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.

Nov 01

What the election means for the market

By Jani Ziedins | End of Day Analysis

screen-shot-2016-11-01-at-8-47-36-pmEnd of Day Analysis:

The S&P500 tumbled for a 6th straight day as it undercut 2,120 support and closed at the lowest levels since early July. While there wasn’t a decisive headline driving the 1% midday selloff, most people chalked it up to pre-election jitters. The encouraging thing is we bounced off 2,100 support after briefly violating it. Rather than trigger a tidal-wave of defensive selling, buyers rushed in and we closed well off the midday lows.

This is the largest directional move we’ve seen since September’s rate-hike tantrum and is the longest losing streak in over a year. Is this forewarning us of much worse to come, or did we just pass through the worst of it?

Up to this point, most assumed Hillary would walk away with the election, but last Friday’s reopening of the FBI investigation into Hillary’s email servers gave Trump a small boost over the weekend. While he still faces long odds, closing the gap made people reconsider the prospects of a Trump presidency.

The market prefers Hillary because she is the establishment candidate. We know what we are getting with her and it won’t be much different from what we’ve had over the last eight-years. The market hates uncertainty over all else and it favors Hillary because she is a known quantity.

While we spend a lot of time debating the merits of each candidate, most people give the president way too much credit for influencing the economy and stock market. Four-years ago we went through a multi-week selloff following Obama’s reelection because emotional Romney supporters were dumping their stocks at steep discounts. We bottomed at 1,350 and with the benefit of hindsight, anyone who sold those lows was clearly an idiot. There is no reason to think this time will be any different. Sore losers dump stocks and savvy buyers snap up the discounts.

A big part of what pulled us down over the last six-sessions is the risk premium associated with an uncertain outcome next week. No matter who wins, that risk evaporates Wednesday morning once the result is conclusive. Removing that risk is bullish, but that is only one component of what will affect prices Wednesday.

A Hillary win is largely priced in and will produce a relatively modest reaction. A Trump win is definitely not priced in and will cause larger reaction. Today’s selloff definitely tells us which direction it will be. But even that will get priced in relatively quickly and the market will go about its business just like it did after both of Obama’s elections and every other election before that.

Many stock owners will trade emotionally next Wednesday and there will be a lot of profits waiting for those who keep their composure. Prices will bounce pretty quickly following a Hillary win because that is the expected outcome. If Trump wins, wait a few more days for the emotional selling to subside before buying the dip.

Jani

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Oct 26

What’s Next?

By Jani Ziedins | End of Day Analysis

screen-shot-2016-10-26-at-6-48-45-pmEnd of Day Update:

Stocks dropped 10-points at the open due to what the financial media claimed was weak earnings. But rather than rattle nerves, a sharp reversal erased those losses before lunchtime. While we continued to bounce around in the afternoon session, we finished the day well off those morning lows.

Once upon a time price-action like this was insightful. Running out of sellers so quickly after an unsettling open is often a strong buy-signal. But in our current market, we have to assume this is just more random noise and cannot base a trade off it. If anything, I’m more inclined to trade against this signal than with it given how quickly this market reverses.

We remain inside the recent trading range and until the market shows us something new, we have to assume we are still playing by the same rules that have governed us since mid-summer. That means expecting directional moves to fizzle and reverse.

The thing to remember about stock market “rules” is they are only rules half the time. Sometimes we buy the breakout, other times we sell overhead resistance. A bearish lower-low looks just like a bullish double-bottom. Knowing what rule to apply when is the art of trading.

The first job of the trader is paying attention to the mood of the market. Are we in a buying mood? A selling mood? An indifferent mood? With this critical piece of information, we know which set of rules to apply. Currently we’re in an indifferent mood and that means ignoring traditional buy and sell signals.

It usually takes something significant to trigger a change in mood. Many times it is a dramatic and unsettling headline. Other times it is as simple as a change in the calendar as we transition from one quarter to the next.

I hoped going from the summer doldrums to the higher-volume fall trade would liven up our market and give us something to trade. Unfortunately that didn’t happen and now we need to look ahead for the next big thing to wake traders up. We are already a good chunk into the 4th quarter and 3rd quarters have not moved the needle. The election is the next big thing on the horizon and less than two-weeks away. Following that is the Fed’s largely expected rate-hike in November or December and institutional money managers repositioning for year-end. Hopefully one of these wild cards will pull us out of the trading range doldrums.

I will be shocked if the market trades lifelessly for the rest of the year, but the market has a nasty habit of giving us the thing we least expect. All we can do is wait and see.

Jani

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Oct 12

How to trade this weakness

By Jani Ziedins | End of Day Analysis

screen-shot-2016-10-12-at-8-16-53-pmEnd of Day Analysis:

The S&P500 steadied itself Wednesday following Tuesday’s crash through 2,40 support. While this price stability ended Tuesday’s emotional wave of selling, the muted rebound was hardly confidence inspiring. The calm didn’t last long because as I write this, overnight futures are down more than half-a-percent. Is this a sign of worse things to come? Or is it simply another routine bounce off the lower end of the trading range?

There wasn’t a clear headline driving Tuesday’s selloff. The best the media could come up with was disappointing earnings. We fear selloffs without a reason if it means the market knows something we don’t. But we ignore ones when the market is simply humiliating nervous and impulsive owners by convincing them to dump their stocks right before the next rebound. Which is this? That’s what we have to figure out.

New and unexpected headlines drive large directional moves. That’s because new information causes traders to change their outlook, and as a result, adjust their portfolios. This wave of buying or selling fuels the big moves. On the other hand, recycled headlines produce fleeting gyrations and quickly reverse because everyone already knows about these problems and they are factored into their outlook. If traders expect something, they don’t adjust their portfolio when those headline pop up again. The million dollar question is if the driving force behind Tuesday’s selloff is truly new and unexpected, or if it is simply recycled headlines we have been talking about for months.

Wednesday’s Fed meeting minutes gave us the strongest hints a rate-hike is just around the corner. Rather than extend Tuesday’s selloff, stocks hardly budged. That’s the clearest indication we have that the next quarter-percent increase is already priced in. We can cross that one off our list.

The next big bogie is third-quarter earnings. Expectations are relatively muted and it is hard to find anyone excited about our economic growth. Many even claim we are in an earnings recession. Given that less than enthused outlook, earnings have a very low bar to clear. While things could certainly could come in worse that this, they have to be be worse than the widely expected sluggish. Since front-line managers continue to see more demand than their current staffing levels can handle, we shouldn’t expect a large falloff in earnings. It will be another lackluster quarter, but the sky is not falling.

Assuming the overnight futures hold these losses into tomorrow morning, expect another wave of reactive selling to hit the market as nervous owners bailout before “things get worse”. But without any real meat to this selloff, this is definitely a better place to be buying than selling. Remember, risk is a function of height. By that measure, this is the least risky place to own stocks since June. Unless earnings over the next few days come in far worse than expected, a bounce off 2,100 support makes for an attractive entry point. When yet another selloff fizzles and bounces, expect underweight money managers to start feeling pressure to chase this market into year-end.

Jani

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