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Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.
By Jani Ziedins | End of Day Analysis
End of Day Update:
The S&P500 slipped for the sixth-time over the last two-weeks and finds itself under the 50dma. But as bad as this sounds, this “selloff” hasn’t even given up one-percent over this period. The reason we slipped under the 50dma is because it came up to meet us, not that we dipped down to find it. Clearly the Trump Trade is cooling off, but this is hardly panic material.
The interesting thing is the mood in the market has changed from unbridled optimism to reservation and caution. Trump’s had his share of missteps, the health care repeal blew up, and there is simmering tension with Russia, Syria, and North Korea. Add to this the negative price-action we’ve seen recently and the market has plenty of excuses to sell off. That leaves us with the question, why is this dip so modest?
One of the most useful ways I found for analyzing the market is looking at what it is NOT doing. We have all the excuses I listed, plus we can add “too-high, too-fast” and stretched valuations to the list too. With all of these reasons, why aren’t we dramatically lower? Why aren’t more people selling and taking profits? Why isn’t anyone panicking?
When we ask, “what is the market not doing?” Clearly it’s not selling off in a meaningful way. While some people will tell us to be patient, one of the things I learned during my two-decades in the market is big selloffs are breathtakingly fast. They happen before you know what hit you. Not this slow motion stuff we find ourselves in the middle of. If we were extended and vulnerable to a breakdown, it would have happened by now.
No matter how good the reasons the bears have, it doesn’t matter when owners refuse to sell. As long as stubbornly confident owners continue keeping supply tight, the market will keep finding support and defying the skeptics. Clearly this cannot last forever, but it will last far longer than anyone thinks possible.
This market will crack and break down because every bull market eventually ends, but we are not there yet. As long as these dips fail to attract follow-on selling, expect them to be modest and bounce. That means this is a better place to be buying stocks than selling them. As long as we keep recycling the same old headlines, we don’t have anything to worry about. If the healthcare dud and launching missiles at Syria didn’t faze owners, it is hard to imagine a headline that will convince them to change their mind.
Over the near-term I will keep buying the dip, but I will keep an eye out for that new and unexpected headline that sends chills through this market. That will be the one we have to watch out for. But until then approach this rangebound market by buying weakness and selling strength.
Jani
By Jani Ziedins | End of Day Analysis
End of Day Update:
It was a wild ride for the S&P500 as respectable gains evaporated in a late-day selloff. The Fed’s meeting minutes poured cold water on the market when they told us the easy-money party was coming to an end. Many people believe the Fed’s aggressive bond buying program inflated this market and now the Fed is telling us they plan on shrinking their enormous balance sheet later this year. While today’s dramatic reversal on elevated volume was noteworthy in of itself, the bigger question is if this is just another buyable dip like all the others before it, or if this is a true turning point that represents a fundamental change in the market’s outlook.
The market clearly didn’t like today’s news and that’s what lead to the largest intraday reversal in quite some time. But for this to represent a real change, this needs to be a new and unexpected development. Something that caught optimistic owners by surprise and will finally be the catalyst that causes them to give up hope and sell.
Personally I didn’t find this revelation all that surprising. The Fed told us they were going to boost interest rates and that’s what they’ve been doing. So far stocks have brushed off the last three rate-hikes and we continue hovering near all-time highs. Shrinking the balance sheet is the next logical step in the return to normalized monetary policy. It’s been eight-years since the depths of the financial crisis and the economy has proved itself far more resilient than most expected. While equity owners would love to keep the money printing presses running full-tilt, we find ourselves at a point where the risks outweigh the rewards.
If I knew this was coming, was it a surprise to you? If it doesn’t seem like a big deal to either of us, should we really expect this to send a chill through the market? The current crop of owners is stubbornly confident. Every other dip this year bounced because owners refused to sell. Do we think this headline is so shocking and unexpected that it will turn these stubbornly confident owners into fearful sellers? I doubt it. And there’s our answer. Today’s news doesn’t change anything. Stubbornly confident owners will remain stubbornly confident and this dip will bounce like all the other ones before it. No matter what the market “should” do, when people don’t sell, supply stays tight and prices resilient. Something will break this market eventually, but this isn’t it.
As a trade, I would give this reversal a little time to work its way through the system. These things are rarely one-day events, but I would be buying this weakness, not selling it.
Jani
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