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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 did a lot of nothing Thursday, continuing 2017’s trend of doing absolutely nothing. We’ve been sandwiched between 2,260 support and 2,280 resistance since the year started because traders are stubbornly sticking to their positions. Price move when people change their mind and right now bulls are staying bullish and bears are staying bearish. Headlines and economic data no longer matter when people stop trading them.
Trump will become the 45th president of the United States Friday. Love him or hate him, it will be nice to put all of this behind us next week. Clearly the Trump trade is struggling to find new buyers since we stopped rallying in early December. Maybe we are simply consolidating gains before the next leg higher, or maybe we exhausted the supply of new buyers. Given how sanguine the market feels, it is hard to claim there is a lot of upside left because everyone is too pessimistic. If anything, I’d say traders are too optimistic and that leaves us vulnerable to a reversal in sentiment.
Even though the market barely moved 1% since early December, you’d hardly know it given all the arguing going on in the Twitter and StockTwits streams. Flat stretches like this chew up opinionated, over-active traders who jump on every “breakout” and bailout of every “breakdown”. Buying high and selling low rarely work out, but traders who come to the market with a bias on their sleeve are helpless victims to the market’s countless head-fakes. Directional traders make a lot of money when the market is moving, but they get eaten alive during these flat stretches. Sometimes the best trade is to not trade. That simple piece of advice could have saved a lot of people a lot of money and heartache.
What is the market going to do next? I wish I knew the answer. But the great thing is we don’t need to know because the market is going to tell us. The longer we hang out near resistance, the more likely it is we will eventually poke our head above it. We’ve encountered numerous negative headlines and bearish price-action. If this market was fragile and vulnerable to breaking down, those would have been more than enough to kick off a wave of selling. Instead supply dries up and we rebound within hours. That bodes well for a continuation. But demand continues to be a real problem for this market, so any gains will be slow. At this point, a continuation is more likely than a correction.
That said, if something comes along and actually spooks this market, there is a lot of air underneath us. 2,200 support is an easy jump from here and it wouldn’t take much to break through that and test the 200dma. High probability of a small gain, or a smaller probability of a large loss. Which way you trade this depends on your risk appetite, but no matter what, be ready to jump out of the way if hints of fear start cropping up. A dip under 2,260 driven by a new and unexpected headline that doesn’t bounce within hours is our sign that the market is starting a pullback to support. Trade accordingly.
Jani
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By Jani Ziedins | End of Day Analysis
End of Day Update:
The S&P500 slipped modestly following the MLK holiday. Brexit headlines make a comeback when the British Prime Minister laid out her plan for leaving the EU. The pound rallied sharply when she said she the matter would be voted on by Parliament, but the same enthusiasm didn’t spread to equities.
The biggest event this week is Trump’s inauguration. Previously I suggested we could experience a sell-the-news deflation as air leaks out of the Trump rally next week, but now it seems like everyone is touting the same thing so now I’m no longer convinced. The more people expect something, the less likely it is to happen. That’s because traders try to get ahead of the market by trading early, but their early trading actually prices in the expected move before the event. If too many people expect a sell-the-news event this Friday, they are taking profits this week and could be the reason we are struggling with 2,280 resistance. Once this proactive selling subsides, we could actually do the opposite and continue rallying after the inauguration.
No matter what happens, we are within spitting distance of all-time highs and only the most stubborn bears are claiming the world is falling apart. The longer we hold near the highs, the more likely it is we will break through them. Markets tumble quickly from unsustainable levels and right now the market is quite comfortable near these highs. At this rate it will only be time before we break through and test the psychologically significant 2,300. No matter what the market “should” be doing, when confident owners keep supply tight, prices continue creeping higher.
Jani
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By Jani Ziedins | End of Day Analysis
End of Day Analysis
Thursday was another seesaw session for the S&P500 when early losses rebounded in afternoon trade. Even though we closed in the red, finishing well off the intraday lows turned this into a bullish day. Volume was near average, but less than Wednesday’s levels. While most money managers have returned from vacation, the modestly muted volumes tell us they are not fully engaged in this market yet.
The early losses were primarily fueled by an echo from Trump’s first press conference the previous day. While nothing new was revealed Wednesday morning, it didn’t take much to convince anxious owners to lock-in profits. But these defensive minded traders were in the minority because not long after undercutting Wednesday’s lows, supply dried up and we rallied into the close.
Bull markets are typified by weak opens and strong closes. Cynics are always trying to pick a top and their selling pressures the market early in the day. But big money underweight stocks and desperately trying to catch up uses this weakness as an opportunity to buy at a discount. Late day strength signals institutional accumulation and is why the market axiom tells us it’s not how you open, but how you close that matters.
This is the seventh session in a row the S&P500 closed above 2,260. Markets collapse from unsustainable levels quickly and holding support for this long tells us we are standing on solid ground. Everyone is looking toward Dow 20,000 and S&P 2,300, but like a watched pot, the market is being stubborn about breaking these psychologically significant levels. While many traders are getting impatient, the longer we hold near the highs, the more inevitable it becomes that we will poke our head above this level.
The question isn’t if we will break 20k/2,300, but what happens after we do. Demand has been a real issue for this market. It’s not because people are afraid of stocks, but because the crowd finally believes in the market and is finally fully invested. Long gone are the days of predictions of doom-and-gloom around every corner. Now the crowd is giddy over the business friendly policies the GOP is going to implement. While these are great developments and will no doubt boost the economy, the problem is stocks are struggling to rally on this optimism. I love to buy stocks that stop going down on bad news and fear stocks that cannot rally on good news.
Over the near-term I expect us to break 20k/2,300, but I’m less optimistic about what happens after that. Most likely that will be the final hurrah of the post-election rally before we fall into a much needed step-back to support. Two-steps forward, one-step back. Everyone knows the market moves this way, but somehow they continue to be surprised by it every time it happens.
Jani
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By Jani Ziedins | End of Day Analysis
End of Day Update:
The S&P500 started Tuesday with modest losses, rebounded decisively into the green by lunchtime, but ultimately was unable to hold those midday gains and finished flat. While it looked like a lot was going on and it gave the financial press something to talk about, the mistake is reading too much into what is truthfully little more than random noise.
We have been stuck inside a tight trading range since early December. The market only briefly ventured outside of 2,250-2,280 and even that departure lasted little more than a day. If we assume the market is driven by fundamentals, it is hard to fathom four-weeks of alternating bullish and bearish news so perfectly balanced that we danced on this fine line. That’s akin to flipping a quarter twenty-times and having it come up heads every time. Possible, but not likely. Instead of being driven by headlines and fundamentals, this market is responding to the simple laws of supply and demand.
Trump’s surprise win put stock owners in a good mood as they anticipate bullish policies that will drive stocks even higher. When owners are patiently holding for higher prices, supply stays tight and that props up prices. But on the other side, those with cash have been far less convinced. While there was a brief flurry of short covering and breakout buying following the election, further gains have stalled because buyers are scarce near these record highs. No matter what the headlines have been trumpeting over the last several weeks, owners don’t want to sell and those with cash that don’t want to buy. The result is this trading range.
The biggest risk in flat markets is most traders arrive with a bullish or bearish bias. That means they assume every story or price gyration will lead to the next directional move. Bulls rush to buy every apparent breakout and bears pile on the breakdowns. But because there is no substance behind these random moves, each breakout or breakdown fizzles within days and these overactive traders get washed out for a loss when prices reverse. Often the best trade is to not trade and that has definitely been the case recently.
Stocks tumble from unsustainable levels quickly and it is encouraging we’ve held the upper end of the trading range for five-days. Even though today’s intraday price-action was pathetic, the market is acting like it wants to test the psychologically significant 2,300 level. At the same time the Dow will have finally broken 20,000 and once we get these round numbers out of the way, we can finally get on with business. Many traders will use the exuberance around these milestones as an excuse to take profits and we are more likely to stumble from these highs than stage a decisive breakout. Lack of demand continues to be a major obstacle and it unlikely to be rectified anytime soon.
Assume we will continue trading sideways until something unexpected happens. That means buying weakness and selling strength.
Jani
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