset if two anti-EU candidate’s made the final round, but for what seems like the first time this year, a moderate is the clear front-runner.

But the thing about “not-bad” news is it doesn’t do anything to improve corporate earnings in the U.S. We experienced a brief period of relief this week when we avoided a worst-case scenario, but now that we traversed those waters, we are largely left where we were a couple of weeks ago. We remain near the highs as hope for tax and regulatory reform remains high, but we are still waiting for Trump and the GOP to deliver on those promises. We couldn’t break through 2,400 in March and not much has changed since then.

The next bogie on the horizon is Congress passing a federal budget. Even though the GOP controls the government, they have been unable to use their strength effectively. Last month they failed to repeal Obamacare and right now it looks like they are on the verge of screwing up even simple procedures. If the GOP cannot agree on the budget, then that endangers even more important things like tax reform.

Most traders know market trade sideways more often than they rally or pullback. But we often forget that in the heat of battle. When prices are falling, we assume they will keep falling. When we rebound, we assume prices will keep rallying. But most of the time these periods of strength fizzle and bouts of weakness rebound. While most investors feel a lot better than they did last week, we should assume we will stay inside this trading range until something more meaningful happens. Just like how last week was a buying opportunity, this week we should be selling this strength. Expect us to remain rangebound until tax reform either passes or dies. Until then keep buying weakness and selling strength.

Jani

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