Category Archives for "End of Day Analysis"

Trading plans for what comes next:

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

On Tuesday the S&P500 experienced the first real giveback since the May rebound kicked off. Economic headliners were mixed, but that’s all it took to knock us from the highest levels in a couple of months.

Last Thursday I warned readers to be more careful now that we were approaching the upper end of the trading range. Risk is a function of height and this was the highest we’ve been since early March. Recent gains made this a better place to be taking profits than adding new positions. And Tuesday’s pullback to 2,700 support validated those warnings.

The question is what happens next? It was nice to see buyers show up once prices slipped to 2,700. Market crashes are brutally quick and while we are not in the clear yet, one day of support is constructive. If this market was grossly overbought, we would have tumbled far more dramatically from the highs. Tuesday was a more measured pullback and that tells us this market is not overly vulnerable.

Hold 2,700 for another day and everything is looking pretty good and the path of least resistance remains higher. But if we slip under 2,700 Wednesday, be prepared for a wave of technical selling to weight on the market. The way it responds to this violation of support tell us what comes next. If the selling intensifies, expect the weakness to carry us back into the heart of the trading range. That puts 2,650 and the 200dma in play. But if we dip under support, supply dries up quickly, and we reclaim 2,700 before the close, then things are looking strong and the May rebound continues.

At this point the odds are 50/50 if support holds or fails. For a good trade, we want better odds than that. The this opportunity doesn’t get real attractive unless we dip back to the 200dma and bounce. That’s where the discounts create a safer and more profitable trade. If prices don’t dip and we hold current levels for a few more days, that tells us the market wants to go higher. In that case 2,800 is in play and we need to be patient.

I don’t know what the market will do next, but I have several trading plans ready to go. It won’t be long before the market tells us what it wants to do next and those of us that are ready will be positioned to profit from it.

---

After holding $9k support for several weeks, Bitcoin finds itself under this widely watched support level. As I warned readers two weeks ago, there comes a point where support turns into stalling. That is what happened here. The inability to move beyond support made a violation inevitable. The latest rebound from the $6k lows helped rebuild sentiment, but expect most of those positive feelings to disappear if we stumble back into the $7k range. It often takes bubbles six to twelve months to find a bottom. If that happens here, that means lower-lows are still ahead of us. I’m skeptical of BTC at these levels and it needs to recover $9k as soon as possible to prove me wrong. Otherwise expect nervous selling to return and push us back under the $6k lows.

If you found this post useful, return the favor by sharing it on Twitter, Reddit, and Facebook!

Jani

What’s a good trade worth to you?
How about avoiding a loss?

For less than $1/day, have analysis like this delivered to your inbox every day during market hours. 

What to do now that we bounced

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

On Thursday the S&P500 extended last week’s rebound off 2,600 support and now finds itself well above the 50dma and 2,700 resistance. What a difference a few days makes. Last week traders were fleeing ahead of the expected collapse, this week those same traders are scrambling over each other to get back in.

Not a lot changed over the last week. The Fed is still planning on raising rates. Treasuries hover near 3%. Trump’s Trade War is still hanging over us. Last week these things were going to wreck our economy. This week no one remembers them. Are these things important? Should we ignore them? What is a trader supposed to do?

As I’ve been saying since early February, the big selloff was over but the drop in prices did enough damage that we wouldn’t rebound to the highs anytime soon. If we weren’t going any lower, but weren’t going higher either, what’s left? Sideways. And that’s exactly what’s happened since the February selloff bottomed. Rebounds fizzle and the breakdowns bounce. Bulls and bears trading these as larger directional moves have been getting humiliated by the reversals. But their loss is our gain and it has been highly profitable for those of us buying the weakness and selling the strength.

Now that we are at the upper end of the range, has anything changed? Nope. Rather than chase the relief higher, we should be growing more cautious looking for a place to take profits. Risk is a function of height.  Last week we were near the lows of the year. Rather than run from the market, we should have been buying those discounts. And now that prices are significantly higher, rather than rush in, we should be growing cautious as the risk/reward swung the other direction. Trading is not hard once we learn what to look for.

I’m most definitely not calling this a near-term top. It would be foolish to short this strength for no other reason than we reached the upper end of the latest trading range. But the risk/reward is no longer in our favor and that means moving to a defensive posture and taking profits. Only after cracks start forming should anyone even consider going short.

Nothing has changed from last week to this week. That means keep doing what has been working. Buy weakness and sell strength.

If you found this post useful, return the favor by sharing it on Twitter, Reddit, and Facebook!

Jani

What’s a good trade worth to you?
How about avoiding a loss?

For less than $1/day, have analysis like this delivered to your inbox every day during market hours. 

Why everyone should have seen this rebound coming:

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Tuesday S&P500 closed flat after spending most of the day in the red. Prices dipped in anticipation of Trump’s announcement to leave the Iranian accord and reimpose sanctions. This injects further uncertainty into the already unstable Middle East. Not knowing what is going to happen next is a big reason oil has rallied above $70.

But as much noise as the media made over Trump’s widely anticipated announcement, the market largely brushed it off. Prices dipped more than 0.5% as the knee-jerk reaction was to sell the announcement, but anyone who has been paying attention knew the market expected this and it wasn’t a big deal. After the headline sellers finished selling, prices rebounded and I doubt many people will give this a second thought on Wednesday.

Last week it felt like the market was on the verge of collapsing. We undercut the 200dma and 2,600 support, but instead of triggering a wave of selling, that was the capitulation bottom and prices have rebounded back to the upper end of the recent trading range.

The thing about markets like this is both bulls and bears are right. Wait a few days and the bull will be right when prices rebound. A few days after that the bear will be right when we stumble back to support. While both sides keep getting proven right, the painful irony is both sides are also bleeding money from poorly timing their trades.

Bulls buy the strength when it confirms their bullish bias. Unfortunately buying strength in a trading range is jumping in at the exact wrong time. Same goes for the bears who short weakness moments before prices rebound. The biggest challenge in the market isn’t knowing what is going to happen, but getting the timing right. Unfortunately most bulls and bears are getting crushed in this sideways market because they are making the right move at the wrong time.

Last Thursday I wrote the following in my free blog post, the same day the market scared the hell out of everyone by crashing through the 200dma and undercutting 2,600 support:

“As I’ve been saying since February, we are in a trading range. That means buying weakness and selling strength. Stick with what is working until something changes. Did something change today? Nope. That means today’s weakness was a buying opportunity, not a chance to bailout “before things get worse”. Maybe we slip a little further, but that’s not a big deal. Remember, risk is a function of height. The lower prices go, the less risky it is to buy. If this market wanted to crash, it would have happened months ago. There have been more than enough excuses to send prices tumbling. Instead, every time we slip to the lows, supply dries up and prices rebound. This is a resilient market, not a weak one. And the only people losing money are the ones overreacting to these gyrations.”

Read the full post if you want to learn how I came to that conclusion, but less than 24-hours later the market exploded higher. As I said before, predicting the market isn’t hard, the trick is getting the timing right. And often it takes more than good timing too. Many times the market tests our conviction and convinces us to abandon our well thought out trades moments before proving us right. I don’t mind losing money on a bad trade because that is the cost of doing business. But there are few things more frustrating than losing money on a winning trade. I wish there was an easy answer for this, but recognizing the difference between conviction (right) and stubbornness (wrong) is the art of trading and only comes from experience.

But that was last week’s trade. What most people want to know is what is coming next. Even though the market is approaching the upper end of the latest trading range, I actually think there is a little more upside left in this rebound. The market likes symmetry and last Thursday’s dip under support was fairly dramatic. We should expect the rebound to be similar and it doesn’t feel like we are at dramatic levels yet.

The resilience of this rebound was confirmed by Tuesday’s strength in the face of Trump’s headlines. The midday selloff could have easily spiraled out of control and sent us tumbling back to support if this market was weak. Instead of accelerating lower, supply dried up and we rebounded. Prices tumble from overbought levels easily and quickly. Resisting the temptation to selloff Tuesday afternoon tells us the market is solid, not fragile. At the very least I expect a retest April’s highs. That said, even though the near-term path of least resistance is still higher, this is a better place to be taking profits than adding new money. In trading ranges we buy weakness, not strength. Those with profits should start looking for an opportunity to lock them in.

---

Long gone is talk of a Tech Meltdown. Weeks ago I told readers people would be kicking themselves for not buying those discounts and it didn’t take long for those discounts to evaporate. For months people were begging for a dip in their favorite stocks. Yet when the dip finally happened, most people were too scared to buy. Of course if this were easy, everyone would be rich. The thing to remember is most people lose money in the stock market, so that means doing the opposite of most people. If most people are selling great stocks, that means we should be buying them.

There is a lot less near-term upside left in most FAANG stocks because they have returned to their highs. but this trade is still alive and kicking and that means sticking with it over the medium term.

If you found this post useful, return the favor by sharing it on Twitter, Reddit, and Facebook!

Jani

What’s a good trade worth to you?
How about avoiding a loss?

For less than $1/day, have analysis like this delivered to your inbox every day during market hours. 

 

Is this dip different?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

Thursday the S&P500 finished down a modest 0.2%, but how it got there was anything but a smooth ride. Stocks gapped 0.5% lower at the open and it only got worse from there. At the height of the selling, we shed 1.5% and undercut the 200dma and 2,600 support. But just when things were the most hopeless, supply dried up, prices rebounded, and we even briefly poked our head into the green. Anyone just looking at the closing price would have no idea what happened today. But maybe that isn’t a bad thing given all the people that made poor trading decisions reactively selling the midday weakness. This is one of those times when ignorance really was bliss.

The selling actually started Wednesday shortly after the Fed announced their latest policy decision. Even though they kept interest rates steady, they confirmed their plans to continue raising rates later this year. That was followed by revelations Trump’s money was used to coverup his alleged affair with a porn star. Combined those headlines set off a selling spree that didn’t end until we shed 60-points and violated the support.

Even though they fueled a dramatic ride, the headlines driving this selloff were suspicious at best. The Fed did exactly what they said they would do, and everyone expected them to do. No surprises and it is simply a continuation of previously stated policy. Policy that hasn’t moved the stock market in a meaningful way over the last five years. Even 2013’s “Taper Tantrum” was a flash in the pan and erased within a couple of months. Would today’s policy statement turn out any differently? No, of course not. But that didn’t stop people from overreacting and reflexively rushing for the exits.

The same goes for Trump’s brewing sex scandal. Maybe its “fake news”, maybe “where there is smoke, there is fire”. Either way it doesn’t really matter to the market. The stock market rallied after Trump’s election on expectations of regulatory relaxation and tax cuts. He delivered both of those promises last year and the market got everything it wanted. If the Trump administration goes down the toilet, it will be a political scandal, not an economic problem. For confirmation of this thesis, all we have to do is look at Clinton’s impeachment in the late 90’s. While it dominated headlines and monopolized Congress, the economy and stock market chugged along, totally oblivious to what was going on in D.C. In fact Congress getting bogged down by a political scandal is actually a good thing because that keeps those fools from screwing up anything more important. The less Congress does, the better it is for the economy and the stock market.

And while a lot of traders were scrambling for the exits today “before things get worse”, there really wasn’t any meat to the headlines and is why the selling stalled so quickly. This is only the latest in the long list of headlines that failed to break this market. Why where these headlines any more significant than the last time the Fed bumped interest rates? Or Muller raided Trump’s lawyer’s office? Or the escalating Trade War with our allies and China? These headlines didn’t matter any more than the others and is why prices bounced.

Days like today challenge our resolve. Without a doubt the selling felt real. But the thing to remember is by rule, every dip feels real. If it didn’t, no one would sell and we wouldn’t dip. Given the huge directional moves over just a few minutes, I actually suspect computer algorithms are driving a lot of this volatility. These computer programs look at all the same data and make the same trading decisions at the same time. That herd behavior triggers these cascading selloffs and explosives surges higher. But the thing to remember is algorithmic traders only represents a small fraction of the total money in the stock market. Once all of these small trading firms go “all in”, or “all out”, the buying/selling stalls and prices reverse to more normal levels.

The only way to survive periods like this is to have conviction in your positions. Or to simply ignore the market. Anyone who checked their stocks at 5 o’clock tonight totally missed the temptation to sell at a much lower levels. That’s the problem with watching the market too closely when you don’t have enough conviction in your trading ideas, the market’s volatility chews you up and spits you out.

As I’ve been saying since February, we are in a trading range. That means buying weakness and selling strength. Stick with what is working until something changes. Did something change today? Nope. That means today’s weakness was a buying opportunity, not a chance to bailout “before things get worse”. Maybe we slip a little further, but that’s not a big deal. Remember, risk is a function of height. The lower prices go, the less risky it is to buy. If this market wanted to crash, it would have happened months ago. There have been more than enough excuses to send prices tumbling. Instead, every time we slip to the lows, supply dries up and prices rebound. This is a resilient market, not a weak one. And the only people losing money are the ones overreacting to these gyrations. They lose money buying when they are feel confident (high) and sell when they are fearful (low). If we want to make money, do the opposite of most people. That means buying fear and selling confidence.

If you found this post useful, return the favor by sharing it on Twitter, Reddit, and Facebook!

Jani

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have analysis like this delivered to your inbox every day during market hours. 

How I knew the Trade War selloff would bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Tuesday morning the S&P500 tumbled at the open, extending Monday’s selloff. Trump’s trade war returned to the headlines as proposed tariffs were set to start May 1st. In the closing hours of April 30th, the Trump administration relented and further postponed the start of tariffs for our allies to allow for more negotiations. Unfortunately those concessions didn’t calm the market’s nerves and we tumbled back near 2,600 support in midday trade. But just when things looked their most hopeless, the market found a bottom and rebounded into the green by the close. What happened???

Loyal readers of this blog know we don’t get worked up over recycled headlines. That’s because most owners who feared those headlines sold them the first time it came out and those sellers were quickly replaced by confident dip buyers willing to rush in and hold those risks. That turnover in ownership is what “prices in” the news. Once all the people who are afraid of a headline bailout, there is no one left to sell the next reoccurrence of those headlines. When no one sells the news, it stops mattering. And that is what happened here.

A couple of months ago Trump’s trade war sent a chill through the markets. But now it is more of a shiver. And soon it will barely raise goose bumps. Those of us that recognize this pricing-in phenomena profit from these dips. Were these headlines new and unexpected? No. Where they more of the same? Yes. That told us to expect a smaller dip than last time and gives us a good gauge of when to buy the dip. We’ve been living with these headlines for a while, so that meant the dip won’t go very far and we could jump in early. And that is exactly what I did. I hope some of you were able to do the same.

The opposite is true when confronted with new, unexpected, and especially dire headlines. During periods like that, we stay away from the market for several days because it takes time for the market to come to terms with its new reality. But that wasn’t the case today and why prices rebounded so quickly.

As I’ve been saying since February’s plunge, we transitioned into a trading range and the market was going to consolidate last year’s gains. In theory trading ranges should be really easy to trade, all we have to do is buy when we get to the lower end and sell when we get to the upper end. It is actually that easy if that is what we did what we were supposed to do. Unfortunately most people get caught up in their bullish or bearish bias and that prevents them from seeing each of these range bound moves for what they are, an unsustainable move to the boundary of the range that will soon fizzle and reverse.

Instead of confidently buying the dip and selling the rally, most traders convince themselves that each mover lower is the start of the next crash and the following rebound is the start of the next breakout. People get way too emotional as we approach the edges of the trading range and overreact to what is really just a normal gyration. Buying weakness and selling strength can be really profitable for those of us that do it right. Unfortunately the crowd is constantly giving away money buying strength (high) and selling weakness (low). If most people lose money in the market, shouldn’t we be doing the exact opposite?

Keep doing what has been working. Right now that is buying weakness and selling strength.

If you found this post useful, return the favor by sharing it on Twitter, Reddit, and Facebook!

Jani

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have analysis like this delivered to your inbox every day during market hours. 

Why we should have seen this bounce coming

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

On Thursday the S&P500 surged higher, extending Wednesday’s bounce off of 2,600 support and the 200dma. Markets sold-off Tuesday on fears of 3% Treasuries, but that nervousness and uncertainty evaporated as the focus returned to earnings. So far Facebook and Amazon knocked the ball out of the park and that strength is putting investors at ease.

While anyone can explain what happened after the fact (hindsight bias), it wasn’t hard to see this bounce coming a few days ago. This is what I told readers in Tuesday’s free blog posts:

“The thing to remember about today’s 3% headline is bond prices have been rising since Trump’s election. For practical purposes, 3% is no more significant than 2.9% or 3.1%. The round number simply makes for a better headline. Will 3% change anything, probably not. If the market didn’t care about 2.5%, 2.7%, or 2.9%, then 3% won’t matter either. This market has been incredibly resilient because confident owners refused to sell every bearish headline thrown at it over the last three months. Will this time be different? Not likely.”

Predicting the market isn’t hard if you know what to look for because the same thing keeps happening over and over. But just because we know what is going to happen doesn’t make trading easy. Far and away the hardest part is getting the timing right. That is where experience and confidence comes in. Several months ago investors were begging for a pullback so they could jump aboard this raging bull market. But now that prices dipped, rather than embrace the discounts, these same people are running scared. Markets dip and bounce all the time, but we only make money if we time our trades well.

The most important thing to remember is risk is a function of height. The higher we are, the greater the risks. By that measure, Tuesday’s dip near the 2018 lows was actually one of the safest times to buy stocks this year. Did it feel that way? Of course not. But that is why most people lose money in the stock market. If most people were selling Tuesday, and most people lose money, then shouldn’t we have been buying? Given the market’s reaction today, the answer is a pretty resounding yes.

The point of this post isn’t to brag about the calls I made, but letting people know it is possible to read the market and make money from these swings if they learn to look at the right things and ignore all the other noise around them.

And this doesn’t just apply to this week’s move. In January I warned readers the relentless climb higher was unsustainable and incredibly risky. Just when the crowd was feeling the most confident, February turned into a bloodbath. But what most people failed to realize is that dip was actually the safest time to be buyings stocks because prices were dramatically lower. It is always safer to buy when fear and uncertainty are peaking than when everyone is calm and confident. This year, far and away the riskiest time to own stocks was in January when everyone was confident and the safest was to buy when everyone was scared in February.

Then we come to what happened since. I told readers the selloff did enough damage that we shouldn’t expect a rebound back to the highs. Instead, look for a sideways consolidation and a trading range to develop. In a trading range we buy weakness and sell strength because every directional move fizzles and reverses. And what has happened since February? Every directional move fizzled and reversed.

While it is easy to identify a trading range when looking at an old chart, these things also easy to spot in real-time. Unfortunately most people miss it because their judgement is clouded with bullish or bearish biases. They assume every move the higher or lower is the start of the next big move. But just when everyone is convinced the rally is back on, or the selloff is about to get worse, the move fizzles and reverses.

I don’t have a crystal ball, but I have been doing this long enough to recognize these patters and profit from them as they happen. If you learn what to look for, you can do it too.

If you found this post useful, return the favor by sharing it on Twitter, Reddit, Facebook, and everywhere else traders gather.

Jani

For less than $1/day, have analysis like this delivered to your inbox every day during market hours. 

Is it time to get scared?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Volatility came roaring back Tuesday as the S&P500 plunged 1.3%. The most noteworthy headline was 10-year Treasuries topping 3% for the first time in several years.

Rising interest rates are one of those half-full, half-empty things. Interest rates are recovering to more normal levels as we finally put last decade’s financial crisis behind us. But a big portion of the stock market’s strength comes from high valuations due to ultra low-interest rates. Stocks and bonds compete for investment dollars and when bond returns were laughable, a lot of bond investors turned to equities for better returns. But now that bonds are becoming more attractive, some of that money is flowing back into bonds.

The thing to remember about today’s 3% headline is bond prices have been rising since Trump’s election. For practical purposes, 3% is no more significant than 2.9% or 3.1%. The round number simply makes for a better headline. Will 3% change anything, probably not. If the market didn’t care about 2.5%, 2.7%, or 2.9%, then 3% won’t matter either. This market has been incredibly resilient because confident owners refused to sell every bearish headline thrown at it over the last three months. Will this time be different? Not likely.

Two weeks ago I wrote the following in my Free-After Hours Analysis and it still every bit true today:

“Technically we are at the upper end of the latest trading range and that leaves us vulnerable to a dip back to the lower end of the range and even a test of support. But that won’t change anything. This weakness would be a buying opportunity, not an excuse to sell stocks. This is a resilient market and these discounts are attractive. A couple of months ago people were begging for a dip so they could get in at cheaper prices. The market answered our prayers. Don’t lose your nerve now.”

The thing to remember about market crashes is they are brutally quick. We’ve been trading sideways since February’s selloff. That is in the face of relentless bearish headlines. If this market was going to crash, there have been more than enough excuses to send us tumbling a long time ago. Instead of selling these bearish headlines, confident owners are holding for higher prices. When owners don’t sell bad news, it stops mattering. That is what happened over the last 90 days and it is what is going to happen here.

If the market is in a trading range, should we be buying this weakness or selling it? Most people lose money in the stock market because they buy when they feel safe and they sell when they get nervous. Obviously buying high and selling low is a horrible strategy. What we really want to do is buy low and sell high. But that is a lot easier to say than it is to do. That means we need to zig when everyone else zags. That means buying when everyone else is selling. The best trades are often the hardest to make.

---

Everyone’s favorite FAANG stocks got hammered today. But this isn’t a surprise. These highfliers magnify the market’s move in both directions. They go higher than everything else, but that also means they get hit the hardest on bad days too. Weeks ago people were begging for a pullback so they could get in. The market answered their prayers. The question is if any of those people have the courage to buy. While we could see a little more near-term weakness, months from now people will be kicking themselves for not buying more at these levels.

Jani

If you found this post useful, share it with your friends and colleagues!

If you want to be notified when new posts are published, sign up for Free Email Alerts. 

For less than $1/day, have analysis like this delivered to your inbox every day during market hours. 

These are the discounts we were asking for

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Thursday the S&P500 bounced back from Wednesday’s modest weakness and continues hovering near 2,650 resistance. Headlines remain overwhelmingly negative. Wednesday added a potential military response in Syria and confirmation from the Fed to expect three more rate-hikes this year. That is on top of Trump’s trade war and Muller’s growing investigation.

But rather than fear these waves of bad news, the market is holding up remarkably well. Owners have been given more than enough excuses to drop everything and run for the exits. Yet most of them seem content holding for higher prices. Strong price-action in the face of bad news is typically very bullish. If this market was going to crash, it would have happened by now. That tells us the path of least resistance is higher, not lower.

While it is tempting to argue with the market and insist it must go down because of all of these bearish headlines, the thing to remember is we trade the market, not the news. If the market doesn’t care about these headlines, then neither should we. The trade war and Muller’s investigation has been with us for weeks, even months. Everyone who fears these headlines has been given plenty of time to get out. Every one of these nervous sellers has been replaced by confident dip buyers who demonstrated a willingness to hold these risks. Once all the people who are afraid of a headline are out of the market, then the headline stops mattering because it is priced in.

Technically we are at the upper end of the latest trading range and that leaves us vulnerable to a dip back to the lower end of the range and even a test of support. But that won’t change anything. This weakness would be a buying opportunity, not an excuse to sell stocks. This is a resilient market and these discounts are attractive. A couple of months ago people were begging for a dip so they could get in at cheaper prices. The market answered our prayers. Don’t lose your nerve now.

The thing to remember is we cannot pick a bottom and it isn’t even worth trying. Once we come to terms with that idea, then we are left choosing between buying too early, or buying too late. If prices slip a little further over the next few days and weeks, all that means is we bought a little too early. No big deal. As I said earlier, if this market was fragile and vulnerable to a crash, it would have happened by now. Instead we should be impressed by how well it is holding up despite these waves of negative news. That tells us this market is strong, not weak. These are attractive discounts attractive even if prices slip a little further, which they might not. Wait too long and you will miss this opportunity.

---

Bitcoin surged today on news that some high-profile money managers are buying. While on the surface that sounds like good news, it probably isn’t as bullish as it seems. First, these guys are really good at keeping secrets when they are buying. They only let it out after they finished accumulating their positions because obviously they don’t want the price to surge while they are buying. Second, if these whales have been buying over the last few weeks and months, shouldn’t prices have bounced more meaningfully? If this is the best BTC could do while these big money managers were accumulating positions, what happens when they finish buying? The knee-jerk reaction was to send prices higher on the news, but unless other people follow these big names into Bitcoin, prices will resume their down-trend. I don’t expect prices to bounce until we get in the $4k range and all today’s headlines do is delay the inevitable.

Much like the broad market, the FAANG stocks are basing and are on solid ground. These are the discounts we’ve been waiting for and months from now people will be kicking themselves for not buying more at these levels. Have we put in the bottom yet? Maybe. Maybe not. But either way this will be a profitable position months from now. Our P&L doesn’t care if we buy early or we buy late, as long as we buy.

Jani

If you found this post useful, share it with your friends and colleagues!

If you want to be notified when new posts are published, sign up for Free Email Alerts. 

For less than $1/day, have analysis like this delivered to your inbox every day during market hours. 

What to make of these whipsaws

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P500’s whipsaw continues as Monday’s fizzle turned into Tuesday’s surge. On Monday the market opened strong following a weekend where tariff headlines cooled. Unfortunately the relief was short-lived because a FBI raid on Trump’s personal lawyer sent the market tumbling from its early highs. But Monday night the president of China took a conciliatory tone in a speech about trade and that was enough to kick off Tuesday’s buying frenzy. What does Wednesday have in store? If overnight futures falling 0.5% are any indication, it looks like another whipsaw is headed our way.

Lets discuss the big headlines one at a time. Stocks popped Tuesday when China’s president said he wanted to open the country up to more free trade. While that was a good start, it is a long way from a done deal. As they say, talk is cheap. What these promises of freer trade don’t include is a timeframe and Trump has often accused China of appeasing previous administrations with phony promises it never delivered on. Chances are good Trump will brush off these Chinese overtures and keep applying pressure. And more than that, let’s remember this is the “Art of the Deal” president. If the Chinese really are willing to give an inch, expect Trump to demand a mile. Without a doubt the trade headlines are anything but over and we should expect a bumpy road as we approach next month’s tariff deadlines.

The second story dominating headlines is Muller’s investigation into the Trump administration. The knee-jerk reaction was for owners to sell the news of the FBI raid. But reality is most of that reactionary fear is misplaced. Trump already delivered on tax and regulatory reforms, so most of the good stuff from the market’s perspective is already behind us. If Trump gets bogged down by a scandal, it won’t really affect the things the market cares about. In fact, given Trump’s strong nationalist bent lately, it could actually be a good thing for stocks. If a scandal consumes Trump’s time, energy, and political capital, that means there is less he can do to screw thing sup. As strange as it sounds, a paralyzed Congress and White House is actually bullish. Two decades ago when the Clinton White House was embroiled in a scandal that eventually lead to Clinton’s impeachment, the stock market actually went up. That’s because our government was too busy discussing a blue dress to mess up the economy. Most likely the same thing will happen here. The less our politicians do, the better off we are.

Technically speaking, the market continues hovering near the lows and is falling into a 2,600ish-2,650ish trading range. The problem with sticking near the lows is it makes it more likely that we will stumble under them. Violating widely followed technical levels near 2,600 and 2,550 will trigger swift waves of stop-loss selling and send us tumbling. On the other side, breaking 2,650 overhead resistance is unlikely to trigger waves of breakout buying. Instead demand will most likely dry up as those with cash adopt a wait-and-see approach given all the volatility and uncertainty that surrounds the market. Remember, stocks fall a lot faster than they go up. whi

---

While the near-term prognosis for stocks is cautious, the economic outlook is actually quite positive. That means any near-term weakness is simply another dip buying opportunity. This is especially true of the vaunted FAANG stocks. These tech highfliers are carving out a base and a few months from now people will be kicking themselves for not buying these discounts. These are attractive levels for anyone with a longer time horizon even if we fall a little lower over the near-term. Remember, no one can consistently pick a bottom. That means either we buy too-early, or we buy too-late. What a trader chooses to do largely depends on their personality and risk tolerance.

It seems like everyone has forgotten about bitcoin and it hardly gets mentioned in the mainstream financial press anymore. That’s a problem for bitcoin bulls because they need the exposure to encourage new buyers to come into the market. As I’ve been writing about for a while, bursting bubbles take six months or more to play out. That happened during the first three major corrections in bitcoin and there is every indication that is what is happening here. At best we are in the middle innings and we should expect further weakness to come. While $6k seems to be providing support, let’s not forget we said the same thing about $14k, $12k, $10k, $9k, $8k, and $7k. I hope everyone sees the pattern here. Expect bitcoin to undercut February’s lows over the next few weeks and for that to trigger a wave of defensive selling that doesn’t stop until we slip into the $4k range. Then and only then can we buy the dip for a quick bounce.

Jani

If you found this post useful, share it with your friends and colleagues!

If you want to be notified when new posts are published, sign up for Free Email Alerts. 

For less than $1/day, have analysis like this delivered to your inbox every day during market hours. 

Trump did it again.

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

Thursday was another strong day for the S&P500. Unfortunately that doesn’t matter anymore because after the close Trump announced he wants to triple the Chinese tariffs. It seems China hurt his feelings when they “unfairly retaliated” against his first and second rounds of tariffs.

Clearly someone doesn’t understand how trade wars work. Unfortunately that person is the president of the United States. To save one-thousand jobs in the steel and aluminum industry, Trump is now threatening hundreds of thousand, if not millions of Americans jobs in other industries. Even the steel and aluminum industries are opposed to his trade war because it doesn’t matter what aluminum and steel prices are if their manufacturing customers’ businesses are crumbling.

The overnight futures plunged 1.5% on the news. If that’s all that happens, then we should count ourselves lucky. The market’s latest rebound was based on the idea that the worst of the trade war is behind us. That the last couple of weeks of threats were nothing more than posturing ahead of far more reasonable negations and thoughtful compromises. Unfortunately Trump threw cold water on that idea and now the market has been thrown back into turmoil.

I wish I could say this will turn out fine and this is nothing more than the start of another buyable dip. An opportunity for those that missed Tuesday’s rebound to jump aboard the rally. Unfortunately no I longer have those convictions. Things would be different if I knew we were dealing with a “rational actor”. Someone who made sensible decisions based on the facts and chose what was in his own best interests. But clearly Trump is not acting this way. Nearly every member of Congress, both Democrats and Republicans alike are unified against this trade war. Very rarely do both sides of the aisle agree on anything, but they are quickly coming together over this. The business community is equally unified in their opposition to Trump’s trade war. And 100 years of economic experience learned the hard way taught us it is impossible to win trade wars. Too bad Trump isn’t listening.

Are today’s threats simply more political posturing ahead of negotiations? I wish I knew. But the one thing I do know is the market hates uncertainty and I don’t think the stock market is going to forgive Trump as easily this time. Fool me once, shame on you. Fool me twice, shame on me. It will be interesting to see how this turns out, but this is one of those things that is better watched from the safety of the sidelines.

There is a chance Trump could quickly backtrack on his threats. And maybe China’s leadership will be the bigger man and won’t respond to Trump’s threats. But no matter what, traders are quickly learning to distrust Trump. The market hates uncertainty and the way Trump handles himself does nothing but stir up controversy and uncertainty. Mr. Trump, thank you for the tax cuts, but the rest of us would appreciate it if you didn’t touch anything else.

It’s really hard to say how the market will respond to these headlines. A lot of nervous owners have been selling the tariff headlines over the last few weeks. They have been replaced by confident dip-buyers who were unafraid of these headlines because they assumed everything would work out. Which until this evening looked like it was happening. Will these confident dip buyers remain as confident when Trump is threatening to escalate the trade war for a third time? Will they confidently sit through China’s inevitable retaliation? Maybe. Or maybe they will lose their nerve and “get out before things get worse”.

I was one of those confident dip buyers and everything looked awesome this afternoon as my profits were piling up. But all of a sudden I’m not as confident anymore. I have a reasonable profit cushion, but I’m definitely less confident than I was this afternoon and I will seriously think about locking in profits tomorrow. If too many people feel the same way, Friday could be an ugly day. The only thing we can do is wait for China’s response and hope that confident owners stay that way.

Jani

If you found this post useful, share it with your friends and colleagues!

If you want to be notified when new posts are published, sign up for Free Email Alerts. 

For less than $1/day, have analysis like this delivered to your inbox every day during market hours. 

It it time to buy?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P500 bounced back Tuesday, recovering a big chunk of Monday’s selloff. Things got ugly Monday after China announced 30 billion of retaliatory tariffs in response Trump’s steel and aluminum tariffs. Fortunately the worst fears dissipated by Tuesday and the S&P500 reclaimed the 200dma and 2,600 support. While we are still on thin-ice, it was encouraging to see traders more inclined to buy the dip instead of turning Tuesday into another bloodbath.

The stock market fell in love with Trump and his tax cuts in 2017. Unfortunately the relationship has been far less blissful in 2018. Trump’s protectionist stances are contrary to the market’s preference for free and open trade. To this point the announced tariffs and retaliations have been modest and manageable. But the fear is round one could lead to rounds two, three, four, and five. The problem with trade wars is once they get started, retaliations and counter-retaliations get out of hand quickly. And so far China claims they are willing to go tit-for-tat with Trump. The biggest question is how far Trump is willing to take this.

The situation got even more complicated Tuesday afternoon when Trump announced a second round of tariffs specifically aimed at China’s anti-competitive practices. While overnight futures are down some, they are actually holding up relatively well for what looks like the start of round two of these trade wars.

It is encouraging to see the futures market only give up a small portion of Tuesdays gains. While things could change during Wednesday’s regular session, the longer these tariff headlines play out, the more they get priced in. That’s because owners who fear a trade war with China have been bailing out of the market for several weeks already. Once a pessimist leaves the market, he is replaced by a confident dip buyer who is willing to hold these headline risks. This turnover in ownership, replacing fearful owners with confident dip buyers, is what helps the market find a floor. While it is too early to say the worst is behind us, the potential for a larger selloff diminishes with each successive round of fearful headlines. Nervous sellers can only sell once. After they leave the market, their opinion no longer matters. And maybe, just maybe this is what is propping up the market here. If it doesn’t react strongly to Trump’s second wave of Tariffs on Wednesday, then the market has already largely priced them in.

And none of this surprised those of us that were paying attention. As I warned subscribers last week, holding near 2,600 for several days was an ominous sign. The inability to rebound decisively left us vulnerable. The longer we hold near support, the more likely it is we will violate it. And that is exactly what happened Monday. While I had no idea what the headline would be, I knew we were vulnerable to a reactionary selloff and the risks were elevated. But I also told subscribers that a dip under support was to be bought, not sold. As I wrote earlier, the longer a story plays out in the news, the more it gets priced in. The first dip is always the most shocking. But each successive dip gets smaller and smaller. While Monday’s headline losses were shocking, most of what we gave up were last week’s rebound. The actual dip under support was far less significant and bouncing so quickly after crashing through support was an encouraging buy signal.

A couple of months ago people were begging for a dip so they could get in at cheaper prices. But now that the dip is here, those same people are too afraid to buy. The thing to remember about risk is it is a function of height. Despite how it feels, the lower we go, the less risky owning stocks is. That’s because a lot of the downside has already been realized. While we could slip even further over the next few days and weeks, without a doubt it is better to have bought at these levels than at much higher prices when it felt safe. The most successful traders are the ones who buy when other people are fearful and sell when everyone else feels safe. Even though prices could slip a little further, this is still a very attractive place to be buying. We were asking for a dip and the market gave it to us. Don’t lose your nerve now just because everyone else is freaked out.

---

Bitcoin continues to struggle. Even though prices bounced on Tuesday, a few hundred dollar rebound from recent lows is a pathetic bounce for BTC. We are still most definitely in a strong down trend and there is no reason to think the worst is behind us. The thing to keep in mind is prices bounce decisively from grossly oversold levels. It is hard to claim last week’s dip to $6,500 was anything like the shocking free falls over the last few months. And the same can be said of today’s few hundred dollar rebound. If we haven’t reached shockingly oversold levels yet, then we are not done falling yet. Expect prices to undercut Feburary’s lows over the next few weeks and that violation to trigger a large wave of defensive selling. Don’t expect prices to bounce until we fall into the $4k range. Then and only then will it be safe to buy the bounce.

The tech trade has also been weighing on the stock market lately. But the fever broke Monday when FAANG stocks failed to undercut their recent lows (unlike the broad market). That relative strength told us prices were actually firming up because owners were less inclined to sell them. As the saying goes, the stock market predicted nine of the last five recessions. The same can be said for the market predicting the demise of the tech trade. In a few weeks time most people will be kicking themselves for not buying this dip.

Jani

If you found this post useful, share it with your friends and colleagues!

If you want to be notified when new posts are published, sign up for Free Email Alerts. 

For less than $1/day, have analysis like this delivered to your inbox every day during market hours. 

Why bad news doesn’t matter

By Jani Ziedins | End of Day Analysis

End of Day Update:

On Thursday the S&P 500 rallied after Trump unveiled his less-bad-than-feared tariff plans. He included exemptions for Mexico and Canada and left the door open for further flexibility with other allies. The market’s strength puts us just below the 50dma, a level that has acted as resistance the last few weeks.

I’m impressed with the market’s resilience in the face of what could have been interpreted as bad news. Most Republicans and members of the business community opposed Trump’s tariff plans because they believe it will cost more jobs than it creates. But either the market doesn’t care, or it doesn’t think it will be a big deal because we already erased the losses following Trump’s surprise announcement.

A market that rallies on bad news is a strong market. It doesn’t matter which side of the tariff debate we fall on, we are traders and the only thing that matters is what the market thinks. When confident owners refuse to sell, it doesn’t matter what the headlines are. I’m impressed with the market’s strength and the path of least resistance is still higher. If we were going to crumble on these headlines, it would have happened already. That means there is not much downside risk over the near-term.

---

Bitcoin finds itself in a bit of a rut as it stumbled under $9k for the first time in several weeks. What started as a routine dip a few days ago built downside momentum and we already exceeded the lows of a couple of weeks ago. Either we are carving out a near-term double bottom and will resume the rebound over $12k. Or owners will panic and bailout before “things get worse”.

While I still think there is more downside for BTC over the medium and long-term, it takes six months or more for a bursting bubble to find a bottom. That means there are still many months of bounces along the way. Now that we undercut the late February lows and triggered all that reactive and defensive selling, we should be in better shape. I wouldn’t rush in at these levels, but if we bounce above $10k, we should be on our way past $12k.

Is a trade war coming?

By Jani Ziedins | End of Day Analysis

End of Day Update:

Tuesday was a relatively benign session for the S&P500 with prices bouncing between modest losses and gains. But that no longer matters because shortly after the close, Trump’s top economic advisor dropped a bombshell by resigning in protest over the proposed tariffs.

This is a major blow to business groups because Gary Cohn was the leading proponent for business interests inside the Trump administration. Unfortunately he lost the tug-of-war with the pro-nationalist advisors. Potentially this marks a big shift in Trump’s policy priorities going forward.

The market is most definitely concerned about this development and futures are down more than 1%. Previously prices had been recovering from last week’s selloff on hope Trump would moderate his stance on universally applied tariffs. But now it looks increasingly likely we are headed for a trade war with our North American and European allies. I warned readers last week this could get ugly and unfortunately it looks like that is the way this is headed.

I most definitely disagree with Trump, there are no winners in a trade war. The proposed steel and aluminum tariffs will raise prices on goods Americans buy. Higher prices means less money left over for other things. And that is just the start. Europe already outlined retaliatory tariffs they will apply to American made products. As a whole, the EU’s economy and population is larger than the United States, so that will definitely have an impact on domestic exporters. Even the Aluminum Association that represents 144 producers wrote a letter to Trump saying they don’t support these tariffs because they think it will harm their customers.

Different reports I’ve seen said these tariffs will add about 1,000 jobs in the steel and aluminum industry, but costs us tens of thousands of jobs in other industries because of the higher steel and aluminum costs as well as the consequences of foreign retaliatory tariffs. The math just doesn’t add up and is why almost all business leaders and most Republicans in Congress are strongly opposed to Trump’s plan. The only logical conclusion is Cohn resigned because he felt like his views were not being listened to and that most likely means Trump is siding with the pro-nationalists on this issue, not the business community and fellow Republicans.

Inevitably this won’t be as bad as people fear because lobbyists will put loopholes large enough to drive a truck through, but we should expect a lot more volatility over the near-term as the trade war rhetoric ramps up. We will likely see further weakness over the next week. I don’t think this is a reason to dump long-term positions unless the retaliations get ridiculous, but swing-traders should wait for better prices before buying the dip.

---

Bitcoin prices continue to hover above $10k despite a wave of negative headlines over recent days. There was more talk of Korea and other countries banning Bitcoin. A month or two ago this would have sent prices tumbling. Instead we are only down $1k from recent highs. That tells us sentiment is improving as prices rebound from the $6k lows. The path of least resistance remains higher over the near-term, but it will take weeks for us to break $12k, $13k, and flirt with $14k. In the meantime, expect lots of back-and-forth.

Is it different this time?

By Jani Ziedins | End of Day Analysis

End of Day Update

It’s been a rough few days for the S&P500. First the new Fed chairman hinted at four rate-hikes this year versus the previously expected three. Then Trump blindsided the market Thursday by announcing 25% across the board steel tariffs and 10% on aluminum. Those headlines sent us crashing through 2,700 support on the highest volume since February’s big selloff.

Prior to Trump’s announcement, it looked like the market was coming to terms with a fourth rate-hike. This story is a close cousin of the inflation concerns that sparked February’s correction. Many of the owners that fear inflation and rate-hikes had already bailed out of the market, meaning there were fewer sellers this time. The lack of wider supply likely meant we would have bounce near 2,700 support.

But then Trump’s protectionist stance went far further than most were expecting, both in the size of the tariffs and the universally applied nature of them. While it is true that those mid-west, blue-collar voters are the ones that put him in the White House, this is definitely a case of hurting the many to help a few. The cost of these tariffs will be carried entirely by American consumers through higher prices. Higher prices means lower demand and less discretionary income. All to help the small segment of uncompetitive metal producers. And it doesn’t stop there, many countries will slap retaliatory tariffs on US made goods, decreasing demand for US products, directly affecting a wide swath of manufacturing jobs.

The sad thing is these tariffs won’t even bring steel and aluminum jobs back because anything that can be done with this president’s pen will likely be undone by the next president’s pen. Most steel and aluminum manufactures know this and is why they won’t do much except crank up their old, dirty, and inefficient plants. They’re not going to invest new money when they know this boon is only fleeting. But common sense has no place in politics and midterm elections are coming up.

Assuming Trump doesn’t back off due to the huge amount of criticism his proposal has gotten, starting trade wars will be bad for American consumers and businesses. That will directly impact earnings, growth, employment, and discretionary income. If Trump follows through and foreign nations retaliate, stock prices will suffer. These proposed tariffs are bigger and more severe than expected and most definitely not priced in. It will take a while for the market to come to terms with these headlines we could see prices slump further as investors weight the ramifications.

That said, I don’t think this will be enough to trigger a recession. If it is like any other bill, it will be crafted by special interest groups and have loop-holes large enough to drive a truck through. But it will be significant enough to undo a lot of the economic growth from the tax cuts. If Trump follows through, it could turn this year’s bull market into a sideways market.

At the moment there is no reason to sell long-term positions, but this weakness could persist and give dip-buyers a better entry point over the next few trading sessions. Or Trump could do what Trump does and change his mind. If he takes it all back, prices will surge higher in relief.

---

Bitcoin prices continue to do well. As I wrote last week, selling pressure over the near-term abated and the path of least resistance was higher. And so far that has been the case with prices now creeping above $11k. Breaking $12k is a no brainer and we will likely surpass $13k and even flirt with $14k over the next few weeks.

But this is a trade, not an investment. Major selloffs like we are in the middle of take 6, 12, even 24 months to bottom. We are still in the early innings of BTC’s correction. While there will be lots of profitable swing-trades along the way, lower-lows are still ahead of us. That means take profits when you have them and resist the temptation to hold too long.

Jani

If you found this post useful, share it with your friends and colleagues!

If you want to be notified when new posts are published, sign up for Free Email Alerts. 

Are stocks on the verge of plunging?

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 started Tuesday with modest gains, but the new Fed chief spooked the market when he hinted at four rate-hikes this year instead of the previously expected three. That was enough to send us into a tailspin that erased Monday’s breakout.

The Fed told us the economy is getting stronger and the market sells off. That’s like someone complaining about making $3 million because their taxes will go up. (If anyone feels that way, send the money my way and I will happily pay the taxes!)

Anyway, the market is fretting that things are too good. When is too good ever a problem? Well there is the inevitable excess that leads to the next economic contraction, aka a recession. But that is still a ways off because there are few claiming our economy is already overheated. In reality we are just starting to warm up following a prolonged period of lethargic growth. The Fed raising rates is simply us returning to historically normal levels and it is most definitely not yet approaching smothering levels.

Most market participants agree with the above assessment and is why we shouldn’t expect Tuesday’s dip to go very far, especially since it follows February’s selloff. That plunge under 2,600 scared off most of the weak holders and they were replaced by confident dip-buyers. Out with the weak and in with the strong means we are standing of fairly stable ground. Conceivably we could slip as far as 2,700, but that is unlikely and would represent a dip buying opportunity, not a justification to sell reactively.

It is not unusual to experience some downside volatility following the recent gains and lingering uncertainly. But market crashes are brutally quick and false bottoms last days, not weeks. The fact the market held up so well the last few weeks tells us most owners still believe in this market and Tuesday’s headlines didn’t change that. These owners will keep holding and their confidence is keeping supply tight. If we were going to plunge further, it would have happened by now. Tuesday’s dip was much-ado-about-nothing and any near-term weakness is a dip-buying opportunity.

---

As expected, Bitcoin slipped under $10k over the weekend, but the selloff failed to build momentum and we have since recovered above this psychologically significant support level. Runaway selling is taking a break because the weak hands have already been flushed out. Selloffs cannot get started when there is no one left to sell the dip. Things look good over the near-term the path of least resistance is higher. We will most likely break $13k and even push toward $14k over the next few weeks.

But the thing to remember is BTC is still very much in a downtrend. While we can buy this rebound for a quick trade, this is most definitely not a good place to invest in BTC for the long-term. These rallies are to be sold, not held or chased. Lower-lows are still ahead of us and we haven’t seen the worst of this selloff yet. Bitcoin prices peaked at the end of 2013 and it took nearly two-years before the selloff and consolidation ended. Most likely it will be another six-months before BTC finally reaches a bottom. Until then expect lower-highs and lower-lows.

Jani

If you found this post useful, share it with your friends and colleagues!

If you want to be notified when new posts are published, sign up for Free Email Alerts. 

Are we on the verge of another leg lower?

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 started Thursday with healthy gains, unwinding all of Wednesday’s losses and then some. Unfortunately the buying didn’t last and prices slipped back near breakeven by the close. This is the fifth day the 50dma has been a ceiling for stocks.

There were not any economic headlines to speak of and instead investors are still grappling with the ramifications of rising inflation and interest rates. Some people think these will smother a fragile economy. Other feel this is the economy finally returning to more normal levels following a prolonged stretch of lethargic growth.

Count me as a member of the latter group. Even though inflation and interest rates have jumped a substantial amount, we are only approaching what used to be considered low rates during more normal times. Traders fretting the worst are fearing something that hasn’t shown its face yet. So far the economic data does not show any hints the economy is slowing down. These skeptical traders fear what “could” happen, but so far the data doesn’t support their concerns.

Even though the fears that triggered February’s correction appear overblown, the large selloff brought the rally back to earth. A substantial amount of technical damage occurred and we shouldn’t expect prices to zoom back to the highs any time soon. As I was wrote last week, the rebound’s rate of gains was unsustainable and prices would likely stall at the 50dma. And so far that is exactly what happened.

But it is not all bad. Even though we are struggling with 50dma resistance, holding these levels for five days shows support for prices. Prices tumble from overbought and unsustainable levels quickly and so far that hasn’t happened. That tells us the worst of February’s selloff is already behind us and we don’t need to fear another big selloff. That said, the selloff damaged sentiment and technicals enough that it will take time for traders to trust this market again. That means we will trade sideways for a while and consolidate the previous rally’s gains. This is normal and healthy behavior and there is nothing to fear.

The thing to remember about sideways consolidations is they include moves in both directions. At times the market will look like it is breakout out. Other times is seems like it is breaking down. But these are just gyrations inside a trading range. Over the near-term, weakness should be bought and strength sold. Don’t be one of those people the market fools into buying high and selling low. Have the confidence and conviction to trade against these swings.

---

As expected, Bitcoin’s surge to $12k stalled and pulled back. As I’ve been writing, the time to buy the dip is when everyone is scared and fearing the worst. Not after a rebound spread a sigh of relief through the crowd. Even though prices slipped back under the psychologically significant $10k level, the selling largely stalled and prices are not entering free-fall. Even though I think BTC’s worst days are still ahead of us, we are in the eye of the storm and prices will stabilize over the near-term. If we can hold $10k for another week or two, a follow-on rally up to $14k is not unreasonable. But since lower-lows are still ahead of us, any rallies should be sold, not chased. Previous crashes in BTC resulted in price declines greater than 80% and it took half a year or longer to finally bottom. Since we are only two months into this and only down 50%, we still have a ways to go. In the meantime, enjoy this brief reprieve and for the bravest of the brave, there might be a chance to buy the dip in a week or two.

Jani

If you found this post useful, share it with your friends and colleagues!

If you want to be notified when new posts are published, sign up for Free Email Alerts. 

What’s coming next, new highs or new lows?

By Jani Ziedins | End of Day Analysis

End of Day Update:

After six days of gains, the S&P500 finally slipped into the red Tuesday. The size of the loss was insignificant when compared to last week’s rebound, but seeing the market bump its head on the 50dma was insightful, even if the pause was expected.

Financial headlines continue to be benign and most traders are focused on the longer-term ramifications of rising interest rates and inflation. Fears over these items sparked February’s sharp selloff, but have since failed to extend the selloff. It seems most traders who fear higher interest rates and inflation already sold and were replaced by new owners willing to hold those risks. While the recent correction rattled investor nerves, it didn’t shatter confidence and most owners are confidently holding for higher prices.

That said, February’s selloff was large enough that we cannot bounce back like nothing happened. Deep and emotional selloffs leave their scars and it takes a while for prices to build back to their previous levels. We recovered a huge chunk last week, but the rate of that rise was unsustainable and pausing at the 50dma is a normal and healthy thing to do.

We put enough time and distance from the dip’s lows to say the early February selloff is over. Market crashes are breathtakingly quick and almost never include six consecutive up-days in the middle of the crash. Without a doubt we can undercut those lows, but it will take a new catalyst to kick off the another leg lower and it will be a new selloff, not an extension of February’s emotional selling.

But just because the selloff is over doesn’t mean we are back in rally mode. We often see volatile trade during consolidations and base building. That means sharp rebounds followed by another round of selling. It wouldn’t be unusual or unexpected to see last week’s rebound stall at the 50dma and retreat back toward 2,600 support. Emotions are elevated and that means traders oscillate between believing everything is great to fearing the end of the world. This wide range of emotions leads to the bounces and dips that form traditional bases and consolidations. In range bound markets, it is best to trade against the market by buying weakness and selling strength. Don’t let the crowd’s emotions trick you into giving away money by buying high and selling low.

This isn’t rocket science, we just need to be pay attention because the market keeps doing the same thing over and over. In January I warned readers the relentless rise in prices was unsustainable. After February’s 10% correction, I told readers the selling went too far and it was actually the safest time to buy in months. And after six consecutive up-days, I warned readers that we would stall at the 50dma. This isn’t hard if you know what to look for. And to answer the question in this post’s headline, neither. This is a range bound market we shouldn’t expect a strong directional move anytime soon.

---

Bitcoin’s rebound continued over the weekend and got near $12k. Everything looks a lot better after a 100% bounce off of the lows. But that is what makes me nervous. The time to buy is when everyone is predicting a collapse, not when everyone is feeling better.

This rebound took a lot of pressure off of BTC owners, but we will start running into overhead resistance. Many premature dip-buyers jumped in between $12k and $15k and we should expect many of those regretful owners to sell when they can get their money back. Their selling will slow the assent over the near-term.

Over the medium-term, I question where the next round of BTC buyers will come from. This latest selloff burned new investors and scared off prospective investors. On the other end of the spectrum, BTC bulls bought everything they could during this dip and are now fully invested. Where does the new money come from? I cannot answer that question and is why I don’t believe the bottom has been put in yet. Previous BTC selloffs erased more than 80% of the value and took more than six months to complete. If we do the same this time, we won’t bottom until we fall under $4k and it won’t happen until sometime this summer or fall.

Until further notice, BTC is still in a downtrend and that means bounces should be sold.

Jani

If you found this post useful, share it with your friends and colleagues!

If you want to be notified when new posts are published, sign up for Free Email Alerts. 

Why this “irrational” market is perfectly rational

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 extended last Friday’s rebound and reclaimed the 50dma. This marked the fifth consecutive day of gains and firmly puts last week’s selloff in the rearview mirror.

A week ago the market collapsed on fear of rising inflation and interest rates. This week we got further data showing inflation was heating up, yet this time the market rallied. What gives?

As contradictory as those two responses seem, there is actually solid logic behind the market’s “irrational” behavior. Last week nervous owners abandoned the market and kicked off a dramatic correction. But here’s the thing about sellers, they only get to sell the market once. After that they no longer have a say in what comes next. Nervous owners sold inflation headlines and dumped their stocks at steep discounts. Confident dip-buyers snapped up those discounts. Out with the nervous and in with the confident.

These confident dip-buyers bought last week during the height of the inflation scare, so another round of inflation headlines this week were unlikely to scare them. Turnover in ownership is how headlines get priced in and why they stop mattering. Once all the people who fear inflation are out of the market, there is no one left to sell the next round of inflation headlines. No sellers means no selloff.

When people claim the market is acting irrationally, what they are really saying is they don’t understand what is going on. There is always sound logic behind every move. If we don’t understand it, all that means is we need to dig deeper. (Sign up for Free Email Alerts if you want to understand what the market is doing before everyone else)

Thursdays gains pushed the S&P500 back above the 50dma and recovered half of the selloff. In a normal market, I would be worried about the sustainability of this rebound. Typically the market remains choppy after a dramatic selloff. But this market continues to surprise us with its ability to defy conventional wisdom. January’s nearly straight up rise lasted longer that it should have. Last week’s selloff went further that it should have. And now there is a good chance the current rebound will also surge far higher than expected.

Even though we keep going up, that doesn’t mean this is a good place to buy. The risks have changed dramatically from last Friday’s lows. The best buys occur when the crowd is terrified things will get worse. Last Friday most definitely qualified as a great buying opportunity and that is exactly what I told readers of this blog the night before. But this week we find ourselves in the middle of a market filled with relief. While we are still well under January’s lows, long gone is last week’s doom and gloom. Even though momentum can keep us rising over the next few days, that doesn’t make this a safe or smart place to be buying. If someone missed the rebound, chalk it up as a lesson learned. Remember, it is better to miss the bus than get hit by the bus.

Those with swing-trading profits should start thinking about locking them in. Those with cash should sit on their hands and wait for a better entry point. And long-term investors should stick with their favorite stocks.

---

Bitcoin finally traded above $10k, making this a 66% bounce off of the $6k lows. Even though we are in the middle of a massive selloff, there are still very profitable trades along the way. Two-weeks ago I warned readers prices would to tumble under $8k, but also said this was a dip-buying opportunity and prices would rebound back to $10k. And that is exactly what happened. There is no magic to this. The same things keep happening over and over again and it is simply a matter of paying attention.

And just like the equity market, the easy gains are already behind us and buying here is a much riskier proposition. We could coast up to $12k over the next few days, but the risk of a sharp selloff is never far away. Without a doubt this is little more than a bounce on our way lower. We the real bottom is still months away and under $4k. But until then, look for more profitable swing-trades. And most importantly don’t forget it is far easier to sell Bitcoin on the way up. Hold too long and these nice profits will evaporate.

Jani

If you found this post useful, share it with your friends and colleagues!

If you want to be notified when new posts are published, sign up for Free Email Alerts. 

Is it too late to buy the dip?

By Jani Ziedins | End of Day Analysis

End of Day Analysis:

On Tuesday the S&P500 opened with a 0.5% loss. That would have been shocking a few weeks ago, but on the heels of last week’s volatility, it seemed fairly benign in comparison. And as such, most traders didn’t overreact and buying quickly lifted us off those early lows. By the close, we even managed to finish in the green.

There were no market moving headlines, but sentiment is the primary force driving this market and at the moment, fearful selling is taking a break. We reached a near-term capitulation bottom last Friday and have recovered decisively from those oversold levels. While this is obvious to everyone after the fact, last Thursday I told readers, “I think the market look pretty good. Risk is a function of height and this is the least risky point in several months. Traders should be embracing these discounts, not running from them.” (Sign up for Free Email Alerts so you don’t miss my next call.)

Finding a near-term bottom is alleviating some of the anxiety that crept in last week, but without a doubt January’s complacency is long gone. Given the level of damage, we shouldn’t expect this market to rally back to the highs anytime soon. Instead, expect volatility to persist for a while longer as we carve out a long overdue base.

The worst is most likely behind us and it would take a new headline to push us under Friday’s lows. Since rising rates and inflation launched this selloff, those are the headlines we are most vulnerable to. That said, expect any follow-on selling to be less dramatic than last week’s selloff. These things lose strength as they drag on and get priced in. As such, the size of of swings in both directions will decrease over time.

This is a swing-trader’s paradise and that means buying weakness and selling strength. We came a long way from Friday’s lows, making this is a better place to be locking-in profits than adding new money. On the other side, long-term investors should stick with their favorite positions and even add to them. This weakness is a buying opportunity, not the start of something larger.

---

Bitcoin stabilized above $8k as expected. Dipping under $6k was a capitulation point and these higher prices are bringing a wave of relief for owners. This stability is supportive of prices over the near-term and we should continue creeping higher, even flirting with $10k. But don’t get too excited, this is just another bounce on our way lower. Every bounce is a selling opportunity and this won’t end until we fall under $4k. But it will take a while for us to get there. In the meantime we can profit from these bounces higher.

Jani

If you found this post useful, share it with your friends and colleagues!

If you want to be notified when new posts are published, sign up for Free Email Alerts. 

It’s not as bad as it seems

By Jani Ziedins | End of Day Analysis

End of Day Update:

On Thursday the S&P500 plunged, erasing all of Tuesday and Wednesday’s rebound and undercutting Monday’s lows. In the blink of an eye, the market transitioned from one of the most docile in history to one of the most turbulent.

Again economic headlines remain relatively benign and this is more of a sentiment driven move than fundamental. Since the 2009 lows, skeptics have criticized this market’s lethargic growth and negative real interest rates. Now that we are returning to more normal growth and inflation levels, these same people are running scared and claiming the sky is falling.

Even with today’s plunge to fresh lows, we are still at levels that were record highs only a few months ago. As I have been warning readers for a while, our relentless accumulation of gains was unsustainable. The higher we went without a consolidation, the harder we were going to fall. And that is exactly what happened. We went from setting the record for the longest period without a 5% dip, to a full-blown stock market correction in two weeks.

But that is water under the bridge. What everyone really wants to know is what comes next. And to be honest, I think the market look pretty good. Risk is a function of height and this is the least risky point in several months. Traders should be embracing these discounts, not running from them. Unfortunately most people feel better paying premium prices and chasing record highs. Cheap prices scare them and they bailout “before things get worse”. This reactive strategy of buying high and selling low is why people lose money in the market. Few recognized risk was off the chart in January and that this big decline is giving us a far better place to jump in.

Even though the risks are lower, that doesn’t mean we cannot keep slipping over the near-term, but I actually think this selloff is running out of steam. The lack of an economic catalyst means this selloff won’t go very far. The first big down leg came last Friday when employment and wage gains were “too good”. How dumb does that sound? Sure, the Fed will increase interest rates to more historically normal levels, but that is a good thing. The economy is doing well and most definitely not teetering on the edge of a recession. If anything, the recent tax cuts would cause the economy to ramp up. When’s the last time anyone worried growth was too strong? This economic expansion will end like every economic expansion before it, but that point is still a ways off.

This market’s problems are entirely technical. This week’s selloff went too far and did too much damage for us to rebound straight back to the highs. Traders are no longer blissfully complacent and willing to chase prices higher with reckless abandon. But this isn’t a bad thing. Dips and consolidations are a normal and healthy part of every move higher. Unfortunately the market likes symmetry and by going too long without a dip and consolidation, meant the inevitable dip was going to be a lot larger than we are used to. That is why this week has been so painful. The greater the good times, the longer the hangover.

Tuesday and Wednesday’s rebound failed because we are not ready to bounce back to the highs. But just because we cannot jump back to the highs doesn’t mean we need to fear a larger selloff. We have stumbled into a period of extreme volatility, but that means excessively large moves in both directions. Expect this choppiness to continue over the next few weeks, but don’t fear it. The worst is already behind us and these dips are a time to be buying aggressively, not selling fearfully.

Long-term investors should ignore this noise and stick with their favorite positions. Short-term traders should exploit this volatility by buying weakness and selling strength. Buy the dip, sell the rebound, and repeat.

---

Unlike the equity market, Bitcoin is experiencing a bit of a resurgence, up more than 30% from this week’s lows. Big bounces are part of every selloff and we are in the middle of one of those sharp rebounds. We plunged under $6k, capitulated, and then bounced hard. And most likely this bounce will continue higher, even flirting with $10k. But as much relief as this bounce gives “hodlers”, this is just another dead-cat bounce on our way lower. These bounces are selling opportunities and should not be chased. At best, this collapse won’t end until we slip under $4k, but it will take us a few months to get there. Until then, expect sharp and tradable moves in both directions.

Jani

If you found this post useful, share it with your friends and colleagues!

If you want to be notified when new posts are published, sign up for Free Email Alerts.