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.

Sep 19

Building the foundation for a move higher

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:11 EDT

Stocks hold the 1460 level for the 4th day, showing solid support for this price level.  Most selloffs after an unsustainable rally happen quickly and dramatically in the day or two following.  That is not happening here and the market is building a foundation for another move higher.  Any masochists still shorting the market are going to get smacked around again.

MARKET BEHAVIOR

Indexes are treading water around 1460.  The anticipated mass exodus has yet to appear and the price-action is supportive of these levels in spite of all the “experts” predicting a move lower.    Looking back at previous selloffs this summer, they started quickly and decisively after marking a new high.  This pause at 1460 shows buying is not drying up and selling isn’t flooding the market.

MARKET SENTIMENT

Bears still think the market should head lower, but they have been burned several times and are becoming more reluctant to stick their neck out and fight this rally.  Some bears are beginning to question their resolve and are finally warming up to the bull side.  But this shift in sentiment is just starting and has a way to go before it gets overdone.

The recent short covering and increasing reluctant to fight the tape means the spring is less compressed.  Upside short-squeezes won’t be nearly as pronounced or dramatic as we’ve experienced over the last few months.  Most of the fast money on the upside has already been made and we are transiting to a grind higher mode.  Former bears and reluctant buyers will start dribbling into the markets and buying every dip, putting a solid floor under the market.  From a supply and demand point of view, this new buying and decreased selling is the recipe for a move higher.

We’re not there yet, but the rally will get to a point where it is so slow and steady traders become complacent.  And that of course is the foundation necessary for a reversal lower, but that is still a ways out and we’ll cross that bridge when we get there.

TRADING OPPORTUNITIES

It is getting harder to find new breakouts as most of the strongest stocks already made their move and are becoming extended.  The most powerful stocks tend to make their move early in a rally and late breakouts often don’t perform as well.  If you find yourself underinvested, don’t chase, wait for a pullback to the 50dma and buy the high volume bounce.  Being smart about your buy and don’t be the sucker left holding the bag when the party ends by.  Money is made by buying right.  If you missed this, don’t fret; there will always be future profit opportunities.  The one thing you don’t want to do is put yourself in a precarious situation by chasing stocks because while there will always be future profit opportunities, losses are forever.

Stay safe

Sep 18

Stocks holding up nicely

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:38 EDT

Another tight trading day in the markets.  Technically a down-day, but such a small move is hard to flag as material.  Active trade around Thursday’s close is supportive of that new price level, even if it includes a modest slide back to 1450.  Stay long what is working, but harvest worthwhile profits because the sun can’t shine forever.

MARKET SENTIMENT

The indexes are off modestly for the second day on average volume.  This is constructive price action.  We avoided a waterfall selloff and at the same time are not rising unsustainably in a climax.  The important thing to note is current holders are not rushing for the exits.  They feel comfortable owning stocks at these levels and explains why selling volume is light and we are finding support.  On the other side, those left out of this rally are desperately hoping for a pullback to let them back in at more attractive levels.  They are reluctant to buy up here after missing the opportunity at lower levels and this foot-dragging accounts for the lighter buying volume.  But these latecomers can’t wait forever and a rising market will eventually force them to bite the bullet.  We’ll see when these reluctants start coming around in numbers because stocks will rise in a slow and steady uptrend as their buying prevents any type of pullback.

When evaluating supply and demand dynamics, combined with market sentiment, there were a lot of investors reluctant to own this market with all the headline risk and seeing short interest at five-year highs backs up this pervasive bearish theme.  But when viewed through the lens of supply and demand, this bearishness represented a large pool of available buyers.  And further, since so many investors were already out of the market, or short, that meant there were fewer available sellers remaining to push the market lower.  Large pool of potential buyers and small pool of available sellers; seems kind of obvious why the market rallied strongly these last couple months.

Traders and journalists want to assign a fundamental or technical reason to this rally, and no doubt the news played a role, but never forget, news doesn’t drive markets, traders do.  When the supply and demand became as skewed as it was recently, it made a move in one direction far more likely than. Think of it like a compressed spring.  It takes a lot of additional energy to further compress the spring, but it will uncoil by itself the first chance it gets.  And that is why the markets could pop 50 points over a couple of days.  The market wanted to go up and so it did.

I don’t think the spring is uncompressed yet, but with each surge higher we get closer to that point.  And of course the market won’t stop at zero as it almost always overshoots.  We need to watch for the point where the market is extended and thus prone for a pullback.  Up, down, up down.  That’s how the market works and getting in tune with these moves makes it far easier to make and keep profits.

MARKET BEHAVIOR

The trend since early August has been large gains followed by consolidation, before making another strong move higher.  So far the modest selloff following Thursday’s gains is consistent with this pattern.  The swing trade has been the wrong trade the last two-months and there are few sings it is the right trade today.  We could easily see a modest slide to 1450 as the market shakes out latecomers, but so far the violent moves lower are not a part of this market’s personality.  No doubt this will change at some point, just not yet.

TRADING OPPORTUNITIES

Keep doing what is working, which is buy and hold.  Let those profits bloom while the sun is shining because this calm won’t last forever.  But don’t take this too far by letting your fruit over-ripen and rot on the vine.  We’re in this to make money, not hold stocks.

PII daily @ 3:41 EDT

INDIVIDUAL STOCKS

LULU and PII are having rough days.  Both are still above their 50dma, but experiencing weakness after strong run-ups.  There is no way to know which pullbacks are normal and which are fatal.  Duration, gains, and popularity will give you a clue to how much of a run could be left, but these are just guidelines and not rules.  It is easy to make money in the markets, the challenge is keeping it.

Stay safe

Sep 17

iPhone, leader or laggard?

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:10 EDT

The indexes are consolidating after the recent 50point move; a normal, healthy, expected, and bullish behavior after such a big run.  No reason to sell and certainly not a good idea to short the rally.  The trend is our friend……..for the time being.  AAPL is riding high after record iPhone5 sales, but is the company falling behind its peers as other phone manufacturers are leading innovation?

MARKET SENTIMENT

Stocks paused after Friday’s new 4-year high.  While giving Friday’s gains, the market is still sitting above Thursday’s “Bernanke pop”.  This is expected and supportive behavior given the 50point move over the last two-weeks.  This is noteworthy bullish action finding support at these levels in spite of the obvious selling pressure from profit taking and shorts doubling down.

The key to figuring out where we are headed is getting into the mind of traders, especially big money managers.  We’ve had a big move since the summer’s low of 1266.  This rally has caught a lot of money managers off guard because the headlines and sentiment remain quite bearish.  But clearly the price-action indicates selling climaxed in early June.  All the sellers sold at that point and there was nowhere to go but up, and that is exactly what we’ve done.  Most watched in disbelief as we rallied, always anticipating the crash that never happened.  And now these traders are faced with a crisis of confidence and conviction, finding themselves clearly on the wrong side of the market.  We are not measured by the soundness of our ideas, bu the profits in our accounts.  The market is showing no indication it will crash and is in fact accelerating its climb higher with far fewer pullbacks giving late-chasers few opportunities to buy in.

No doubt the QE3 pop was a “come-to-Jesus” moment for many reluctant money managers.  I expect this was the breaking point for many as they finally realized they could no longer wait for the pullback and now have to start getting their portfolio in gear or else significantly underperform the indexes.  To catchup, they need to chase high-beta stocks, meaning many of those speculative sectors will start outperforming after lagging large-cap, blue-chip stocks for most of the summer.  Getting ahead of big money is where us little fish make most of our money.

And of course in its usual cruel fashion, as soon as these money managers are finally positioned on the long-side, the market will run out of buyers and nose over.   The market is a cruel, cruel beast for anyone trading behind the curve.  If you want to make money at this game, you need to get ahead of the tend, not chase it.

MARKET BEHAVIOR

Indexes are finding support at 1460, showing a fair number of people are willing to buy the market at these levels and few traders are anxious enough to sell here.  For most of the summer we traded in a volatile, upward trending channel, but the last material pullback was in July.  Almost two months without a volatile pullback shows the market has transitioned into another personality for the time being.  We are in the midst of a steady climb higher, but that pattern is getting a bit obvious and proactive traders need to start watching for the next personality of this schizophrenic market to come out.  Will that be an acceleration to the upside as big money is forced to chase the market?  Or will we finally see that material selloff everyone has called for?  Or will we see both of these happen sequentially?  I’d put my money on the third option, and in fact I already have.

TRADING OPPORTUNITIES

No reason to get less-long after this run-up.  The market is finding support and is converting former bears into believers.  Ride the wave a bit longer, but stay close to the exits.  Continue holding what is working and lock in 20-25% profits when you get them.  Most of the time you’ll sell early, but it is foolish to hold out for top dollar.  If you have a stock you know better than your spouse, you can take the chance on holding through a base, but that significantly adds to your risk profile.  And in most instances these additional risks are not necessary because it is so easy to buy a stock back after stages the next breakout.

AAPL daily @ 3:11 EDT

INDIVIDUAL STOCKS

AAPL is hitting a new high and pushing against the $700 level.  There is tons of hype over the iPhone5, but as a technology geek, I am stuck wondering if AAPL is still a leader or if it is finding itself in a lagging position.  The iPhone5 lacks any real innovation and is simply playing catchup to other phones from Samsung, HTC, and yes, even Nokia.  Larger screens, quad-core processors, and 4G have been the norm in Android phones for a year now.  No doubt the iPhone5 will be the most stylish phone out there, but is that enough when Android phones are now leading in innovation?  And how about fashion trends and people’s desire to be unique?  Does the iPhone still feel cool and special when everyone has one?  The saving grace for AAPL is the exploding global middle-class, but I expect competition will put significant pricing pressure on AAPL in coming years and this might not be a buy-and-forget-it investment going forward.  No doubt momentum is behind this stock and it could continue higher in the near-term, but from a technology and innovation point of view, Apple is falling behind its peers.  Its reputation will carry it for a little longer with consumers, but remember the stock market is forward-looking and the stock price will peak before the fundamentals do.

Stay safe

Sep 14

New highs holding up

By Jani Ziedins | Intraday Analysis

Bears, cynics, short-sellers, and profit-takers can’t dent Bernanke’s rally.  Stay long what is working, but be on the lookout for the market’s impending personality change.

MARKET SENTIMENT

Follow-on strength for Bernanke’s rally is keeping markets near 52-week highs.  So far profit taking by swing traders and doubling down by shorts have been unable to dampen the party.  No doubt many cynics are reevaluating their bearish views as the market is steamrolling them and disregarding any and all logical reasons it should go lower.

It feels like we are passing the threshold between fear of a correction and moving into fear of being left behind.  Investors are quickly forgetting about all their well thought out bearish research and are instead shifting gears into chase mode.  This is a major transition in market sentiment as bears and reluctant investors are throwing out their previous opinions and jumping on the bandwagon.  This shift won’t happen simultaneously the a short squeeze does, it will occur over a period of time causing the market will wedge higher as this late demand props up the market and supports every dip.  Over shorter periods of time the market is all about supply and demand.  Bears and underinvested are coming around and buying this market, pushing it higher.

MARKET BEHAVIOR

Markets can go up, down, or sideways, and without a doubt this market is going up.    We decisively broke above recent resistance and are making 4-year highs.  The swing trade of the summer is clearly behind us and we are in the middle of a very directional move, but we must be wary of any pattern that is becoming too obvious.  Previously there was a lot of reluctance by market participants to buy these breakouts to new highs, but the tide is turning and that will impact the market’s behavior going forward.  Breakouts and consolidations could become breakouts and wedges higher.  There is still room in this move as the former cynics change their tune and roll into the market, propelling this rally further and longer than anyone expects, but that will also be the final push of this move.  Depending on how high we eventually go, we could expect a sideways consolidation if the gains are more moderate, but if the rally gets carried away, we could see a correction to compensate for the overshoot.

TRADING OPPORTUNITIES

Continue holding stocks for worthwhile profits, but at the same time don’t get greedy.  Remember, we are in this to make money, not own stocks.  This move will go further than most expect, but it will also end when everyone is most optimistic.  When you start day dreaming about what care you are going to buy with all your profits, let that be the baring warning siren to sell and wait for the next trading opportunity.

Stay safe

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Sep 13

Bernanke the Bearslayer

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 2:37 EDT

Bears are proven wrong yet again.  How many times will it take before they realize they are on the wrong side of this market?

MARKET SENTIMENT

Fed announced more mortgage buying and as a result, blew all the shorts out of the water.  It is dangerous to go against the trend and no matter how many times it ends badly, people still keep doing it.  But a short squeeze can only carry this market so far; we need follow on buying to keep this rally going.

Think about what is going through the heads of big money managers underperforming this market.  A couple of weeks ago the WSJ reported only 11% of hedge funds are beating the indexes.  Days like today won’t help and now they are stuck between a rock and hard place as they try to save their jobs.  The market has not pulled back like many were expecting and the longer they wait, the further they are falling behind.  At some point the pain of regret will become too large to resist and they will plunge in and start chasing.

Today’s pop will be the final straw for many reluctant investors as they are no longer able to deny this rally’s strength.  No matter how solid their analysis is, right now they are faced with only two choices, buy this market, or lose their job.  That will be an easy choice for most, but the ironic thing is their buying will mark the start-of-the-end for this rally.  We are past the halfway point and savvy investors will be on the lookout for signs this party is coming to an end.

MARKET BEHAVIOR

Market continued the trend of tight consolidation mixed with the occasional spike.  This is stereotypical behavior of an over-shorted market where bears are getting their faces ripped off on a regular basis.  Maybe congress needs to enact some new regulation that says if something isn’t working, stop doing it!!!  Of course I really don’t mean that, these bears keep giving me all their money, and besides, legislating common sense never works.

The interesting thing will be watching if the market changes its personality in the coming weeks.  These new highs and big moves are getting fairly obvious to everyone.  And if there is one thing the market doesn’t like, it is being obvious.  We’ll probably head higher for a bit, sucking in a larger number of chasers, but by the time everyone has come around to accepting this rally, that will signal the end of it.

TRADING OPPORTUNITIES

Stay long, but start eying the exit.  There is some upside left, but we’ve come 15% since the June low.  That is a big move for the indexes and it would be foolish to expect we have another dozen percent of upside left in the tank.  The key is watching other traders for signs of when too many of them become bullish and are fully invested.  That will be our indication to start taking profits.

INDIVIDUAL STOCKS

Most everything is up today and if it isn’t, it should be dropped like the boat anchor it is.  Further, don’t chase stocks that are extended because they are prone to pulling back after some of this euphoria dies off.  If you are out of this market, wait for a valid entry point before buying in.  There will always be future profit opportunities, but losses are forever.  Don’t force a trade when you can simply wait for the next one.

Stay safe

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Sep 12

Don’t fight the market…..yet

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:15 EDT

The stalemate between bulls and bears continues for the 4th day.  So far the pattern over the last couple months has been strong up-days followed by consolidation leading to another sharp move higher.  This remains intact and bears who are shorting the rally are fighting the market.  A trend is far more likely to continue than reverse, so stick with what is working until it stops.

MARKET SENTIMENT

Stocks rallied at the open on a German court ruling upholding Euro bailouts.  This was the most recent headline that was supposed to make-or-break the markets.  But just minutes after the announcement, it was ancient history and the market is already obsessing over the next major news event.  This time the focus is back to the US and our Fed.  And after that it will be something else.  The market is a perpetual worry machine and the cycle of fear over the next news cycle, political speech, or data point is never-ending.  In many ways you have to be an optimist to invest in stocks otherwise all the fear mongering will drive you crazy.

After the strong open, stocks gave back those gains and traded down to break-even, but then rebounded just as quickly.  The market is indecisive again and the staring contest between bulls and bears is back.  But from my view, the skew of reluctant bulls and aggressive bears is still evident, although moderating some as the rally continues.  A trickle of reluctant money is finally dripping back into the markets.  The sign the spigot is flowing will be a steady increase in prices, but we’re not there yet as these sideways standoffs continue.

Supply and demand dynamics work in such a way it is often best to go against crowd.  This happens because the crowd already did their buying or selling according to their views and at that point are simply along for the ride.  When everyone is convinced we are headed higher, there will be few buyers remaining to drive prices higher because the larger bullish crowd is already fully invested.  And in fact, the large crowd fully invested creates the potential for a lot of selling pressure.  Crows create fuel for a move in the opposite direction and that is why contrarian investing works so well.  And always remember, contrarian trading is going against the crowd.  Too often people mistake contrarian trading as going against the trend.  What these people miss is often the real contrarian trade is going with the trend when everyone is doubting the sustainability, like where we find ourselves today.

MARKET BEHAVIOR

We are continuing the consolidation after Thursday’s surge higher.  The pattern still remains large steps higher followed by tight sideways trade.  Often the market breaks down sharply after an unsustainable breakout, but the last four days at the 1430 level show many investors are comfortable buying and supporting the market up here.

Sideways to slightly lower consolidation is a healthy part of moving higher and demonstrates there is plenty of fuel left in the tank.  What we need to watch for is breaking of support in a dramatic way, or alternately wedging higher.  Either of these will indicate  a new market personality coming out.

TRADING OPPORTUNITIES

Stay long the names that are working.  But do be careful of extended stocks too far above their 50dma and 200dma.  It is exciting to see a stock race for the moon, but eventually gravity will catch up.  FRAN, TFM, UNFI, and MLNX are just a handful of examples where high-flying stocks have been knocked back to their 50dam.  Remember, the goal of trading isn’t to own the best stocks, it is to make money.  Take worthwhile profits and move on.

INDIVIDUAL STOCKS

The big single stock story of the day was AAPL’s iPhone5 announcement.  The stock hardly budged after the announcement.  Seems the phone was exactly in line with what the market expected, mostly because the new phone matched the leaked photos.  Now the question is how customers will respond when it starts selling in just over a week.

Stay Safe

Sep 11

Bears are impotent against this rally

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 2:30 EDT

Bears are looking impotent against this rally.  No doubt the profit takers and short sellers have already made their move against this market and we are still hanging within a 1/4% of a four-year high.  If that is the best they can muster, we have clear sailing ahead.

MARKET SENTIMENT

Stocks recouped most of Monday’s slide.  No doubt a lot of bears were jumping on the short into the close yesterday as the decline accelerated in the final hour of trade.  But in the first hour of trade this morning most of those shorts turned into losers as the market bounced hard.  For a lot of bears, it seems they are seeing what they want to see.  When the market starts sliding, they all pile on convinced the market is about to break wide open.  But so far each of these have been bear traps and the bulls have been fleecing these premature bears for everything they are worth.

The problem for bears is they are trading their view of the world, not the market’s view.  No doubt most of the bears are smarter and more thoughtful than I, but the market doesn’t care about that stuff.  It goes where it wants to go and the most successful traders ride along with it.  In spite of all the gloomy headlines and data points, the market wants to go higher.  Is this a case of the market leading the fundamentals, or the market stubbornly denying fundamentals that will eventually take its knees out from under it?  Good cases could be made for each, but logic and reason don’t factor into our P&L, only price moves do.  If a person needs to be right, they can continue arguing with the market, but I’m in this game to make money and I’m following the market’s lead regardless of what I think it should be doing.

MARKET BEHAVIOR

The market is finding additional support for Thursday’s breakout and we are not seeing the same reversal that plagued the Sept 21st breakout.  No doubt a lot of the profit takers and shorts sellers have already put their weight into the market and failed to budge it.  The recent pattern is low volatility days followed by the occasional jump higher.  For the time being this trend remains in tact.  We should expect some sideways drifting as the market digests the big gain before it is ready for its next move.  Most likely it will be higher, but we need to keep our eyes peeled for a change in behavior that would signal a breakdown of the uptrend.

TRADING OPPORTUNITIES

Same as it has been for a while, stay long high quality names that are working and lock in profits on anything that made a 20% move.  Keep doing what is working until it stops working.  At that point we will reevaluate the market and determine the next high probability trade.

AAPL daily @ 2:30 EDT

INDIVIDUAL STOCKS

AAPL is showing some interesting price action ahead of the iPhone5 announcement tomorrow.  It could very well be setting up for a buy-the-rumor, sell-the-news.  The iPhone5 will be a huge seller no doubt, but the challenge for the AAPL bulls is will the iPhone5 release exceed the already lofty expectations?  If any of the leaked photos are legitimate, the biggest new feature is a slightly taller screen.  Is that enough to get people to shell out hard-earned cash for the upgrade?  Further, the rumor is the plug on the phone is changing, meaning all the existing accessories for the phone will no longer work.  So not only will the phone cost money to upgrade, it will potentially make many of the existing accessories people own obsolete. That might create a higher barrier for many people to upgrading.

The other thing I noticed while browsing the AT&T mobile website is most of the smart phones are now far less expensive than the subsidized iPhone.  The iPhone is a great product, but competitors are attacking its premium price point and no doubt it is working with Android phones outselling the iPhone two-to-one.

AAPL will have to knock the ball out of the park to continue this recent stock run and I’m not sure how much innovation there is left in smart phones.  I hope AAPL proves me wrong and blows me away with some amazing, must have features, but I’m not expecting much more than a minor redesign and internals upgrade.  How much an evolution will drive sales is anyone’s guess, especially when a lot of lower cost alternatives are catching up.

Stay safe

Sep 10

Bears keep banging their head agains the wall

By Jani Ziedins | Intraday Analysis

Definition of insanity: doing the same thing over and over, yet expecting a different result.  Bears are regrouping and doubling their efforts to short this ‘overbought’ market, but there is no reason to expect this time will be any different.  Markets are modestly lower, but that is actually demonstrating bullish strength.  Bears and profit takers are stubbornly fighting against this rally with everything they have and the best they can do is a fraction of a percent decline.   This pullback is a healthy part of moving ahead.  And the more people who disagree with me, the more confident I am in my bullish position.  In fact, I hope we go lower and suck in more bears and shake out more weak holders to clear the way for the next move higher.

S&P500 daily @ 3:40 EDT

MARKET SENTIMENT

The market is continuing support of last Thursday’s huge rally.  The indexes are down slightly, but given how far we came last week, this morning’s givebacks are fairly trivial.  The interesting thing from a sentiment perspective is how few bears are ready to acknowledge defeat.  Many are sticking to their guns and re-shorting this new high after getting blown out last week.  How much pain are these guys willing to subject themselves to?  But their pain is our gain.  If they want to keep giving their hard-earned money to bulls, that is their prerogative.

Rather than everyone rushing in to buy the breakout, I continue seeing pros and amateurs alike say things like “the market is extended”, “take your profits”, “I’m in cash.”, “I’m shorting this breakout”, etc.  This is the ‘contrarian’ trade.  Except it isn’t.  The contrarian trade is going against the crowd, not the trend.  And to me it seems the contrarian trade continues to be buying this market in spite of all the reasons not to.

There are a lot of risky headlines floating around, but remember anything widely known is already factored into the price.  In fact, most often the market over estimates actual risk, meaning there is a high probability the real risk is less than the perceived risk.   This difference gives the savvy investor an arbitrage opportunity. Buy when traders are fearful and sell when traders are confident.

Prices move up and down because the market gets its projections about the future wrong.  Figure out if the market is obsessed with risk or ignoring it.  This will give you the best indication which way the market is inclined to move.  Remember, we are not talking about price here, but sentiment of the crowd.  Don’t let price moves fool you into joining the crowd.  Step back and only look at what traders are saying and how they are position themselves.  Currently skepticism continues to be the rule and that is why the market will continue higher.

MARKET BEHAVIOR

The market is digesting Thursday’s big gain and all the profit takers and new shorts are unable to pressure the market as this price level is receiving a lot of support.  Thursday’s short squeeze demonstrates just how much bearishness there was in the markets and my qualitative survey of various media outlets and investor forums shows few bears are ready to give up the fight.  This rally has been most volatile to the upside and the declines have been small and slow.  We’ll probably continue that trend.  Each time the perceived weakness sucks in the bears and that primes the pump for the next explosive move to the upside.

Of course this pattern won’t continue for much longer.  Soon the market will start wedging higher as the obvious rally converts bears and reluctant investors into buyers  of this market.   At that point the steady stream of buying will cause the market to wedge higher.  But that calm is a warning that we are about ready to run out of buyers and we should lock in our profits.

TRADING OPPORTUNITIES

The long trade continues to be the best trade.  We might see a modest pullback as we digest last week’s big move, but this is normal profit taking.  The market  maintains its trend of higher highs and lower lows.  This is a better market for longer time frame position holds and not so good for shorter term swing trades.  Find the things that are working and hold on for larger gains 20% gains.  But don’t get greedy.  Be willing to lock in profits and move on.

MLNX daily @ 3:41 EDT

INDIVIDUAL STOCKS

MLNX is having another horrible day, down 8%.  Silver lining is it’s finding support at the 50dma.  But that is minor consolation to someone who chased the stock the last few weeks as it wedged higher.  Wedges after a big move show chasing and in most instances are not sustainable.

The thing we always need to remember is market is never easy.  Anytime you feel like a genius, you need to look behind for that sledge-hammer that is about to crush your skull.  MLNX was an easy and obvious trade and it was a complete disaster for anyone who was sucked in by that tranquility.

Ironic thing is the stock is far less risky after that plunge than it was during its steady climb higher.  The violent shakeout could be clearing the way for a move higher.  Watch how it holds up around the 50dma and it could present a buying opportunity.  But don’t get ahead of the gun on this one since it could easily head back down to $40 in the blink of an eye.

URBN and UNFI keep heading higher after their breakouts.  These have also been easy rides so far, but don’t let that lull you into complacency either.  The big difference I see is it seemed like everyone was talking about MLNX when it broke out.  URBN and UNFI seem to be more under the radar and that makes them  less susceptible to a MLNX like crash.  But I said, less susceptible, not immune.  Nothing wrong with taking profits and moving on to the next opportunity.  The key to succeeding in the markets isn’t making money, it’s keeping money.

Stay safe

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Sep 07

Market holds gains on weak employment

By Jani Ziedins | Intraday Analysis

MARKET SENTIMENT

“To ease or not to ease, that is the question.”  Ben Bernanke.

Jobs numbers came in lighter than expected, but the market opened higher because in its view, this weakness increases the likelihood of further quantitive easing.  Never mind that it shows the economy is weaker than expected, free money is what the market cares about right now.  But as I’ve shared before, I’m not much of a news guy because news doesn’t drive the market, traders do.  So instead of focusing on if the headlines are good or bad, it is more profitable to follow what other people think of this news.  And so far the market seems to be OK with this worse than expected employment report.  Initial support at these levels is important in holding yesterday’s big gains and new high.  A couple of weeks ago the market made a new high and then immediately reversed lower.  Ideally this time the gains will stick.  A lot of bears are saying this breakout should be shorted and if they fail to move the market lower, it indicates these levels are here to stay and potentially higher levels are in our future.

The surprising thing was to see how stubborn many of the bears are after yesterday’s breakout.  Rather than jump on board, they increased their criticism of the rally and said the new high was that much better of a place to put a short.  That is throwing good money after bad if you ask me.  The only time to add to a trade is when it is working.  If something is going against you, it is time to start reducing your exposure and reevaluating your thesis, not doubling down.  The bears might eventually be proven right, but timing is everything in the markets.  Right idea, wrong time will get you killed.  Of course I’m not on the bears side when looking down the road.  I think the world is recovering and the future is brighter than the present.  The recovery might be frustratingly slow, but they usually are.  Remember, the market is better at predicting the news than the news is at predicting the market.

MARKET BEHAVIOR

Yesterday’s breakout was big support for this rally and decisively put the 1400 level struggle behind us.  All the big days in the market have been to the upside, a fairly unconventional phenomena in the markets where typically downside days provide the greatest excitement.  Down days are normally bigger because fear is a stronger motivator than greed.  People are more inclined to rush for the exits simultaneously than try to pile into the market at the same time.  So what gives with these huge spikes higher?  It is the same phenomena except turned on its head because of how many traders are short the market.  In the current environment, the rush for the exits is bailing on short trades as all the bears are in a mad dash to cover their positions.  This is called a short squeeze and we are having one after another as bears keep getting blown out of this market.  We’ll see when the bearishness finally recedes when the market flips back to more normal behavior of creeping higher and plunging lower.  Until then, stay long because the bears will keep bidding up the market until they run out of money.

TRADING OPPORTUNITIES

No reason to quit what is working.  The market wants to go higher in spite of the fundamentals, the tripple-top technicals, or whatever else people are using to say this market is overvalued.  The market wants to go higher and it is more profitable to go with it than to fight it.

I’m out of the office today, so I won’t be able to post charts or analysis of individual stocks.   The normal routine will be back on Monday.

Stay safe

Sep 06

The spring sprung

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:00 EDT

MARKET SENTIMENT

The spring sprung to the upside today in a powerful rally today.  This continues the trend of the biggest market days moving to the upside.  This indicates how much artificial bearish pressure is on top of the market trying to hold it down.  The thing a lot of people forget is the market is always stronger than bears, bulls, and even fundamentals.  The market wants to go higher and there is nothing we can do to stop it.  If you can’t beat ’em, join ’em.

No doubt the explosive move is driven largely by shorts getting their faces ripped off.  There are people far smarter than I that have figured out exactly what the market should do, but in my case ignorance is bliss.  I don’t trade fundamentals or technicals, I trade supply and demand because that is the undisputable law of nature governing the markets.  Simple truth is the market is far larger than any of us and it doesn’t care what we think.

Now the question remains if this rally will fizzle like the previous high back on Sept 21.  But nothing is indicating this rally is on the verge of petering out.  We put in rock solid support at 1400 and there is a huge contingent of investors watching this move from the sidelines as they are under-invested.  Over time they will slowly convert from afraid of a correction to afraid of missing the rally.  Fear drives the market and this time fear is going to drive it higher.

MARKET BEHAVIOR

As mentioned earlier, today continues the trend of the biggest moves occurring to the upside. Bears have been getting blown out of the water all summer and this pattern continues.  The time to short the market was back in May when everyone was bullish.  But like normal, most traders are stuck looking back at what would have worked and not looking forward to what will work.  Profits are located beyond the right edge of the chart, not to the left.

The trend of higher highs and lower lows remains in tact.  The trend is our friend this time.  Remember, a trend is far more likely to continue than reverse because trends continue countless times, but only reverse once.  Stick with what is working.

TRADING OPPORTUNITIES

We have employment tomorrow and a couple European and Fed headlines next week, but clearly the market wants to go higher and has ignored any and all the reasons it should go lower.  Trade the market, not opinion.  It wants to go higher and that is what side we need to be on. Stay long until the market tells us it wants to do something different.

The volatile swing trades are behind us and we should focus more on position trades and holding for larger gains.  There is a real possibility this trend could continue to the election.  How it responds then will be up for reevaluation at that point based on how other market participants are positioned.

Regardless of what anyone says, the market is agnostic politically, so who wins doesn’t really matter.  The market would probably prefer a friend in Romney, but the major downside to a Romney win is his promise to “Repeal and Replace” Obamacare and financial regulations.  The market hates uncertainty and reopening those debates would weigh heavily on the markets.

AAPL daily @ 3:01 EDT

INDIVIDUAL STOCKS

On a day like today, most everything is up, but some more than others.  The out-performance/under-performance could signal a stock’s strength going forward.  But don’t over analyze these things because some of the stocks could have already made their big move prior to the market.  For example AAPL’s move today is fairy modest, but I wouldn’t throw the stock out yet.  It’s been outperforming the market recently so a slow day ahead of a major product release is not that big of a deal.

Stay safe

Sep 05

Still stuck

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 12:54 EDT

MARKET SENTIMENT

We continue trading inside the 1400-1410 range.  The longer we grind it out here, the more we wear down the bears and the more believable this level becomes for cautious traders sitting on piles of cash.

All I hear from the financial press is how bad September is, worst month of the year historically.  While technically accurate, September is skewed by just a handful of large outliers.  There were two really bad Septembers during the Great Depression.  And who can forget 9/11 and its affect on the markets immediately after.  And finally the indexes were hit hard in September during the 2002 recession and again in 2008 during the Financial Meltdown.  But these are just 6 major outlier instances over the course of 100 years, meaning we historically have a 6% chance of a major crash in September.  That might be higher than any other month, but I don’t know about you, but I prefer betting on 94% probabilities, not 6%.

This obviously doesn’t take into account risk/reward, but as an individual trader I can go from 200% long to 200% short in less than 5 minutes, so I’m not too worried about getting stuck on the wrong side of the market.  Major institutional money managers don’t have this luxury and have to plan further ahead, but as an individual investor my nimbleness is far and away my greatest advantage and I will always exploit this strength in my trading strategy.

Right now the market is poised to go higher due to the large skew between skepticism and excitement of buying this market.  I’ll gladly change my views if the market tells me it wants to go lower, for now the bull case is setting up nicely.

MARKET BEHAVIOR

The market is frustratingly boring as it struggles with the 1400 level.  There is good support for the market at this level and we have bounced off it countless times since first breaching it on Sept 7th.  We’ve flirted with this level for the last month, but have not closed materially under it.  But we are also failing to see follow-on buying necessary to push the market higher.  This is telling of the market’s widespread reluctance to believe in this rally and is confirmed by the low volumes indicating not a lot of traders are buying this market.  While many widely followed trading systems are skeptical of low volume rallies because it shows lack of conviction, that is not the only way to interpret low volume.  Low volume also show a lot of people sitting out the rally that are potential new buyers that will be forced to chase the market if it continues marching higher.  It is this large crowd chasing the bandwagon that will fuel a rally higher when the market breaks out.

TRADING OPPORTUNITIES

Hard for anyone to make money in these tight markets.  Even day traders and option sellers are struggling with the low volatility.  But not making money is always better than losing money.  We’ve clearly transitioned from a swing trading environment to one where extended holding periods are working better.  Many leading stocks are putting together nice breakouts and follow-on gains.  The market is always changing personalities.  Q1 was all about hanging on for the ride. Q2 was a volatile swing trader’s dream.  And now Q3 is dull and boring, but with a slight bullish bias.  We trade the market we are given and this is what we got.

HD daily @ 12:55 EDT

INDIVIDUAL STOCKS

LNKD and DIS are having high volume breakouts today.  DIS is a 50dma bounce and not part of a  base.  LNKD would also best be described as a 50dma bounce since this recent consolidation is too wide and loose for a flat base and it doesn’t fit any other pattern.

HD is trading very tight after it’s earnings related breakout a couple of weeks ago.  Such tight trade is often indicative of accumulation as big money managers are piling into the stock any time the price pulls back, even by the slightest amount.  This puts a solid floor under the stock and once the stock runs out of sellers at these levels it will drift higher under the continued accumulation by big money.

Stay safe

Sep 04

Another bounce off of 1400

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:52 EDT

MARKET SENTIMENT

Markets retreated 0.5% in morning trade and were again flirting with 1400.  The big question is if 1400 is providing rock solid support for a move higher, or if the market is running out of steam every time it tries to move higher and we are seeing the last desperate gasps of this rally before heading lower?  We’ve bounced off this level several times already, showing good buying support here, but the fact we can’t escape this key level is also concerning.

I keep coming back to all the pessimism and reluctance from other traders.  Everyone I talk to thinks we came long way and is afraid of committing capital to this market.  Very few are 100% invested and hardly anyone is on margin.  This is a lot of money sitting idle waiting for the expected correction.  But the market usually does the opposite of what most people think and if too many are waiting for a correction, then it won’t happen.  This is what I think is happening here.  I interpret 1400 as rock solid support the bears are unable to push the market through.

Last Friday was Jackson Hole, anyone remember that far back?  The market was on edge for a week in anticipation of Ben’s “To QE, or not to QE” speech.  Seems forever ago, but it was less than a week.  The reason I’m dragging up this “old” news is to demonstrate how most news in the markets is fairly trivial and what we often are waiting on pins and needles over will be stale minutes after it is released.  The market already knew what it would do even before the Fed’s statement because it was already priced in.  You will get a lot further in this business if you focus less on the news and more on other traders.  Lets face it, the news is a for-profit endeavor and they attract advertiser money by hyping sensational stories to attract viewers.  Don’ buy into it.

MARKET BEHAVIOR

The market is stuck in a 1400-1410 trading range since making a new high two weeks ago.  Volatility has picked up a smidgen, but is still quite low.  This morning’s “plunge” was 1/2%.  Looks scary by itself, but in context of the last 4 years, it is almost laughable.  Today is the third test of 1400 since the S&P500’s new high back on August 21st, but so far 1400 is holding rock solid again.

We continue trading inside this summers trading channel, making our way to the lower trend-line through sideways trade instead of a move down.  The 50dma is also quickly catching up to current levels and is just a couple percent under the market.  All indications that we are not as high and extended as some might believe.

TRADING OPPORTUNITIES

Every close for the last month has been above 1400, creating a nice level of support.  But this also adds to the potency of a move lower if we do break under 1400.  This strong support gives us confidence to wade into the markets, but we should take any material violation of support seriously and reevaluate the bull thesis if the support fails in a meaningful way.  (intra-day dips under don’t count)

MLNX daily @ end of day

INDIVIDUAL STOCKS

Individual stocks are showing a lot of strength, firmly supporting this market’s bullish theme.  Even better, we are seeing more money flow into more speculative small-cap growth names that have been under performing recently.  All good signs there is something more to this bull rally than defensive and cyclical stocks.

SWI is adding to it’s previous breakout.  HAIN is defying gravity. MLNX looks to be wedging higher, something to be cautious of.  MLNX’s big move put it on everyone’s radar and small buyers have chased this stock since its gap.  Before the stock can make a big move higher, it will need a shakeout to free itself from all these late to the party, me-too investors.  Don’t fall into the trap of investing in what seems safe because those are the most dangerous stocks to own.  Anyone in MLNX should consider locking in a portion of their profits and waiting for a better place to buy back in.

Aug 31

Bulls are firmly in control

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:02 EDT

MARKET SENTIMENT

Headline day in the markets ended up not being very big.  Bernanke’s comments from Jackson Hole were simply parroting previous statements.  No new stimulus, but ready and willing to act if needed.  Markets opened higher, plunged at no announcement of QE3, and then like ever previous fed commentary sell-off in the last couple months, the market bounced back as quickly as it sold-off.

While the news was fairly hum-drum and the price action didn’t move us out of the previous 1400-1410 trading range, the price-action is highly noteworthy.  By many measures, not announcing QE3 today was a big disappointment for some of the most bullish traders.  This was the perfect time for the bears to take the knees out from under this market and send us into the tail-spin they are convinced we are on the verge of.  They had that fast and hard sell-off this morning to kick off an avalanche of selling, but why didn’t we plunge?  The market ran out of sellers and buyers jumped on board at the 1400 level, pushing us right back up to 1410.  So much for the theory that the market is fragile and ready to breakdown.

To me this shows the bears are exceptionally weak and overextended.  Here was the perfect set up for them and instead of raking in huge profits, they got their face ripped off in a short-squeeze.  And to be honest, the pain isn’t over for them.  Next week the rally should continue past last week’s intraday high as the last of the bears are flushed out.

While short-squeezes are powerful, they are also fleeting.  Without real buying following the short-squeeze, the market will drift lower due to a lack of support by other investors.  But the thing I am sensing from CNBC, online discussion forums, and local investor meetups is pros and amateurs alike are sitting on a lot of cash because they are afraid of this market.  These traders are modestly positive on the markets, but reluctant to buy because they fear the headlines.  As a contrarian, this shows me there is a HUGE war chest of cash ready to chase this market higher if it hits news highs.   Fear of a pullback will be replaced by fear of being left behind.

MARKET BEHAVIOR

The market continues trading in the 1400-1410 range, but volatility has picked up a bit with intra-day ranges hitting 1% over 6 of the last 12 trading days.  While 1% is still fairly modest as compared to the last several years, it does show a livelier debate brewing between bulls and bears at this key psychological 1400 level.  Looking at the price action, it the bulls have responded to everything the bears can throw at them.  The news continues to be negative and we are lacking a positive catalyst worthy of driving the market to multi-year highs, but the market is forward-looking and it sees something most don’t.

There is a saying that the market is better at predicting the news than the news is at predicting the market.  And this is the market we find ourselves in.  The market is leading bullish news out of Europe and US Economy.  By the time the news finally hits the wires, the market already made its move and it will be too late for cautious stragglers to profit off of the news.  And that could actually be the top of this rally as the market heads lower in a sell-the-news correction.

TRADING OPPORTUNITIES

Today’s upside reversal from disappointing lack of action from the Fed is highly bullish.  It shows bears are weak and bulls are strong.  Stick with the market and don’t let the heights scare you.  We’re going to breakout of this small 1400-14100 consolidation one way or the other and so far the best indication is for an upside breakout.  In the markets, the best trade is most often the hardest trade.  I could be wrong and we could see the market sell-off, but that is what sell rules are for.  Buy when other people are fearful and sell when others are greedy. The market might not be fearful they way it would at a market bottom, but there is a large amount of reluctance setting up the same trading opportunity.

FB daily @ 3:02 EDT

INDIVIDUAL STOCKS

Most everything is having a good day as the broad market is lifting all stocks.  TFM is following on to yesterday’s 50dma support.  This is a hugely volatile move over the last few days, so take that into account if anyone is adventurous enough to grab this bull by the horns.  FB continues making new lows, down 5% today.  So much for the next great thing.  In the markets, most often if you are excited to buy something, it isn’t going to work out as expected because the simple truth is most traders think alike.  If you are excited, then everyone else is excited, meaning there are few new buyers left to push prices higher.  The hard trade is usually the right trade and the easy trade is usually the wrong trade.

Stay safe

Aug 30

Bears try again

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:07 EDT

MARKET SENTIMENT

Markets gaped lower at the open.  Is this the sell-off everyone is expecting?  Sure feels like it.  We’re near 52-week highs, the headlines are ominous, and everyone is reluctant to own this market.  To be honest, I completely appreciate the bear case here and am tempted to side with them, but the one thing that holds me back is the abundance of bearish sentiment in the markets.  Fundamental and technical traders are underweight this market because of all the above reasons, and they are good reasons, but when we start analyzing sentiment and supply and demand, the picture starts looking different.

All things being equal, the sentiment skew is set up for a move higher because most often the crowd is wrong.  The crowd already made their trades and are simply along for the ride because only new buying and selling moves market prices.  If the bears are already underweight, out of, or short this market, they have done their best to move the markets and seeing as how we are stuck near 52-week highs, they didn’t move it very far.  But the noteworthy thing is all these bears are available and able buyers if the market forces them to change their minds.  This potential upside fuel is quite bullish because these supply and demand dynamics results in the crowd most often being wrong.

The above works under normal circumstances, but there are rare occasions where stocks can keep falling even after everyone is already bearish and that is when there is a complete lack of buyers.  Stocks are always traded from one person to another, meaning someone always owns stocks.  From these owners there is always an available supply of potential sellers.  But on the flip-side no one ever has to buy stocks.  A good example of this is housing in Detroit.  Someone owns the real estate up there, but even when some houses are listed for less than $1,000, they still can’t be sold.  Even if you gave it away free it could sit on the market simply because no one wants it at any price.  Same thing can happen with stocks.  But this is the extreme case of panicked trading where value investors would rather sit on their hands than buy something at attractive prices.  We saw this phenomena in 1987, 2008 and most recently in 2010’s flash crash.  The thing to remember is these are very rare, emotionally charged environments where buyers are paralyzed by fear, and in most instances they make for great buying opportunities once the dust settles.

I don’t expect this extreme case to play out and based on conventional market sentiment and contrarian views, I’m cautiously sticking with my bullish views.  Given market dynamics of supply and demand, I expect an upside resolution to this consolidation even if we see some near term volatility first.  Remember, supply and demand always trumps opinion.

MARKET BEHAVIOR

Markets dipped under 1400 again and actually undercut Friday’s low of 1398.  But while the dip is noteworthy, we continue trading within 2% of a 52-week high, so hard to say the market is struggling and breaking down.  This is still a bull rally until the bears can prove otherwise, and minor tests of resistance levels don’t cut it.  Of note, the 50dma is ramping up and closing the gap between itself and our current levels.  Many market participants view the 50dma as a buying opportunity and it often provides support for bull markets.  The closer the 50dam comes to the current market, the less downside there is before reaching this safety net.  It wouldn’t be unheard of for a bull market to dip down to the 50dma, but isn’t necessary as markets can often levitate above the 50dma for months at a time without a check-back.

TRADING OPPORTUNITIES

Volume continues coming in far under average.  Neither the bears nor the bulls are leaning into this market in a meaningful way and it is a stand-off between the two waiting to see which side will blink first.  No doubt we could breakout of this trading range in either direction and our trading plan needs to take this binary outcome into account.  I think the probability of an upside resolution is slightly greater than a breakdown, but in the markets nothing is certain.  Stay open-minded to what the market is telling you even if you don’t want to hear what it has to say.

TFM daily @ 3:07 EDT

INDIVIDUAL STOCKS

TFM is adding to yesterday’s losses, but pausing at the 50dma.  With such volatility, there are really only two possible outcomes, crash on through the 50 or bounce off it.  Just like with the indexes, many big money managers don’t like chasing high-flying stocks and will instead wait for a pullback to the 50dma.  When a stock finds good support at the 50dma, it often means institutional investors are accumulating shares at this level and a rebound is likely.  A high volume bounce off the 50dma would be a buying opportunity, but obviously a plunge under should be avoided.  While it is no fun for anyone who holds TFM in their portfolio, reversals like this are a part of trading and why we maintain defensive sell rules.  Stick to your rules and you’ll survive to fight another day.  And lets not forget, sell rules are not just for selling, but can also help keep you from getting shaken out in a pullback.

Stay safe

Aug 29

Watching paint dry

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:25 EDT

MARKET SENTIMENT

Another boring day in the markets as the S&P500 continues hovering around 1410.  This is like watching paint dry.  No doubt people are looking to Bernanke’s statements from Jackson Hole, but in all honesty this is nothing more than the market’s latest obsession.  Bernanke will say something, the market will go crazy for an hour, and then it will be forgotten as the market start obsessing about the next make-or-break data point.  Where does it end?  More importantly, does it really matter?  Is the market and financial press too obsessed with looking at its feet to see where it is going?

Most of the time I discount news because it doesn’t matter much.  Markets don’t trade on news, they move on traders’ expectations of the future.  News affects this perception to a degree, but it doesn’t move the markets, only traders do that.  The problem with news is it is always seen through participants’ preconceived biases and this distorts any story into what the market wants to see.  This is why the market can pop on horrible news and crash on great news.  If we really want to identify where the market is headed, we need to focus on other traders, not the noise.

By most measures it is hard to argue there has been much positive news in the financial press, yet the market continues rallying.  This screaming divergence means something powerful is going on under the covers and most people don’t see it.  Sometimes traders can be in denial and stubbornly holding on to positions thinking they can out-wait the storm.  This is what happened in late 2008 as the market imploded long after the cracks in the financial system were exposed to the world.  But the attitude back then was “everything is fine” and “these repressed valuations represent great buying opportunities.”  Is that where we find ourselves right now?  Are traders salivating at these attractive valuations and most traders are optimistic about the future?  I sure don’t see that surveying CNBC or StockTwits.  Seems most everyone is cautious and reluctant.

What if this divergence is due to an under-invested market?  Traders are afraid of this market because of all the perceived risks.  They fear another meltdown and it is nearly impossible to find anyone who thinks stocks are a bargain at these four-year highs.  But if the market is truly in such bad shape why has it pushed up this high?  Most experts justify the rally by saying it is overbought by novices chasing the market.  But I can tell you from first hand experience with local investor groups in my area that retail investors are not buying this market, they are just as afraid of it as everyone else.  If it is not the novices moving the markets, what is pushing us higher?

I think it is lack of supply.  This is why we have low volume and rising prices.  All the sellers have already sold and everyone else is holding on.  Lack of sellers is pushing us higher and chances are this trend will continue as fear of a crash is slowly replaced by fear of being left behind.

MARKET BEHAVIOR

Frustratingly tight trade continues.  Support has moved up to 1410 for the time being.  We could see volatility surrounding Bernanke’s comments, but over the last couple months the market has initially sold off after Fed’s comments disappointed markets, but the same day the markets turned right back around and recovered those losses.  It will be interesting to see if this trend of sell-off and then rally continues this time.  If the post-comment weakness persists, it could indicate a new trend for the market, but another rebound will be a green light to stay long, or get longer.

TFM daily @ 3:22 EDT

TRADING OPPORTUNITIES

Continue holding high quality stocks breaking out of sound bases.  Most everything is working and pullbacks are minor to non-existent.

INDIVIDUAL STOCKS

FRAN and GOOG are having good days and exhibiting follow on strength to earlier breakouts.  UNFI is breaking out on volume.  On the downside, TFM surged higher and them came crashing down on huge volume.  It is still well above its July buy-point and 50dma  and doesn’t need to be sold today, but any owner should put this one on a short leash after today’s volatile moves.  And when in doubt, remember it is better to be out of the market wishing you were in, than in the market wishing you were out.

Stay safe

Aug 28

Only idiots believe in the gold standard

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:02 EDT

MARKET SENTIMENT

Another dull day in the markets.  Indexes are again trading in a tight range, this time around the 1410-ish level.  The markets are creeping slowly higher in a stealth rally, defying all the problems generating headlines in the financial press.  Going against the market is a dangerous game and shorts are feeling the pain of the market’s stubbornness as it continues to chase them out for a loss.

I don’t expect we’ll see a material pullback until most of the bears have given up because it is their skepticism that is putting the floor under the markets.  Of course a shockingly bad headline could rattle the markets, but if the only thing we get are the bearish headlines we’ve recycled for the last six months, the markets should continue its slow, steady climb.

KORS daily @ 3:05 EDT

TRADING OPPORTUNITY

Stay long the names that are working.  While the indexes are trading sideways, the calm environment is allowing breakouts to work.  Stick with these leaders until you have a respectable 20% profit or the broad market starts getting more volatile.  But don’t get greedy and take your worthwhile profits off the table once they hit your targets.  Markets typically move in 20-25% steps before pulling back.  Take the elevator up, but avoid riding it back down.

During corrections it is often easier and more predictable to short indexes, but in uptrends the best gains will be found in individual stocks.  As always, the market is constantly changing and the best traders change their strategies along with the market.

INDIVIDUAL STOCKS

I updated the watch list with some of the stocks I’ve been mentioning over the last couple weeks.  These are not buy recommendations, but simply leading stocks showing interesting price action and worth consideration.

OTHER IDEAS

All this talk about returning to the gold standard is just asinine.  Anyone promoting this idea is exposing just how little they understand economics and global current events.  Europe is on the verge of imploding because it lacks meaningful flexibility in its currency.  They are back in a recession and possibly headed for a depression because of all the austerity measures forced on them due to a rigid currency.  Unemployment is above 20% in certain areas and they are cutting spending and programs at the worst possible time. Other examples include Argentina blowing up because of their peg to the USD.

Sure fiscal responsibility sounds great in theory, but like any theory it needs to be tested and this is where the gold standard and austerity falls flat on its face.  Similarly Communism is a wonderful idea in theory, but it failed miserably in practice.  Debt is scalable and analogies can be made between personal, corporate, and government debt.  For the government to pay for everything in cash would be like telling young couples that mortgages are bad and they should save up money to buy a house in cash even if it takes 20 or 30 years to save up.  Have you ever heard financial gurus recommending renting for 30 years so you can save and avoid having a mortgage?  Of course not because it is a stupid idea.  Or how dumb it is for recent college graduate to get a car loan so she can commute across town to a high paying job versus working for minimum wage at the corner grocery store?  Or how about advising young people to work for ten or fifteen years in low-wage jobs so they can save up and not take any student loans?  These are some of the worst financial advice a person can receive, yet this is exactly what all these ‘smart’ people are recommending for the US government.

Of course there is both good and bad debt.  Above I listed beneficial debt that pays huge dividends far above the interest payments.  But there is bad debt too, such as racking up credit card bills to finance for a vacation, a big screen TV, a fancy dinner, or pair of $300 basketball shoes.  A typical guideline is use cash for things that have a near-term benefits and use debt to finance things that provide benefits over multiple years.  Translating this to government, social services and public employee salaries should be paid in cash, but public work projects and supporting R&D should use debt so those benefits can be moved forward and start benefiting the community right away.

No doubt many people who have their head stuck in the sand will argue against this, but all they have to do is look around the world to see the these different policies in practice and the economies resulting from these decisions.  We’ve been off the gold standard since the 70s and racked up a staggering debt, but the world has never witnessed as much prosperity as the US has over the last 40 years.  This debt financed an innovation explosion like the human race has never seen before and it kicked off an economic boom that advanced the standard of living and life expectancy for everyone around the world.

There is a point at which additional debt can create drag for the system, but we are not at that point yet, mostly because of the flexibility we have with our currency.  Had we been on the gold standard as gold went from $80 to $1,800, it would have crushed our economy and made us one of the least competitive countries in the global economy.  I’d even go so far as to say it would be stupid for the government not to lock in long-term debt at these absurdly low 1.5% rates.  That is practically free money and if invested properly in our economy could provide returns many times greater than the interest payments.  If I could get loans at 1.5%, I’d buy as much rental real estate as I could get my hands on and let the money flow in.  Uncle Sam can do the same thing by investing in our country and increases in productivity and economic growth will more than pay for this trivial interest rate.  Of course having the government spend the money wisely is a different issue all together.  But even if only half of the money was invested wisely it would only accelerate the prosperity we’ve seen over the last forty years.

Stay safe

Aug 27

AAPL wins, everyone loses

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:05 EDT

MARKET SENTIMENT

Markets are up modestly in early trade, but that demonstrates good follow-on support for Friday’s 1400 bounce.  Constructive and sustainable gains are made by grinding higher slowly and include an occasional pullback here and there.

Bears remain cynical of this market and are arguing with Friday’s reversals.  The dip to 1400 was an excellent time to take profits on a counter-trend trade, but many bears were greedy and held on, expecting a larger slide.  And now all their profits are evaporating and turning into losses.  The market doesn’t care how thoughtful an argument is, it will run over us just the same.

Over shorter time-frames the market operates on supply and demand regardless of what the news, fundamentals, or technicals indicate the market should do.  The market goes up when shares are scarce and down when they are plentiful.   The low-volume trade we are witnessing shows few shares are available and this is contributing to the tight supply, and thus creep higher.  The bears have already sold their shares or gone short, but all their selling was unable to flood the market with supply.  The market gladly swallowed those shares and is asking for more.  No matter what the fundamentals have been, the market is headed higher and as traders we have to respect that.

MARKET BEHAVIOR

The market continues to show upside resilience with low volatility.  Sustainable rallies go up in smaller steps with low volatility and everything continues to point to a move higher.  Typically volatility will creep in prior to a reversal as the battle between bulls and bears heats up, but we are not seeing signs of that.  Most rallies end by rolling over with a more rounded and choppy top, not in a spike, so bulls have time on their side and no need to be standing by the door with a trigger-finger just yet.  If we stall again at 1425 and return to 1400, then we will need to reevaluate our bullish thesis.

TRADING OPPORTUNITIES

Stay on the long side.  Lots of breakouts to choose from, but don’t chase anything more than 5% extended from a proper buy point.  Last week’s pullback brought some stocks back into buy ranges.  If you missed those, there will be other opportunities in coming weeks from 50dma pullbacks and bounces.

INDIVIDUAL STOCKS

AAPL is higher on its successful litigation with Samsung on Friday.  But what might be a short-term victory will be a long-term loss for Apple, the industry, and consumers.  The patent system is badly broken and not able to handle the technological age we are living in.  For example, one of the patented items Apple was suing Samsung over was how when you get to the last photo on a list, the last pictures initially moves but then snaps back indicating the end of the list.  How in the world is something like that patentable?  Is it really Unique, Useful, and Non-Obvious?  Does it deserves 20 year protection in order for Apple to recover the investment spent developing it?  Is that really an invention or simply a design element?  Give me a break.

But here is the thing, this closed attitude in technology is bad for everyone because stifles innovation.  Apple won this battle, but it will lose the war when other companies start locking down every trivial ‘invention’ and that will prevent anyone from building a usable device without infringing on dozens of patents.  Apple is the current innovation leader, but so was Palm, Nokia, Motorola, and RIM.  Apple is building this culture of patent litigation and it is hurting everyone in the process.  If this stands, it could eventually spell the end of Apple’s reign as it gets out innovated by someone with other trivial “inventions” that locks Apple out of the next round of phone designs.  Congress or the Supreme Court really needs to get involved and strike down this silly business methods patent garbage.  And while their at it, eliminate patent squatting too.  Patents were intended to foster innovation by rewarding inventors, not stifle innovation by preventing everyone from doing anything.

In practice most of these mega companies simply cross license each others patents, but what this game of giants does is it locks out the small innovator without deep pockets who cannot afford to play patent roulette.  The big guys will sue any upstart out of business because every new device will infringe on dozens of existing bogus patents.  When the little guy loses, we all lose.

Stay safe

Aug 24

Another rough day for the bears

By Jani Ziedins | Intraday Analysis

S&P500 weekly @ 3:20 EDT

MARKET SENTIMENT

Markets are bouncing off 1400 today after briefly falling under this key psychological level in early trade.  The rally is sending bears running for cover and no doubt a large chunk of this move is a short squeeze.  The bigger question remains if there will be more buying from other market participants to continue this rebound higher.

Supply and demand moves markets plain and simple.  Some traders obsess over the news and others focus on technical levels, but what really matters is how all these various traders are positioning themselves.  Everyone comes to the markets with biases and it is impossible to interpret anything without looking through those tainted lenses.  If a person is bearish, they grab on to the bearish side of any story.  If a person is bullish, the get excited about the smallest positive nuggets.  Truth is if news and technicals actually mattered, they would be far more reliable than they are.  Good news would always make the go up and bad news would make the market go down.  If technical were reliable, then every breakout would work.  But it only takes a little experience in the markets to realize nothing works the way it gurus say it should.

This is why I try to see past the news and technical levels because following those signals sends off waaaay too many false signals for my tastes.  Instead, I focus on what other market participants are thinking and how they are positioned.  Have we run up and everyone is giddy?  Then chances are everyone is already invested and no matter how good the news or technicals are, the market is going to run out of available buyers and prices will head lower on weak demand.  On the other side, if everyone is expecting horrible news, then they have already traded this opinion and supply is about to tighten because all the selling has already happened.

This is a simplified explanation of the pricing dynamics behind contrarian investing.  But while most people think of themselves as contrarian, logic tells us the majority can’t be contrarian because then the contrarian view would be the majority?!?!  The trap most people fall into is thinking contrarian investing means going against a stock that made a large move.  This is why people get in trouble shorting a stock that is “too high” or buying a stock that is “too cheap”, only to get taken to the cleaners as it keeps going.  Contrarian has nothing to do with price and everything to do with the crowd.  Figure out the popular opinion and then trade against it.  Let supply and demand work for you and against the crowd.

There are a lot of people who are confused by this market.  The headlines are horrible, the world is falling apart, and yet the market is at four-year highs.  But if the market did what it was supposed to, we’d all be rich right now.  Don’t let yourself fall into the trap of thinking about what the market should do, but instead focus on what all the other people think the market should do and use that insight to plan your trades.  In the current market there are too many bears and the market is rallying because of that imbalance.  Don’t get mad at the markets, don’t accuse it of being unfair, reality is the market doesn’t care what you think.

MARKET BEHAVIOR

Stocks are rebounding after a sell-off this week. But any experienced trader knows red weeks are a healthy part of a bull rally and should be expected and embraced.  The trend remains higher and while this week’s price action was a little wider than the last few weeks, volatility is fairly benign by historical standards.

TRADING OPPORTUNITIES

Shorts had a good counter-trend trade in place if they got in near the 52-week high on Tuesday, but a counter-trend trader needs to be very nimble and take profits quickly.  Anyone who jumped on the short trade late or got greedy and didn’t cash in is having a bad day.  The market doesn’t care how sound your logic and reasoning is, it is far larger than any of us and it will run over us if we get in the way.  Trade the market, not opinion.

Timing is everything in the markets.  In fact, your view on the markets doesn’t matter as long as you have good timing.  Paradoxically enough, both a bear and a bull can be right at the exact same time.  Think about how crazy that sounds for a moment.  But its true, direction doesn’t matter as long as you pick the right time frame.  A bear could have made good money on this counter-trend trade if he knew when to pull the trigger and cash in.  And a bull could make money with a longer view if he sat through the dip.

Of course the other edge of this sword is both can also be wrong at the same time if they have poor timing and this is the trap reactive traders fall into.  Those with good timing are proactive, act confidently, and make the hard trade.  This lets them get in early and get out early.  But reactive traders are always a step behind the curve.  They wait until a trade feels safe before buying and then they hold until the market moves against them and they are forced to sell for a loss.  Bears make money, bulls make money, but pigs and sheep get slaughtered.

WPI weekly @ 3:19 EDT

INDIVIDUAL TRADES

AAPL is holding strong near its highs in spite of most investors’ fear of heights.  When most people think something is too high, hold tight because it is headed higher.  But be on the watch out for when too many people start talking about AAPL breaking $1k, or you start day dreaming about what car you want to buy with all your profits.  When that happens, sentiment is too positive and it is time make your exit before demand dries up and the price pulls back.

HAIN is adding to yesterday’s breakout.  What seems to be too-high usually only goes higher.  But remember chasing is a dangerous sport as you put yourself at risk of getting run over.  Yesterday buy was risky, but today’s buying seems safer.  Remember the hard buy is usually the right buy.  The easy buy is what will put a hole in your account.

WPI is breaking out today from a three-weeks-tight or alternately a cup with high handle.  Medical industry has been hot lately between Obamacare and big money’s attraction to recession proof industries.  It might be worth a look.

The hardest part about the current market is there is so much merchandise screaming to be bought.  Part is luck picking the breakout that will make a huge move, but the part that isn’t luck is being in the market.  You have to play the game before you can get lucky.

Stay safe

Aug 23

Weakness continues: opportunity or warning?

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 2:24 EDT

MARKET SENTIMENT

Markets opened lower, as they’ve done three of the last four days.  In the previous two weak opens, we pulled out of the dive and closed close to even.  Will the third time be the charm?

Market participants continue their pessimism over all the negatives in front of us, yet the market continues holding near its high.  Bears are shouting from every high place this market is over valued and they are short.  Big money managers are expressing concern.  The media is hyping up all the bad news.  Heck, even I can’t figure out why the market is holding up at these highs given everyone’s concerns.  But we profit from price moves, not people’s opinion, so that is what we must focus on.  The market wants to go up and we must respect that.

We’ve had a recent bout of weakness, but everyone must recognize the market can’t go straight up and make it easy for everyone to rake in money.  The market is notorious for making us think we are wrong before eventually proving us right.  The challenge becomes knowing when to stick to our guns and when to admit defeat.  The recent price action is shaking out a lot of weak bulls and encouraging anxious bears to take the plunge on the short side.  This weakness is expected and healthy price action for a bull rally, but the fear is this same price action could also be the market rolling over and the perceived support is nothing more than naive bulls jumping in and buying the dip.

The question we have to ask is which side are the naive traders on, the long side or the short side?  Naive traders always follow the crowd.  They are the me-too traders who always show up late to the party and are stuck holding the bag.  All their money flows directly into the pockets of savvy traders.  The key to finding the naive trader is figuring out which side the crowd is on.

If the majority of this market was excited about this breakout and talking about how much higher it would go, then I would be selling this market.  In March, I ruffled a lot of feathers when I told people the market was setting up for a pullback.  See my March 13th post for my analysis of the market back then.  Everyone was bullish and expecting big bull market gains.  That is why I got nervous and sold out of the market close to the peak.  Fast forward to today and at those exact same price levels, raging bulls are few and far between.  Most everyone is cautious and reluctant to buy this market, as demonstrated by the ultra-low volume.  Same price level, 180 degree different attitude toward the markets.  In March the sentiment was set up for a sell-off, today the sentiment is set up for a continuation.

But as I was getting to earlier, the market can’t go straight up, so this whipsaw move we are seeing is designed to shake out the weak hands and temp bears to put their heads in the guillotine.  What will determine how far this minor dip lasts is how quickly it can shake out all the weak bulls and tempt the ambitious bears.  We have to clear the deck of this dead weight before we can continue higher.  Maybe we do that holding above 1400, or maybe we need to drop under 1400 to trigger a final wave of automatic selling that will only happen when everyone becomes convinced the market is breaking down.

Being a bull in these markets is a lonely proposition, but the more of an outcast I am, the more likely it is I’m on the right side of this trade.

MARKET BEHAVIOR

Market continues to trade tight and in low volume.  Opening down half a percent in early trade is a big move for this market, but still peanuts from where we came from.  The increased range will give day traders a little more to work with, but still a far cry of this summer’s multiple percent per day moves.  But for the bull case, this is encouraging because historically rallies tend to be low volatility and low volume as most investors are comfortable holding and are not bailing en mass at every headline that crosses the news wire.

TRADING OPPORTUNITIES

The market is showing it wants to retest 1400.  Trading within in a few S&P points of 1400 it seems inevitable given market makers’ financial incentives to push us into a region that will trigger a wave of trading.  But even a dip under 1400 won’t break the rally.  No doubt the ultra-short term traders can profit from these counter-trend dips, but any longer time frame needs to respect the uptrend we have in place.  Too often the easy trade is the wrong trade, and if this market feels too extended and prone to pullback, that is exactly what makes it a good buy.  We are biologically wired by evolution to feel more comfortable in crowds.  In trading we feel more comfortable trading with the crowd, yet supply and demand and other pricing dynamics make following the crowd a losing proposition.  Our instincts are wired to survive in the wild, not succeed on Wall Street.  The time will come when we need to fear the market, but that will be when it feels safe.

CRUS daily @ 2:24 EDT

INDIVIDUAL STOCKS

AAPL in the red today, but only giving up a fraction of yesterday’s gains.  The uncertainty in today’s markets is driving big money managers into the perceived safety of mega-cap, blue chip stocks.  Following that same theme, HD is showing strength and is holding up better than the market in this mini-correction.  Speculative growth names like FRAN and KORS are also doing well with surging relative strength lines.  For breakouts, HAIN is surging 18% today and SNPS gaped 5%.  CRUS is impressively adding to its late July breakout in high volume today, but remember CRUS is extended from a valid buy point.  In spite of the headlines, there is a lot of good stocks showing strong relative strength to choose from.

There is a lot of encouraging price action in leading stocks, defying the bearish sentiment seen in the rest of the markets.  We continue to be in a confirmed uptrend and often the best buying opportunities are the scariest.  By the time it feels safe, all the best profit opportunities will be gone.

Stay safe

Aug 22

AAPL pops, but indexes struggle

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 2:35 EDT

MARKET SENTIMENT

The indexes opened slightly lower in early trade after yesterday’s reversal.  While yesterday’s loss was modest at -0.3%, the intraday range was the widest we’ve seen in weeks as the S&P500 sold off from a fresh 4-year high.  What does this tell us?  Simply that the market doesn’t go up in a straight line.  Most of August was an easy hold for bulls as the market drifted higher with low volatility.  But the market doesn’t like to be easy, so it has to throw in a few hiccups here and there just to keep everyone on their toes.

I’m suspicious of this bearish reversal because obvious shorts rarely work, and hard to hold longs often do.  Much like a rodeo bull, the market is bucking off longs with weak conviction.  Yesterday was an eye-opener as the reversal rained on the bull’s new-high parade and gave bears something to sink their teeth into.  No doubt a lot of the surge to a new high was bears covering shorts and bulls buying the breakout, but once all that automatic buying ended, no one was left to step in and support the market.  For such a noteworthy move, volume was noticeably absent.  Yesterday had the highest volume in over a week, but still well under average.  This means there was not a whole lot of buying on the pop, nor mass selling on the slide lower.

There are four investor moods that move markets, enthusiasm by bulls, enthusiasm by bears, apathy by bulls, and apathy by bears.  The low volume yesterday is more indicative of apathy by both bulls on the rally and apathy by bears on the sell-off.  This is simply continuing the summer’s low volume trend.  As I’ve shared before, my interpretation is big money is reluctant to commit new capital near recent highs and bears are exhausted from trying to drive it down.

Like anything in the markets, this could break either way as 50% of the money is on each side of the trade.  If buyers give up on this market first, bears will win and it will slide lower due to the absence of new money.  But if bears continue losing money, they will start changing their stripes and come over to the bull side.  Their buying will provide the initial lift for the market and it will be followed by chasing from formerly reluctant money managers who fear being left behind by a rising market.

I expect bears threw everything they had at yesterday’s sell-off and if that was the best they could do, the bull case remains solidly in tact.  The one wildcard is how many weak longs are still holding and prone to being spooked out of the market.  But once the market chases all of them off, we’ll be ready to resume the rally.  Sell early, or hold through the pullback, but try to avoid selling emotionally in the middle of a pullback because most often your breaking point will be the exact low of the correction, before the market resumes higher.

MARKET BEHAVIOR

The market broke from its low volatility rally yesterday, but that is no surprise.  We shot up in a short squeeze and then sold off due to a vacuum of follow on buying.  But one day does not make a trend.  Yesterday’s intraday range was 1.1%, which was exciting by recent standards, but hardly noteworthy when compared to price swings earlier this summer.  The low volatility trend continues for the time being.

TRADING OPPORTUNITIES

The market threw us a curve ball yesterday to make sure we are paying attention.  Anyone not expecting it was shaken out and this cleared the deck for a continued move higher.  No doubt we could see more red, retesting the 1400 consolidation, but I expect we’ll find support there and resume the low volatility climb higher.

No matter what anyone remembers from the good old days, there was never an easy time to invest in the market.  We remember where something started and where it finished, but seem to forget all the white knuckle zigs and zags in between.  Holding is never easy and we shouldn’t expect that here either.  The key to surviving these gyrations is to buy right and not chase.  The further away from the breakout you buy, the greater chance you have of getting shaken out in a normal and healthy pullback.

Now that is the bull case, since no one has a crystal ball and the market can throw off the best traders, lets build a plan B so we know what to look for if our original thesis starts breaking down.  We should see support at the recent 1400 consolidation.  Decisively breaking through this on volume demonstrates a high level of vulnerability to the recent rally.  At this point we should be unwinding our longs and looking for opportunities to short.  Don’t get overly aggressive at the first hints of a breakdown because often the market likes to throw in a head fake before resuming its previous trend.  And even if we do fall under 1400, the bull market is not dead, a pullback to the 50dma would not be an unreasonable thing for a bull rally to do.  But there is no reason to hold through that pullback.

S&P500 daily @ 2:36 EDT

INDIVIDUAL STOCKS

Everyone’s favorite stock AAPL is showing resilience after yesterday’s sell-off.  The thing about these favorite stocks is they go longer and further than anyone thinks possible.  AAPL cannot go up forever, but there is still gas in the tank.  I continue to be skeptical of AAPL’s long-term prospects as the most valuable company in the world because I see them dropping the ball to Android the same way they lost the PC battle to MSFT 20 years ago.  AAPL is a great and innovative company, but they don’t do well in the low-cost producer commodity markets.  How much more innovation can they push into phones and tablets?  The clones are on their heels and by some measures even out performing AAPL’s hardware. There will always be a place for AAPL’s marquee and premium products, but that isn’t enough to keep it the biggest company in the world. But that is then and this is now.  I’m a trader, not an investor, and clearly the momentum is behind AAPL and the stock has room to run with all the support for it.  But trade this stock, don’t fall in love with it.  As William O’Neil often says, “all stocks are bad…..unless they go up.”

HD is holding up nicely since its breakout out.  This stock has multiple tailwinds behind it, good earnings, housing recovery, and big money’s attraction to blue chip names in this economic environment.  What’s not to like?  This isn’t a 10x growth opportunity, but it could work for a nice trade if someone is scared of owning high-beta stocks like MLNX, KORS, or FRAN.

OTHER COMMENTARY

All the fear over the impending fiscal cliff is just noise.  Anyone who has followed politics knows even the most trivial decisions are pushed to the edge.  Brinkmanship is the name of the game in politics.  If you don’t push decisions to the deadline, you are doing something wrong.  This is negotiations 101, agree too early and you gave up too much.  Congress is nothing but one giant negotiation between the two parties and both sides will hold out until the last possible moment, trying to get a better deal for their constituents.  This is the way the game has always been played and to expect anything different now would be naive.  Quoting Churchill, “Democracy is the worst form of government except for all the others that have been tried.”  All this hype over the Fiscal Cliff is just trying to sell newspapers.

Stay safe