All Posts by Jani Ziedins

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.

May 13

More thoughts on Greece

By Jani Ziedins | Intraday Analysis

The problem in the Eurozone is there is no way Greece, and others, can make good on their debts and European leaders are simply figuring out how Greece, and others, are getting off the hook.

  • The simplest and most straight forward is for Greece to give its creditors the middle finger. That is how most deadbeats handle it, so what is the big deal? But economic experts are petrified of the consequences for the stiffed creditors as they become insolvent without Greece’s repayment and that will kick off a series of dominoes leading to a global depression. That sounds ugly and is why smart people are desperately looking for an alternative.
  • One option is having a rich benefactor swoop in and pay off all their debts. But since no one has enough money outright, they’ll simply print it and hand it to the creditors. This lead to inflation, but that is tomorrow’s problem. But the political ramifications for this option is it appears like Greece is getting a free pass as they are bailed out by all the other hard working Europeans, making this a politically challenging option.
  • An alternative is letting Greece default, but then bailing out the banks that are on the verge of collapse, heading off financial contagion and global depression. Again more money printing and the only difference between this one and the previous is whether or not Greece defaulted, but in reality, this is purely semantics because the effects of money printing will be the exact same for the Euro-zone economies. But it might be slightly more palatable to Euro citizens because it doesn’t give Greece a free-pass. But at the same time it turns into bailing out fat-cat bankers who are even less liked.
  • The most extreme of the options is to shred and rewrite every single contract in Greece or pertaining to Greece as they drop out of the Euro and re-adopt the Drachma. The advantage is it give Greece the independence needed to print as much money as they need to pay off their debts. But this will be sheer contract-law chaos as everyone fights over what debts and assets stay Euros and which are converted to near worthless Drachmas. Dose Greece have authority over European creditors to force them to take Drachmas for their citizens debt, or can the foreign creditors insist on repayment in Euros? What about Greeks who have money in foreign banks? And of course the problem of financial contagion and bailout remains as creditors who are repaid with worthless Drachmas will still face insolvency as they are unable to repay their creditors with a worthless currency they received as payment.

The last item barely hints at what a monumental challenge breaking up the Euro will be because it affects every single contract written in Europe. Even separating a single nation will be a huge, tangled mess and lawyers will feed generations of their heirs with all the money they make over litigation of these existing contracts. And it doesn’t even address the financial solvency problem since Greece will still be defaulting in spirit by paying off their debt in a worthless currency.

But no matter what poison you chose, default, money printing, or breakup, the ultimate goal is to avoid paying the debt incurred either through an outright refusal to pay or some kind of inflationary devaluation where the value paid back is worth far less than the value borrowed. But the thing to realize is no matter what route is taken, the end result will always end up with the tax payers bearing the brunt of their politicians fiscal recklessness. So if all three roads lead to the exact same place, why not take the easiest one and just get it done with? And no doubt this is what will happen once the rubber hits the road and the time for action has eclipsed political posturing.

No doubt I didn’t do a great job of explaining the above logic, but the fact remains that it is next to impossible to un-bake the Euro and for better or worse that continent is stuck with it. But hard lessons were learned and going forward there will be more fiscal unity in addition to the monetary unity and we’ll see more centralized fiscal and monetary policy like we see here in the US as a collection of states under a fairly powerful central govt.

May 11

Still finding support

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 12:45 EDT

Stocks are in positive territory this morning in the face of JP Morgan’s pressure on the financial sector.  The bank reported $2b in ‘hedging’ losses.  How that happened is anyone’s guess, but lack of risk management and oversight of the trading operation seems to have crucial role.

As for the indexes’ price-action, they continue to trade slightly above recent lows.  It is nice to see we have not triggered an avalanche of sell-orders, but the buy-the-dip crowd is also unable to move the market higher.  The one thing that remains intact is the series of lower-highs and lower-lows and it will take a material move from here to reverse this pattern, requiring the markets to break multiple layers of resistance before reclaiming the highs of two weeks ago.  We have the former support at 1360 that is now acting as resistance, the 50dma, and then finally moving through the 1415 and 1422 highs.  Not that it can’t be done, but these are several speed bumps along the way that will potentially slow down any move higher.

The thing that still concerns me is the lack of panic selling.  Typically the market bottoms by flushing out weak holders as it becomes irrationally over-sold.  It is this emotionally impulsive selling that lets savvy contrarian traders step in for quick profits.  In many instances orderly sell-offs are far too rational to form solid market bottom.   The lack of panic selling indicates there are still a lot of optimistic bulls out there and sentiment needs to come down a notch or two before we can bounce and head higher.  Of course I don’t have a crystal ball and the market is going to do whatever it wants to do regardless of what I think, but using history as a guide, it seems like we still might have more room on the downside.  But either way we need to take our cues from the market and respond accordingly.

Stay safe.

May 10

How do you un-bake a cake?

By Jani Ziedins | Intraday Analysis

NASDAQ daily @ 12:51 EDT

The market is finding modest support after the recent sell-off.  It opened higher, but has since retreated from the opening levels.  Even for the bull these up-days should be met with skepticism since it takes four days to confirm a rally.  If a person counts a down-day with an upside reversals as a rally attempt, today’s price action would only be day two.  With that in mind, any bull should wait for the confirmation before jumping on any potential rebound so they don’t get caught up in a suckers’ rally.

It is interesting to hear experts talk about Greece pulling out of the Euro.  I find it shocking that experts actually think this is a realistic possibility.  Everything is so intertwined it would be like trying to separate the sugar, flour, and egg from a baked cake.  It just can’t be done.  Since everyone’s bank deposits, loans, and salary is currently based on the Euro, how do you decide what money gets converted to Drachmas and what stays in Euros?  What if a Greek homeowner took a loan from a Spanish bank?  Euro or Drachma?  And even between a Greek borrower and a Greek bank?  Is the bank really going to keep the same interest rate between a Euro loan and a Drachma loan?  And for depositors, you’d be crazy to leave your money in a bank that will convert Euros to Drachmas.  Knowing that, everyone will cash out their savings and the banks will implode because they don’t have the reserves to let everyone cash out.  If you hear anyone mention Greece pulling out, that is a sign they just don’t understand what they are talking about.

The far simpler remedy is to preserve the Euro and have rest of Europe to pay Greece’s debts, or alternately let Greece go bankrupt and walk away from their debts.  And of course this might need to be repeated for most of the PIIGS, but hey, that is what money printing presses are for.  Its worked well for the US so far, so why not Europe too?  The funny thing is how opposed Germany is to money printing.  As one of the largest global exporters, a weak currency would benefit their export economy as it becomes more competitive globally.  Who would buy a Ford if you could get a BMW for the same price?

Anyway, there is a lot more to this story and it will play out over the next year.  The thing for the investor to be wary of is how this will effect sentiment and prices.  The rally over the last 6 months occurred because the markets largely discounted the Euro crisis as old and inconsequential news.  The rally in effect removed the risk premium associated with the Euro mess.  So where does that leave us right now?  With the risk premium taken out, that means a positive resolution will have little impact since it has already been accounted for.  But a Euro crash landing could hit the markets with a 50% haircut if the worst plays out.  Taking this into account, the Euro crisis effect on the markets ranges from +0% to -50%.  And for the +0% event to occur, it would require a very civil, orderly, and quick resolution to the problem.  Something that is highly unlikely to occur. Looking at those odds, it seems like the risk/reward is not in the bulls favor and they should proceed with extreme caution.

But don’t get me wrong, I’m not predicting doom and gloom for the global banking system or economy.  There is little reason to expect the Euro will unwind the global economy and I fully expect a reasonable resolution to this crisis, but the market will fret over the risk and this will pressure equity prices over the near-term.  Success for a trader is not about making economic predictions, but anticipating how other traders will react to the renewed uncertainty.

How I expect this to play out is the new leaders in France and Greece will make lots of noise to appease the base that pushed them into office, but once they come to the nitty-gritty details of hashing our a resolution with the rest of Europe, they’ll come to a similar conclusion as their predecessors because any other outcome will be even worse.  As we’ve seen in this country, it is far easier to criticize and make promises as an outside challenger than it is to lead and take responsibility for the outcome.  It will take some time for reality to set in for these new govts, but at this point they have little other choice.  But the period between now and then will be filled with landmines for the markets just like it was last summer.

Anyway, back to the markets and how to trade these insights; most likely any strength should be used as an opportunity to get out or initiate shorts.  Wait for the market to get overly bearish before looking to get back in.  And of course we might already be at that point if there are too many people with views like myself.  If that is the case, we could bounce any time now.  But either way, I’d rather be late than risk getting in too early.  Profit opportunities are like a city bus, if you miss one, another one will be along any minute, but losses are forever.  A similar saying, it is better to miss the bus than get run over by the bus.

Stay safe.

May 09

Bulls putting up a fight

By Jani Ziedins | Intraday Analysis

NASDAQ daily @ 1:07 EDT

Bulls are not rolling over dead and they continue putting up a good fight.  Yesterday the market rallied off of lows and closed in the upper end of the day’s range.  Today the market gapped down at the open, but has since bounced strongly off of the lows.  Is this resilience an encouraging sign, or a symptom of stubborn denial?

Often market participants are slow to identify shifts in the market’s personality as they cling to strategies that have been working.  This is the classic case of chasing last year’s big winners hoping for a repeat performance, but this approach is often a day late and a dollar short as it fails to account for changing conditions and sentiment.

For the last 6-months, anyone who bought the dips made good money.  And it seems a lot of traders are continuing with this same strategy as they try to bottom-pick this decline in anticipation of the next rally.  But in the markets, things work until they don’t.  And with every successful event, we move one step closer to the one that fails.

In the markets nothing is certain and to be successful we must anticipate and trade probabilities as we balance the risks and rewards.  No doubt we could bounce higher from here, but given how long the previous rally was, we need to be on alert for a shift in market personality.  Rather than chase the market, our goal should be to get in front of it as we anticipate these transitions.  For example, a great time to close positions and take profits is when you feel on top of the world and start daydreaming about what you will buy with all your expected profits.  And on the other side, when you have given up all hope and are convinced the market is about to plunge even further is when you need to start looking for stocks to buy.

Given the bounces over the last couple days, I expect we still have more room on the downside because the bulls and buy-the-dip crow has not been completely demoralized.  Once we reach that point of maximum pain, they will all run for the exit, and that capitulation will signal the end of the sell-off.  If we continue to get spooky headlines out of Europe, that point might not come until we break 1,300 on the S&P500.  This is not a prediction, but simply listing one of several possible outcomes.  And even if we fall down to 1,300, it might not be a straight line and we could saw-tooth our way lower as the buy-the-dip crowd continues to put up a fight.

As for leading stocks, they are dropping like flies as speculators are losing their appetite for risky investments.  Some of these high-fliers were holding up well, only to get whacked days later.  Little doubt these are exceptionally risky places to hideout in a correction.  And even if some of them will make it through this, if you hold 5 stocks, will the one strong stock make up for the losses in the other four that implode?  The deck is clearly stacked against retail investors in terms of knowledge, skill, experience, information, and resources, but the biggest and clearest advantage we have is our nimbleness.  We can get in and out of positions in seconds, something big money is extremely envious of.  If we fail to take advantage of our nimbleness, then we give up the only advantage we have in this game.

Stay safe.

May 08

Broken Neck

By Jani Ziedins | Intraday Analysis

S&P500 Daily @ 1:37 with Head and Shoulders

A horrible day to own speculative growth stocks as the IBD50 is getting crushed, down over 3%.  RAX ‘s 12% haircut looks modest in comparison to FOSL’s horrifying 37% plunge!

European political discord has pushed the broad markets under previous support and broken the neckline of a head and shoulders, a common reversal pattern.  Given negative headlines/fundamentals and now technicals, the bulls have little to hang their hat on as the pendulum is swinging solidly into the bear camp.

It is periods like this that challenge the home-run hitter’s resolve as they try to stomach these precipitous sell-offs in their core positions.  These are the times when following your portfolio daily can be a hindrance to a buy-and-hold investor’s performance because moves like these tempt them to sell at the wrong time due to emotional weakness.  The only way to make good money in this game is to sell on the way up or hold through the pullbacks.  Getting shaken out during normal pullbacks is the exact wrong thing to do and is what prevents most amateurs traders from capturing worthwhile profit from their good ideas.

No doubt the market could go either way, but it sure feels like this move has more room on the downside as the market demoralizes the buy-the-dip crowd and former bulls turn tail and run for cover.  Often dips make for great entry points, but this doesn’t feel like the time or place for that kind of contrarian thinking.  The best short-term trade continues to be moving to cash or for the bold, shorting.  Of course for the home-run hitter, my longer-term prognosis is for this weakness to pass and the market to resume higher in the second half of the year.  But for my nerves and account balance, I’d rather sit out the decline and wait for the rally to get back in.

Stay safe.

May 07

European upheaval

By Jani Ziedins | Intraday Analysis

S&P500 daily, end of day

Interesting to see the outcomes of French and Greek elections.  The Euro crisis fell off the front page last fall and now it looks like it is trying to nudge its way back into spotlight with key political upheavals in France and Greece.  But with all the negative talk by market pundits, the indexes held their ground today and were flat in the face of this news.  Much of that can be attributed to the market expecting these results as they were telegraphed by pre-election polling over the last few weeks. But while the actual result was expected, the consequences might not be priced in.

The problem with new govts in Greece and France means the political negotiations that took place last summer will need to be rehashed and all the uncertainty and infighting that went along with last summer’s volatility will be front and center yet again.  Since we’ve already been there and done that, I don’t expect the same amount of uncertainty, volatility, and sell-off as we saw last summer, but as everyone knows, the market hates uncertainty and no doubt this will weigh on equities.

Today’s lack of a sell-off is most likely due to the expectations that France’s and Greece’s new ‘socialist’ govts will give up the economic crushing austerity plans and instead support a more growth oriented easy money agenda.  And ultimately I think this will be a good thing for Europe and the global economy, but the near-term battles with fiscally conservative Germany will muck up the waters and the market hates uncertainty. Can the markets continue ignoring the Euro mess as it has done for the last several months, or will new infighting and breakdowns bring the story back to page one?

Ultimately I expect this will all work itself out, but over the near-term it will be hard to justify the bull-case in the face of this turmoil and the market could struggle over the summer because of it.  The market is facing an uphill battle between headline-risk and if we fall a little lower, the technicals will also be supportive of a sell-off.  For the adventurous looking to make money on the short side, now would be a good time to ready a watch-list with high-flyers that have struggled recently.  Look for the market and these watch-list stocks to break resistance on high volume and jump on board the downdraft.  But I expect this downward move will be fairly moderate, so be prepared to lock-in worthwhile profits and don’t let yourself get greedy.  Just like last fall, I expect the market will find its footing once the it realizes the fear is unjustified and the outcome becomes more clear.  This will lead to another nice year-end rally.  Of course the further away the predictions are, the less reliable they become so we will need to continue revising our expectations as events and price action unfolds.

And as always, I could be 100% backwards in this analysis and the market might rally strongly in the face of what it should do because that is how the market rolls.  The number one rule in investing is the market is bigger than we are and it can bankrupt us no matter how sound our logic is.

As always, stay safe.

For those following the blogs over the weekend, there was a technical glitch that produces a post full of gibberish.  I apologize for that and it has since been corrected.  If you wish to read that post, it will follow this post on on the main page of the website.

May 05

Disappointing employment numbers

By Jani Ziedins | Intraday Analysis

S&P500 daily, end of day

Friday’s employment numbers came in under expectations and were the lowest net gains we’ve seen in six months. In addition, this was the second consecutive month employment came in under expectations and the situation was ripe for a sell-off.

But while the results were disappointing and the market sold-off, volume was relatively constrained and the indexes have not retreated to new lows. This shows waves of panic selling didn’t hit the market and the decline was relatively orderly. Some might suggest this is a positive revelation, but ironically I find the lack of concern by market participant a concern. Panic sell-offs rebound quickly, but orderly sell-offs have legitimacy and are far less prone to bouncing. No doubt markets overdo things, but they usually overdo them in dramatic fashion and we have yet to see that drama, so I expect we could have more room on the downside before we see a bounce.

IBD moved the Market Outlook into Market In Correction, so that means we need to see four days of constructive price-action before we get the green light for new purchases. And given the sentiment of other traders, that seems to be the prudent move at the moment. It makes sense to lighten up on existing positions showing any weakness and is a good excuse to weed-out under performing stocks.

INVN daily, end of day

As for individual stocks, INVN blew up in spectacular fashion, plunging 25% as they reported disappointing 250% growth. Hard to fault management for that performance, but the market can be a brutally judge, jury, and executioner as they set far higher standards. This is a painful reminder of how volatile small-cap growth stocks can be and why often it is prudent to lock in gains when you can. No doubt INVN was a trading vehicle and fundamentals took a backseat to gambling-like speculation. The interesting thing was to see the far more modest 5% loss in Thursday’s after-hour and Friday’s premarket trading, yet when the stock opened for trading it plunged beyond belief. No doubt much of that anomaly was structural in nature as the decline triggered countless autopilot stop-loss orders and it was all downhill from there. This was a dramatic flush out and it has the potential to clean the slate for INVN as it drove of most of the speculators. It will be an interesting stock to keep on the radar given its impressive earnings growth and the fact that the reduced guidance was due to external factors. No doubt is is far from a buy candidate in its present form, but I’m not convinced INVN’s run is over.

May 04

Uptrend under pressure

By Jani Ziedins | Intraday Analysis

Leading stocks had a rough day, falling far more than the modest pullback in the indexes. Live by high-beta stocks, die by high-beta stocks. While today was ugly, taken in context of last week’s progress, we have only given up a portion of the recent gains and are not in hot water yet. We continue have a some cushion before we risk breaking resistance and making new relative lows.

The problem for the current market comes when bringing in the volume of the up-days vs the down-days. The largest volume days have either been down-days or stalling-days ending with little gain.

As it stands, the market seems more skewed toward the bearish case and that is why IBD’s Big Picture moved its market outlook to Market Under Pressure, but all that will be rendered irrelevant if Friday’s employment numbers are outstanding. Meeting expectations or missing expectations will most likely allow the bear case to develop. At this point it is too late to predict what the employment numbers will be and we are left reacting to the aftermath once it is released. Regardless of the fundamentals, we need to trade our plan and respond to the price action no matter what we think should happen.

As for individual stocks, KORS, FRAN, INVN, and others had rough days giving up a large chunk of their recent gains. But that is the nature of trading high-beta stocks. One day you are a hero, the next you are a goat. But there is no such thing as easy money in the markets and the stocks with the greatest potential also are the most gut-wrenching. If it were easy, everyone would do it. Stick to your rules and use those to dictate how you respond to this market and try to keep emotional impulses in check.

Stay save and lets hope for the best Friday.

May 02

Lack of conviction continues

By Jani Ziedins | Intraday Analysis

NASDAQ daily @ 1:17 EDT

The markets had a disappointing finish yesterday, giving back most of their intra-day gains in the last hour of trading.  And this morning the market continued that reversal, opening modestly lower, but on a positive note have since bounced off of the daily lows by early afternoon.  As for absolute levels, the S&P500 is holding up reasonably well, but sticking with the ongoing lagging theme, the NASDAQ retested its 50dma again and is less technically strong.  From the price action of the indexes, it appears money managers are rotating out of the aggressive tech and small cap names and moving their money to more defensive sectors.

Given the lack of conviction by either bulls or bears, it is not surprising the indexes are continuing to churn sideways and breakouts either direction quickly lose steam.  Both headlines and sentiment have been mixed preventing a more sustained move either direction.  Maybe Friday’s employment numbers will be the catalyst that finally tips the scales one direction or the other.

LULU daily @ 1:17 EDT

KORS is adding on to yesterday’s strong move off of the 50dma.  LULU is also exerting itself, powering to new highs today.  LULU’s move doesn’t have the duration to qualify as a base and is simply a bounce off of the 50dma.  The buy range for 50dma bounces are from the 50dma all the way up to 5% above the previous high.  From that measure, both LULU and KORS are still in the buy range.

May 01

Nice rally day

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 2:32 EDT

The indexes are up nicely today, reinforcing last week’s technical breakout above the recent 50dma consolidation.  Obviously my reluctance regarding the market so far has been misguided and no doubt an army of people feeling the same way I do is partially responsible for the upside we are witnessing.

The interesting thing will seeing how far this can go.  A big push behind last quarter’s monster rally was institutional investors playing catch up as the market left them in the dust.  At the moment the second quarter is in the red, so there is no pressure for big money to chase the market.  Of course that could change if we start making new highs with a few more days like today.

Friday’s employment number will be a big headline grabber, but it seems like it is less of a market moving event than it was earlier in the economic recovery.  No doubt a big surprise either way will shock the market, but anything that approaches expectations should not create too much of a wave by itself.  Of course that doesn’t mean investors won’t use it as an excuse to trade a preconceived bias they have and that could potentially trigger a larger move if enough people jump on board as part of self-fulfilling prophecy.

KORS daily @ 2:33 EDT

FIRE is having a great day, up 13% after earnings and is adding to its already impressive gains since its Feb breakout.  KORS is jumping off of its 50 in strong volume today, giving a solid entry or add point for a bull.  BWLD is flirting with its 50, but struggling to hold above it in afternoon trade.  AAPL found support at the 50 earlier in the day, but has since given back all those gains and is currently flat.

I added a tab to the CrackedMarket website with a watch-list of the stocks I am following.  This is far from a comprehensive list and many big winners will not make the list simply because by design it will be highly exclusive instead of inclusive.  The goal is not to find every stock that makes a big move, but instead be focused on identifying a highly targeted list with as few false-positives as possible.  Because of the advantages of scalability in stock investing, we only need to identify one or two big winners each year to produce great results as long as we allocate enough capital to each good idea.  The bane of a portfolio is getting stuck with dead money stocks that don’t move and water down any winning positions.  This is why I am merciless when cutting otherwise good stocks from consideration.  Further, the goal is not to find obscure stocks no one knows about yet, but instead target stocks that are starting to show up on my radar multiple times and in the early stage of generating buzz across the larger investing community.

Apr 30

Buy the dip or sell the rally?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:05 EDT

Indexes are selling-off modestly for the first time since breaking above the recent trading range.  Is this a good time for people who missed the recent run to get in, or a last chance for those still holding stocks to get out at a decent price?  In typical fashion, the arguments for both directions are equally compelling.

If we use the strength of the follow through day and the performance of the recent rally’s general, AAPL, as a benchmark, it seems less than an ideal foundation for a material move higher.  But on the other side, the markets often climb a wall of worry and it is this very uncertainty that provides the best opportunity to buy early weakness and hold for a profit as other investors slowly come around.

 

FRAN daily @ 1:05 EDT

I am fighting a negative bias and I don’t want to let it skew my outlook, but I still find myself suspicious of this rally.  There are a lot of good stocks holding up well in this weakness, but I have yet to pull the trigger on any of them since the follow through day.  FRAN is having a great day, up 5% in a continued bounce off of its 50dma.  LNKD is also showing impressive strength after its own 50dma bounce.  SWI is holding on to an impressive move off of last week’s earnings.  On the other side, AAPL is extending a 3-day slide after its blow-out earnings.  It is pushing down toward its 50dma and a bigger risk will potentially be a test of the recent $555 low.  It seems at the moment everyone who wants AAPL already owns AAPL and no one is left to rush in and prop up the declining price.

Apr 27

Indexes continue holding gains

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 12:15 EDT

The indexes continue to hold recent gains and are edging higher. The S&P500 is above 1400 and sitting above the recent consolidation area. Today the NASDAQ joined the S&P500 by also poking its head above its recent range. These developments continue to be constructive and supportive of yesterday’s Follow Through Day. With this positive price action, there is no reason not to venture in and try some promising stocks. Start with 1/2 positions and add on as the market continues to move up.

From a sentiment point of view, it seems like the number of bulls and bears is fairly balanced and the lack of a disproportionate disparity most likely means the moves going forward will be more modest.  Extremes in the market tend to coil up the spring and today there is not much energy bound up in the spring.  Of course this balance rarely holds up and over time we’ll see the market skew one way or the other based upon headlines, price movements, and group think.

There are some interesting individual stock stories (AAPL, AMZN, SWI, GNC, etc), but as far as the indexes go, they are fairly boring at the moment.  Give it a few weeks and no doubt traders will find some kind of drama to start obsessing about.

Apr 26

Markets Flat after IBD calls Follow Through Day

By Jani Ziedins | Intraday Analysis

IBD called yesterday’s 1.4% gain on the S&P500 a day 11 follow through and we are back in a Confirmed Uptrend by their measures. But waiting more than two weeks for the follow through, having average volume on the FTD, and making just 1.4% gains are three separate signs that this FTD is less potent than ideal. That doesn’t mean this one can’t work, just in the past FTDs with this less than compelling action are more prone to failure. No doubt we can find weak FTDs that worked, but on average they have a lower success rate than more powerful ones. The best thing we can do is watch the subsequent price action and not jump into this market head first without waiting for more compelling evidence to support this FTD, namely positive price gains. Start buying good looking positions and then add on when the price increases. This will let you in the market, but also manage the risk if things breakdown.

As for where we are, the markets are mostly flat today on light volume. The SPX is at the upper end of the recent trading range, just poking its head above. The NAS is in the upper half of the range, but still has a bit more progress before breaking above it. The market seems unsure of itself at these levels as neither the bear nor the bulls have the courage to buy or short this market and it is a staring contest between the two to see who will blink first.

So far the market has found good support at the 1360 level as we bounced off of that twice. A third trip to that level would be fairly bearish as there is no such thing as a bullish tripple-bottom. On the upside, we have taken a few weeks to digest recent gains and flushed out some of the irrational exuberance leading up to the end of the first quarter. The bulls were humbled by the pullback and the bears will humbled by the bounces off of support. So in these regards, the clock has been reset for both groups and we are just waiting on the price action to see which side has greater strength. Being at the upper end of the trading range means the bulls have a slight edge and just need to push us a tad higher before traders start buying the breakout. But given the positive sentiment over yesterday’s price move and regaining the 50dma, it is disappointing that there is not more follow on buying today. No doubt this indecisiveness will continue the lower volume trading we’ve seen over the last few months. But as traders, price is truth no matter what the volume is.

We have seen positive price action from the leaders that weathered the storm and there look to be good buys to invest in. I continue to be cautious and am not sold on this FTD yet, but further gains will get me in the market with both hands. If we can’t hold above the recent consolidation, there is most likely more left in the downside move.

Apr 25

AAPL does it again

By Jani Ziedins | Intraday Analysis

AAPL daily

AAPL blew away estimates again and is single-handedly lifting the market today.  Most of AAPL’s strength comes from iPhone sales in China as they missed iPad and Mac expectations.  The one upshot is these quarterly results don’t include a Chinese release of the new iPad, which will provide a big boost for next quarter’s results. But AAPL is warning of a slowdown in iPhone sales going forward as customers hold-off in anticipation of an iPhone5.

As for how this affects the rest of the market, we are experiencing a nice pop today and all three major indexes retook their 50dma, but are still within the previous consolidation range, so not a technical breakout yet.  Today’s 1% and 2% gains are great to see after the recent weakness, but don’t constitute a follow through day because declines over the last few days reset the rally count.  This is day two for the S&P500 and day one for the NASDAQ.  We need a strong follow through day on Friday or next week to signal this market is ready to rebound.

NASDAQ daily

And given where we are, it seems prudent to allow the market a couple days to prove itself since today’s rally is the result of a single company.  The challenge will be to see if AAPL’s results can reverse the bearish sentiment we’ve seen in the markets as of late.  Is AAPL stronger than the markets, or are the markets stronger than AAPL?  And of course it doesn’t have to be an either/or as AAPL could decouple from the markets and continue higher in the face of wider weakness.

But again, sit tight and wait for that confirmation to demonstrates it is safer to venture into the market.  We give up some profit by waiting, but we decrease the risk of losing money by being patient.

Apr 24

Waiting for AAPL

By Jani Ziedins | Intraday Analysis

The markets are flat to up modestly this morning as we digest yesterday’s sell-off.  Is this the level were value buyers are attracted to the market and that is who is supporting us here?  Or are we being propped up by swing traders foolishly trying to pick a bottom?  One group has a lot of weight and conviction behind them and the other is a 90lb weakling that will bail at the first sign of trouble, so it really does matter who is buying at these levels.

The one slight positive is we no longer seem to be triggering an avalanche of selling at each weak patch we encounter.    Yesterday we sliced through the 50dma and found a bottom early in the trading day and climbed from there.  But the other side of the coin, if we are not seeing panic induced selling by weak-kneed traders, then what we are seeing is real selling by institutions, and that is a lot more meaningful.

AAPL daily

The market moving earnings release will come from AAPL after the close.  AAPL was the general that lead the Q1 rally and it also represents ~12% of the NASDAQ index.  Any weakness in AAPL will surely affect the tech trade, if not the entire market.  But on the other side, a strong result from AAPL could kick off the next bull leg higher.  Given AAPL’s 50% price gain over the last few months, it really is hard not to think AAPL shares are priced for perfection and the bar is set extremely high for them.  And on top of that, virtually every ‘expert’ I’ve seen is saying you should buy the dip on AAPL.  When the market gets so one sided on a stock, it inevitably goes the other way because of the supply and demand imbalance.  Is AAPL at that point?  In a few hours we’ll know the answer.

Apr 23

NASDAQ continues under-performance

By Jani Ziedins | Intraday Analysis

S&P500 daily

A rough start to the week for the markets as we are down 1%+ in the first couple hours of the day with all three major indexes crashed through their 50dma.  The S&P500 and Dow are still trading in their recent consolidation areas but the NASDAQ broke support and is making a new relative low. This continues the trend of under-performance by the NASDAQ and demonstrates weakness by technology and smaller, growth companies.  Given the huge run-up and out-performance by the NASDAQ in Q1, profit taking and rotation out of this sector should not come as a surprise.

NASDAQ daily

Traders watch moving averages and trade off of them, but are secondary in psychological impact when compared to technical levels represented by concentrations of actual buying and selling activity.  It is one thing to see your stock fall under a moving average on volume, but seeing your stock fall under its purchase price generates far more anxiety.   This causes breaks under support to be far more powerful than drops under moving averages.  The NASDAQ broke under its support, but the other two indexes are holding up for the time being.  A break by those over the next couple days could signal this correction still has room on the downside.

It is not uncommon to see the markets retrace ~33% to ~66% of a move as part of a normal and healthy correction.  This is just part of the natural two-steps forward, one-step back process the markets use on their march higher.  On the S&P500 this gives us a pullback range of 1347-1275 if we use the Dec dip as the start of the current move, or 1321-1222 if we use the Oct low.

No matter what metric we use, we still have a little more to go to make this a normal and healthy correction.  As for how to trade this, we should continue to sit tight and wait for the upside confirmation before buying back in.  As for using this weakness to initiate short positions, I’m not sure this down-leg will produce the profit potential necessary to justify the risk.  As opposed to bear market conditions that make for the best shorting opportunities, this appears to simply be a normal pullback from overbought conditions.  No doubt money could be made on the short side, but you need to be very nimble with your short trades and take profits early and often because this downward move doesn’t appear like it will cover a lot of ground.  Rather than look for shorts, I think the smart move is searching for buy candidates holding up well in this sell-off so you are ready for the rebound.  But of course markets top when everything looks good so we always need to be wary of what we least expect.

Apr 20

Up, down, up, down…..

By Jani Ziedins | Intraday Analysis

NASDAQ daily

The market again continues to hang out right at the 50dma and neither the bulls or bears have the strength to break the market from these levels.  It is still early in the day and we could see a more directional move this afternoon.  Today is options expiration so volume will be inflated, but it will still take a price move greater than 1.5% to trigger a follow through day.  Ideally we’d like to see volume far higher than yesterday to demonstrate the elevated volume isn’t simply a technicality due to the options market, but is really institutional investors getting behind the upside move on the long side.

The one helpful part of hanging out at the 50dma is the average has been inching up with every passing day and so while we are sitting on support, the market is still in a modest up trend.  But of course the real tell will be when we break above or below this consolidation in volume.  The last few weeks has done a good job of bloodying premature bulls and bears anticipating technical breakouts and they are getting far more gun-shy with each successive humiliation.  What this means is the next move out of the trading range is more likely to be the real deal because fewer premature day traders are artificially pushing the market.  With a diminished influence of technical and momentum traders, the next price move will be more influenced by institutional investor supply and demand and thus more likely to stick than the recent peak-a-boo breakouts that quickly retreated back into the trading range.  There is no grantee the next peak-a-boo won’t also retreat, but the probability of the market showing its true colors increases with each failed peak-a-boo due to the decreased influence of technical and momentum traders.

Again, no reason to trade these daily swings and it is best to wait for a confirmation either direction.  It is better to give up a little upside in order to improve your odds of success by waiting for a higher probability trade.

Apr 19

Treading water

By Jani Ziedins | Intraday Analysis

S&P500 daily

The indexes continue treading water near their 50dma in a frustrating fashion.  Up, down, up, down and repeat until thoroughly confused and demoralized.  Just like its been for the last week, this price action continues to support both a bullish or bearish setup and the only way we’ll find out is when we get a confirmation from the indexes when they actually move out of this range in a compelling manner.

So far all this trading range has accomplished is chewing up and spiting out any premature bulls or bears with overly tight stop-losses.  Neither side has the conviction or money to push us outside this range and we will continue to hold here until either the buy-the-dip crowd or the sellers lose the battle when they finally run out of funds to support their cause.  This is turning into an endurance race between the two camps and at this stage I really can’t say which side has an edge.  Both sides seem well represented in media making it hard to use a contrarian analysis to get a sense for what is the path of least resistance.

As far as CAN SLIM rules go, sitting and waiting is exactly what we should be doing right now when current outlook is market in correction.  We need to give the market time to prove itself and when deciding how to manage your portfolio, remember it is better to be out of the market wishing you were in than in the market wishing you were out.

FFIV daily

Aside from the indecisive indexes, we have seen good price action out of some leading stocks.  FFIV popped on strong earnings and retook it’s 50dma on a gap-up this morning.  Today’s move puts it back in line with its recent highs after dropping under it’s 50dma on large volume a couple weeks ago.  This price action demonstrates how difficult it can be to respond defensively to a stock by waiting for weakness to sell.  Very few stocks make big moves that are easy to hold and often the biggest winners are highly volatile and do their best to shake traders out prematurely.  There was no reliable way to identify FFIV’s April 10th and 11th plunge was just a regular shakeout and not the start of a larger decline.  For my personal trading style, I don’t want to be stuck trying to decide if a pullback is just a normal correction or the end of a move and is why I prefer selling into strength after a nice run-up.

Apr 18

No follow through

By Jani Ziedins | Intraday Analysis

NASDAQ daily

Yesterday’s low volume failed to trigger a follow through day for the market and the lack of conviction by buyers makes it appear the sharp rally was largely driven by short covering coming from bears who piled in on the short side last Thursday and Friday after the market cut under the 50dma.  Yesterday’s lack of meaningful follow through seems to be confirmed by today’s listless open and modest decline in the first couple hours of trading.

This back and forth action seems to be driven by a small group of eager and premature bull and bear traders who are jumping ahead of the market in anticipation of their predisposed view of the market.  But once this smaller group of traders blows their load on a position, the market quickly reverses because big money investors don’t get on board with the move.  And given the back and forth with no real net movement, it really seems like big money is taking a wait and see approach.  As CAN SLIM investors we follow big money’s lead and that means we should also be sitting tight.

Now the last couple weeks have highlighted the difference between selling early and holding through a correction.  No doubt sitting through 10-20-30 percent corrections in a stock is demoralizing and challenges a person to maintain their composure.  There are two ways to make money in this game, one is by trading and the other is by investing.  Obviously trading is short term in nature and the trader has to follow the market closely to time his buying and selling.  But on the other side of the spectrum is the investor who finds great stories to invest in and then holds for an extended period of time and sits through multiple price corrections.  Psychologically the big difference between the two approaches is the trader watches the market daily, hourly, and even by the minute because he has little conviction in his positions and is mostly catching technical and momentum waves.  This is contrasted with the investor who buys stocks he has a lot of conviction in and because of that he is comfortable ignoring price data for weeks or months at a time because he knows his fundamental analysis will hold up regardless of short-term market fluctuations.

The problem a lot of amateur traders/investors run into is blending these two strategies in incompatible ways.  This would be the investor who follows a stock’s price action daily and thus subjects himself to the emotional turmoil of watching his position go up and down and ultimately tempts himself to bailing out at the exact wrong time on inevitable weakness.  And the other side is the trader who doesn’t react to the market’s price moves and allows a small loss spiral out of control as he is waiting for it to recover.

The challenge for the CAN SLIM trader who is looking for the home run is we tend to follow the market closely and the method to our making money is riding waves of hot stocks.  This daily following of stock prices makes it a challenge to hold through pullbacks, as many people are experiencing right now.  This is why some experienced traders recommend having two completely different accounts segregated between trading and investing.  This allows you to follow your trading positions daily and largely ignore your long term investments, greatly reducing the emotional urge to sell your home runs at every pullback.  Just something to think about as you hone your approach to the markets.

As for the current market, we continue to hold in the trading range around the 50dma as big money is sitting on their hands.  Trading sideways is often supportive of these price levels, but the longer we sit at these levels makes a potential downward move larger in size.  A good analogy would be a coiled spring.  The longer we sit at one level, the more potential energy is wound into it and the larger the resulting move will be.

For the time being I tend to be slightly more bearish simply because of the strong rally we recently had and how this affected the expectations priced in the market.  The bar set for many of these companies is 30, 40 and 50 percent higher than it was last fall and that will make for an interesting earnings season.  The thing about the markets is it takes unexpected good new to drive it higher.

Apr 17

Follow through day in the works?

By Jani Ziedins | Intraday Analysis

S&P500 daily

In typical bi-polar nature the market has completely reversed yesterday’s losses and then some as all three broad market indexes jumped back above their 50dma.  While it is still early in the day, the move has the potential to turn into a follow through day for the S&P500 and Dow if we continue higher and the volume kicks in this afternoon.  The NASDAQ undercut its recent low yesterday, resetting its follow through day count and is currently the lagging index as traders appear to be rotating out of first quarter’s hot tech stocks.

Demoralizing sell-off yesterday, euphoric rally today, maddening isn’t it?  But if the market was easy, everyone would be rich and we all know it doesn’t work that way.  Currently the market is doing its best to embarrass and humiliate both bulls and bears, and all this back and forth action looks like it is doing a good job of it.  One day the market is spooking weak holders and tempting premature shorts and the next it has the buy-the-dip crowd rushing in with open arms and shorts running for cover.  And within a couple days both sides have been bloodied and regretting their hasty trades.

So what can we make of this price action?  On the positive, we continue to find support at the 50dma and are holding the recent consolidation area.  We have also been able to avoid a cascade of panic selling and so far most sell-offs have been been blunted by the buy-the-dip crowd.   For the negative, volume has been low, showing a lack of conviction and each rally is missing follow through buying and has reversed.  In addition, it seems like we lost the leadership of the tech sector and laggard industries are leading the S&P and Dow moves higher.  Can these lagging sectors really sustain a move higher?

But as I mentioned, we continue to hang around the 50dma and it will take a decisive break away from this to establish the next trend and that is what we need to keep an eye out for.  Further gains on substantial volume today would be a signal to start venturing back in.  But without that clear-cut signal, it is best to continue waiting for a confirmation because without conviction behind today’s rally, we could easily continue this bi-polar nature and see a pullback reversing all these impressive gains later in the week.

If we do see a follow-through today, the real challenge we be sifting through the rubble to find leading stocks that had a healthy pullback and filtering out those that appear broken.  AAPL’s earnings release next week will also be a big catalyst for the market and tech stocks since it has been the general leading the charge higher over the last several months.  A sneeze by AAPL could give the entire market a cold.  But at the same time, another blow out quarter could reignite the tech rally.  Given the recent price run, simply meeting expectations will probably disappoint the market and we’ll fee the heavy burden of the recent rally.