Category Archives for "Free Content"

Aug 15

Why this market refuses to go down and what it means for us

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 traded flat Tuesday. While it would have been nice to extend Monday’s rebound, holding ground is still constructive. If traders remained nervous, another round of selling would have hit the market today as owners took advantage of this strength to lock-in profits. Instead most owners remain confident and choose to keep holding for higher prices.

Conventional wisdom tells us complacency is bad. What it fails to mention is periods of complacency last far longer than anyone expects. Confident owners don’t sell and that keeps supply tight. In a self-fulfilling prophecy, when confident owners don’t sell a dip, we stop dipping. Tight supply has propped up this market all year-long and it doesn’t look like last week’s headlines and volatility changed that.

Last week I told readers North Korea still doesn’t matter and how to profit from it. Those that listened are a little richer this week. I don’t have a crystal ball and I wasn’t predicting the future. There is no magic in this, it is simply a matter of using common sense. This was not the first time a war of words broke out with North Korea and it won’t be the last. But these things never go anywhere because neither side can afford to escalate it beyond words. And that is exactly what happened this time. Reactive traders who acted without thinking were simply giving money away to those who better understood the situation.

Something will eventually break this bull market. Every bull market eventually dies and this one will be no different. While it is okay to be cautious after eight years of strong gains, being bearish just because we’ve “gone too far” is a great way to give away money. Don’t fight what is working.

Confident owners keep supply tight and the only way this market will crack is by convincing these stubbornly confident owners to sell. So far Brexits, rate hikes, and a dysfunctional Congress haven’t spooked owners. Over the last several years, every time an owner got nervous and sold a dip, he came to regret it. After making that mistake one too many times, most owners have now swung to the other extreme and are not selling anything for any reason. And for the time being this supreme confidence is working. Markets don’t dip when no one sells bad news.

As a trader, I enjoyed last week’s bout of volatility and am hoping more is on the way this fall. While this calm has been nice for many investors, it would be foolish to expect this period of historically low volatility to last much longer. I expect a return to more normal levels later this fall when big money managers return from summer vacation and start positioning for year-end.

But thing to remember is volatility can occur in either direction. At this point nothing is convincing confident owners to sell and I doubt there is much that will change their mind. That means the likely outcome is we will see underperforming managers be forced to chase stocks higher into year-end. There is a smaller probability that further dysfunction in D.C. could finally get to this market when we don’t get the promised tax reform. But so far this market doesn’t seem to care about politics and is why I think this outcome is less likely than a chase higher into year-end.

The great thing about being an independent traders is our account size allow us to enter and exit full positions with the click of a mouse. That means we don’t need to know what will happen this fall and can instead wait for the market to tells us what it wants to do. Until then expect this slow creep higher to continue for a few more weeks. Markets that refuse to go lower will eventually go higher. Keep doing what is working and enjoy the ride

Jani

Aug 10

North Korea still doesn’t matter and how to profit from it

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 sold off for a third day following Trump’s “Fire and Fury” threat to North Korea. The first two days of selling were relatively benign, but today’s defensive selling crashed through 2,460 support and the 50dma. This was the biggest single-day loss since mid-May and it puts us back to levels not seen in a month.

Thursday’s selloff felt especially dramatic since it came following a period of historically low volatility. Many traders assumed there was nothing to worry about and we would coast into the end of summer. Unfortunately for them today’s steep selloff reminds us there is no such thing as easy money in the market.

It is hard to talk about what is going on in the stock market without first dipping into geopolitics. This isn’t the first time we’ve gotten into a war of words with North Korea and it won’t be the last. But this situation is unique because no one knows how far Trump or Kim Jong Un will take it since both leaders are new to this high-stakes game of chicken. One miscalculation by either side could escalate this situation from words into something far more deadly.

Kim Jong Un’s primary “Trump” card continues to be the thousands of artillery cannons armed with chemical and biological weapons pointed at Seoul’s ten-million plus citizens. There is nothing North Korea can do to prevent us from bombing their nuclear program, but they can retaliate by attacking the civilians in Seoul.

Millions of hostages are what makes this situation so much different from the ones we face in the Middle East. Trump can talk a tough game, but unless he is willing to sacrifice millions of South Korean civilians, his hands are tied just like they were for all of his predecessors.

Most of the time these situations with North Korea diffuse themselves over a few weeks and things return to “normal”. There is a 99.9% probability this is what will happen here too, but that hasn’t stopped traders from reacting strongly to these headlines.

What started out as a little uneasiness earlier in the week turned into a mass exodus Thursday. This weakness was compounded by all the technical traders using stop-losses to automatically get them out of the market. While this strategy sounds good in theory, it can be tricky in practice because people often use similar support levels to trigger their stop-losses. That means any dip through a widely followed level will trigger another wave of autopilot selling.

2,460 has been support for several weeks and we violated that this morning. That lead to the first cascade of selling that pushed us down to the 50dma. Then Trump told the world his “Fire and Fury” threat wasn’t strong enough and that was enough to extend the selloff under the 50dma.

While this selloff feels scary, the thing to remember is risk is a function of height. Last week when we were trading at record highs and everyone was in a cheery mood was actually a far riskier place to own stocks than jumping in and buying this dip. While it definitely doesn’t feel like it, the discounts sellers are offering make this a safer place to buy stocks because a big chunk of the selloff has already been realized.

For months I’ve been saying this is a buy-and-hold market. Holding is an easy thing to do when the market is gently gliding higher, but holding through a dip hard to do when everyone around us is selling. Our natural instinct is to join the crowd and get out before things get worse, but then that is no longer buy-and-hold.

Every dip this year bounced and this time will be no different. If you don’t think the U.S. will start a war with North Korea, then this is a better place to be buying stocks than selling them. It takes courage to go against the herd, but take comfort in knowing it is a lot safer to buy this fear than last week’s complacency. Many of us have been praying for a buyable dip, here it is. Don’t lose your nerve now.

Jani

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Aug 08

Why NK doesn’t matter and what the next big trade will be

By Jani Ziedins | End of Day Analysis

End of Day Analysis:

Tuesday was one of the most volatile sessions in months. A small opening loss rebounded into a breakout to record highs. But the good times didn’t last long before Trump announced to the world he was willing to go to war with North Korea. That threw a bucket of cold water on the bulls’ party and we finished well off the midday highs.

As dramatic as that description sounds, the actual price moves were not all that impressive. At our highest we were up 0.4%, and after the “big” selloff we end up closing down 0.24%. The only reason it felt so volatility is the market has been hovering lifelessly between 2,470 and 2,480 for the last three-weeks.

This war of words with North Korea is certainly something new and unexpected. For a while I’ve been saying that the summer’s slow drift higher will continue until something new and unexpected happened. Is this war of words between Trump and Kim Jong Un that thing? Probably not. While consequences could be quite dire, the odds of this grudge match escalating to a nuclear war are almost non-existent. Neither side can afford to let it go that far.

This will keep the talking heads on TV busy for weeks, but I doubt many stock owners will take this seriously and even fewer will sell the news. So while it is new and unexpected, it isn’t really material and unlikely to derail this bull rally. Any near-term weakness should be viewed as a buying opportunity. But given how modest today’s dip was, I wouldn’t expect this to go much further unless the threats from both sides escalate significantly.

Until further notice, expect the path of least resistance to remain higher. Stock owners are stubbornly reluctant to sell their stocks and that tight supply is propping up prices. Of course their stubbornness is only matched by the reluctance of those with cash to chase record highs. But keep in mind any gains will be slow coming, it took us three weeks to rally from 2,470 to 2,480. Don’t expect that rate to increase any time soon. This is a buy-and-hold market and keep doing what is working.

That said, things will get more interesting in a few weeks when big money managers return from vacation. They have the firepower to move us out of these summer doldrums and most likely their buying or selling will drive the market’s next move. Most likely we will see underperforming managers chase record prices into year-end as they desperately try to catch up. But there is a small chance air could come out of the Trump rally if Congress fails to deliver the promised tax reform.

The best part about being an independent investor is we can buy and sell full positions with the click of a mouse. That means we don’t need to decide ahead of time what will happen. Instead we can wait for the market to reveal its intentions and then we hop on the band wagon and enjoy the ride. Enjoy the slow climb higher over the next few weeks, but start looking for a bigger trade to come along in September or October.

Jani

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Aug 03

Why the bears are wrong

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 slipped for the fourth-time out of the last six-trading sessions and lost ground seven out of the last eleven-days. As bearish as that sounds, you cannot measure the percentage decline without using a decimal point. When looked at that way, this has actually been a bullish couple of weeks. All these days of selling can do little more than knock us down a fraction of a percent from all-time highs. A market that refuses to go down will eventually continue higher.

But many traders are not seeing what I’m seeing. Bearishness on AAII’s sentiment survey jumped nearly 8-points this week and sentiment on StockTwit’s $SPY stream is in free fall and near two-month lows. Who’s right? The market’s right. Not because it is smarter than we are, but quite literally because it sets the prices we buy and sell at.

But there are very real supply and demand reasons why it is better to stick with the market here. People trade their outlook. Most of the traders who have grown more bearish over the last few weeks have been the ones selling and causing this modest bout of weakness. But now that they are out of the market, who is left to sell? Given the trivial declines, not many owners have joined the selling. While conventional wisdom tells us to fear complacency, the thing it forgets to tell us is periods of complacency last far longer than anyone expects. This bull market will end like all the ones that came before it, but this price-action is telling us it isn’t ready to go yet.

One thing most of us can agree on is sharp selloffs are breathtakingly fast. But here we are, nearly two-weeks into a “selloff” and we have fallen little more than a handful of S&P500 points. If we were standing at the edge of a precipice, the last two-weeks of selling would have fed on itself and we would already be dramatically lower. If the bears couldn’t break this market by now, then they are not going to break it. This is not a set-it-and-forget-it market, but we need to do what is working and right now that is buy-and-hold.

When will that change? Good question. It will change when something new and unexpected happens. Traders who fear a Trump presidency or rate hikes have long since abandoned this market. The next time Trump makes an incoherent 2am Tweet, don’t expect the market to react because everyone who cares about that stuff already sold. Same goes for the next rate hike. Anyone who fears rising interest rates is long gone and they no longer have a vote in what the market does next. That is how bad news gets priced in and why it stops mattering. Ignore what everyone else is talking about because it is already priced in. Instead stay on the lookout for the obscure thing no one see coming.

Not long ago I thought this market would tumble when the GOP failed to cut taxes as aggressively as the stock market hoped, but given how little it reacted to Trumpcare’s appalling failure, the market is telling us it doesn’t care about politics. You’d have to be living under a rock at this point if you still had faith in Congress’s ability to get something done. If everyone expects the tax legislation to fail, then it won’t matter to the market when it does because it is already priced in. Maybe these things will start mattering at some point, but this is not that point.

That said, this is the most nervous I’ve been since the 2009 bottom. Something is coming. I don’t know what it is or when it will happen, but I know something will be worse than most people are prepared for. The market’s half-full outlook has given us this smooth ride higher and it is foolish to fight what is working, but we should be standing next to the doors so we can be one of the first to get out when things turn south. Stick with this bull market for the time being, but be on the lookout for the thing no one sees coming.

Jani

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Aug 01

Keep doing what is working

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 added modest gains Tuesday. This strength largely puts last week’s “collapse” in the rear-view mirror. Sharp selloffs are breathtakingly quick and this is the fourth day we’ve held 2,460 support. If this market was vulnerable, we would have tumbled by now.

This resilience won’t surprise regular readers of this blog. Confident owners have ignored every other reason to sell stocks this year and nothing changed last week. In fact there really wasn’t any news driving Thursday’s dip. It was simply a case of reactive traders overreacting to each other. Once this brief bout of weakness passed, hours later dip buyers were back at it. If confident owners showed zero interest in selling rate-hikes and political dysfunction at home and abroad, why would they all of a sudden be spooked out of the market for no reason at all? Answer is they weren’t and that’s why Thursday’s selling reversed so quickly.

While conventional wisdom tell us to fear complacency, what it often leaves out is periods of complacency last far longer than anyone expects. Without a doubt this bull market will die like every other that came before it. But that doesn’t mean we cannot go higher in the meantime. These failed selloffs tell us the path of least resistance remains higher and smart traders keep doing what is working.

That said, this is the most nervous I’ve been since the 2009 lows. Last year’s paranoid, half-empty outlook has given way to this assume everything will work out, half-full outlook on the world. Markets are normally nervous and tend to fear the worst, but this market is anything but nervous. But this doesn’t come as a surprise. After years of regretting every defensive sale, traders have learned to ignore the outside noise. If sequesters, Greek collapses, Brexits, rate-hikes, Chinese bubbles, and all the other noise didn’t matter, then surely nothing going on right now is worse than that. Right now most owners are more afraid of being left behind than they are of losing money. While this cannot last forever, as long as confident owners don’t sell, supply stays tight, and prices remain firm.

Assuming everything will work out is typically the right decision and is why I’m a big fan of buying dips, but eventually we come across something that turns out worse than feared. I have no idea what will take us down, or when it will happen, but I know it is coming. I’m not ready to give up on this market because it is acting so well, but I am standing close to the door and ready to jump at the first signs of trouble. Normally a nervous market is priced at a discount and that compensates us for taking the risk of owning stocks. Unfortunately this market is priced for perfection and that leaves little margin for error. The path of least resistance remains higher, but this is the most dangerous the market’s been in nearly a decade.

The biggest advantage of being a small trader is we can close our positions in minutes. We don’t need to predict what will happen ahead of time because we have the luxury of being able to wait for the market to tell us what it wants to do. While it is tempting to argue with an overvalued, complacent market, resist that urge. Keep doing what is working, but stay vigilant and be ready to react when something changes.

Previously I thought Trump’s inability to enact meaningful tax reform would be the undoing of the Trump rally. But given how little the market reacted to the GOPs inability to agree on anything makes me think the market really doesn’t care about tax reform. If legislative progress was important, Trumpcare’s crash-and-burn would have taken some air out of this market. Instead we continue hanging out near the highs. Same goes for the expanding Trump/Russia investigation. Maybe these will matter at some point, but right now the market doesn’t care and neither should we.

Keep doing what is working. Stick with your buy-and-hold positions. These minor fluctuations are too small to swing-trade effectively, but it is wise to keep some cash ready for the next big trading opportunity. Even though this market is painfully boring, I expect things will liven up when big money managers return from summer vacation and start positioning for year-end.

We are up approximately 10% year-to-date, but I don’t expect us to finish here. Volatility will pick up this fall, I just don’t know whether that means underperforming money managers will be forced to chase price higher into year-end, or if the wheels will fall off the Trump rally and we come crashing back to earth. Most likely we will witness a chase into year-end, but remain wary of anything that doesn’t go according to plan. Complacency means most owners will be slow to react to changing conditions. That will give us plenty of time to get out before things get ugly.

Jani

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Jul 26

Fixed Link: Enjoy the calm, but don’t expect it to last

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 added modest gains Tuesday, easily erasing the last three days of nominal selling and pushing us back into record territory. Earnings reports were good enough and the Senate voted to allow debate on healthcare reform. That put traders into a buying mood and pushed us closer to the psychologically significant 2,500.

While today’s strength broke a three-day losing streak, a 4-point dip over three days hardly qualifies as a selloff. In fact the last three days of restrained selling is actually quite bullish. The market opened the door and gave owners an invitation to take profits, yet the vast majority chose to stay put. They don’t want to sell because they are patiently waiting for higher prices. No matter what the pundits tell us should happen when complacency is this widespread, when confident owners don’t sell, supply stays tight, and prices remain firm. This calm cannot last forever, but it will last far longer than most people expect.

While it is still early in earnings season, if there was a major problem with the economy, it would have shown up by now in the companies that have already reported. The same goes for the other side, if we were going to have a blowout quarter, we would know that by now too. Instead earnings have been good enough to keep our slow climb higher going, but not so great as to launch us higher.

Politics in D.C. is a circus as usual, but it hasn’t been bad enough to affect the markets yet. In fact the market seems to be largely ignoring politics. I’m not sure if that’s because traders are giving Trump and the GOP benefit of doubt and assume everything will work out in the end. Or the market has such low expectations for Trump and Co. that this shit show is hardly a surprise. Either way the market is ignoring politics for the time being and so should we. It will matter at some point, but this is not that point and a trader can lose a lot of money jumping on a good trade too early.

For most of the last eight years people have been saying buy-and-hold is dead, but paradoxically this has been one of the greatest times to buy-and-hold. This is especially true over the last few months. This half-full market simply won’t selloff and that makes it hard find swing-trading opportunities. Only the most nimble day-trader can take advantage of these five-point, two-hour long dips. The rest of us are better off sticking with our positions. That means continuing to hold our buy-and-hold stocks, or sticking with cash while waiting for a better trading opportunity. (Ideally a diversified trader has a bit of both.) The choppy nature and quick reversals in this market make trading dangerous because it is far too easy to get tricked into buying high and selling low. The key to long-term success doesn’t come from our winners, but avoiding giving back all of our profits during slow times. It is hard for a trader to sit on his hands, but that is the best call here.

The path of least resistance remains higher. Trade accordingly. 2,500 is easily within reach, even if it takes us a little while to get there. Things will get a lot more interesting this fall once big money managers return from vacation. The S&P500 is up 10% for the year, but the chances of us finish the year at these levels is highly unlikely. Either everything will go according to plan and Trump’s policies will shift the economy into the next gear. Or our leaders will fail us and the air will come out of the Trump rally. While I don’t know which way we will go, I do know good trading opportunities are just around the corner.

Jani

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Jul 25

Enjoy the calm, but don’t expect it to last

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 added modest gains Tuesday, easily erasing the last three days of nominal selling and pushing us back into record territory. Earnings reports were good enough and the Senate voted to allow debate on healthcare reform. That put traders into a buying mood and pushed us closer to the psychologically significant 2,500.

While today’s strength broke a three-day losing streak, a 4-point dip over three days hardly qualifies as a selloff. In fact the last three days of restrained selling is actually quite bullish. The market opened the door and gave owners an invitation to take profits, yet the vast majority chose to stay put. They don’t want to sell because they are patiently waiting for higher prices. No matter what the pundits tell us should happen when complacency is this widespread, when confident owners don’t sell, supply stays tight, and prices remain firm. This calm cannot last forever, but it will last far longer than most people expect.

While it is still early in earnings season, if there was a major problem with the economy, it would have shown up by now in the companies that have already reported. The same goes for the other side, if we were going to have a blowout quarter, we would know that by now too. Instead earnings have been good enough to keep our slow climb higher going, but not so great as to launch us higher.

Politics in D.C. is a circus as usual, but it hasn’t been bad enough to affect the markets yet. In fact the market seems to be largely ignoring politics. I’m not sure if that’s because traders are giving Trump and the GOP benefit of doubt and assume everything will work out in the end. Or the market has such low expectations for Trump and Co. that this shit show is hardly a surprise. Either way the market is ignoring politics for the time being and so should we. It will matter at some point, but this is not that point and a trader can lose a lot of money jumping on a good trade too early.

For most of the last eight years people have been saying buy-and-hold is dead, but paradoxically this has been one of the greatest times to buy-and-hold. This is especially true over the last few months. This half-full market simply won’t selloff and that makes it hard find swing-trading opportunities. Only the most nimble day-trader can take advantage of these five-point, two-hour long dips. The rest of us are better off sticking with our positions. That means continuing to hold our buy-and-hold stocks, or sticking with cash while waiting for a better trading opportunity. (Ideally a diversified trader has a bit of both.) The choppy nature and quick reversals in this market make trading dangerous because it is far too easy to get tricked into buying high and selling low. The key to long-term success doesn’t come from our winners, but avoiding giving back all of our profits during slow times. It is hard for a trader to sit on his hands, but that is the best call here.

The path of least resistance remains higher. Trade accordingly. 2,500 is easily within reach, even if it takes us a little while to get there. Things will get a lot more interesting this fall once big money managers return from vacation. The S&P500 is up 10% for the year, but the chances of us finish the year at these levels is highly unlikely. Either everything will go according to plan and Trump’s policies will shift the economy into the next gear. Or our leaders will fail us and the air will come out of the Trump rally. While I don’t know which way we will go, I do know good trading opportunities are just around the corner.

Jani

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Jul 21

Don’t fight what’s working

By Jani Ziedins | End of Day Analysis

End of Day Update:

Even though the S&P500 traded flat Thursday, holding near the highs was a win for bulls. We opened the day with modest losses, but little more than an hour later traders were enthusiastically buying a five-point dip. Selloffs that used to last multiple days and set us back several percent are now being bought within hours and a handful of points. But this shouldn’t come as a surprise. Any defensive sale over the last 12-months was a costly mistake and traders have learned their lesson. Hold no matter what. Headlines stop mattering when no one sells them.

Conventional stock market wisdom warns us about this type of complacency, but what conventional wisdom fails to mention is that these periods of complacency can last a long, long time. Confident owners don’t sell and that keeps supply tight. It is really hard for any selloff to build momentum when so few owners sell the weakness.

More recently this market transitioned from a fearful, half-empty outlook to today’s everything is fine, half-full attitude. Rate-hikes? Political dysfunction? Expanding investigation into our president? Meh, whatever. The market is giving the benefit of doubt to Trump, Congress, and the Fed. Since we trade the market we are given, we need to give them the benefit of doubt too. But that doesn’t mean we trust absolutely.

I get nervous when everyone else is calm and confident. And right now this is the most nervous I’ve been since the 2009 market bottom. This market used to be afraid of its own shadow and that uneasiness kept prices in check. But that is no longer the case. Risk is a function of height and these record highs make this the riskiest place to own stocks since the 2007 top. The path of least resistance remains higher and it is definitely premature to fight this market, but we need to be careful.

As small traders we have the nimbleness that allows us to jump in and out of the market at a moment’s notice so we don’t need to adopt a defensive strategy prematurely. Unlike big money managers, we can wait for the market to tell us it is time to take profits and start trading the other direction. But we are not there yet. This remains a buy-and-hold market at least until the end of summer. After that things will get a lot more interesting. Until then enjoy the slow climb higher.

Jani

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Jun 27

Is it Time to Worry?

By Jani Ziedins | End of Day Analysis

End of Day Analysis: 

The S&P500 collapsed Tuesday in one of the worst selloffs in over a month. Of course “collapse” is a relative terms since today’s weakness didn’t even knock a full percentage point off of the S&P500. But given how benign the stock market has been recently, 0.8% is shocking enough to grab everyone’s attention. The tech heavy NASDAQ took a bigger hit, shedding 1.6%, but to put things in perspective, both indexes are still within a few points of all times highs.

The headline that turned early weakness into a waterfall selloff was the GOP abandoning the planned health care vote because they didn’t have to votes to pass it. Health care is not that important to the market, but that the lack of unity on this issue puts the entire Republican agenda in jeopardy. The post-election stock market rally was built on expectations of tax cuts and today’s legislative logjam is not the narrative the market was hoping for.

The question traders have to answer is if today’s weakness is the first hints of a much larger selloff. Or if this is simply another dip on our way higher. On the surface these headlines don’t seem any worse than the ones the market brushed off previously. Brexit? So what. Rate hike? Who cares. Special investigator looking into the president’s administration? No big deal. If the market didn’t care about those things, why should it care about this health care vote? In fact this isn’t even the first time a health care bill failed to pass. The House stumbled several times before they finally passed their version of Trumpcare. There is no reason to think the Senate won’t be able to do the same.

Most likely today’s weakness will turn out to be a false alarm. Traders have been burned countless times every time they defensively sold weakness, only to see the market rebound even higher not long after they bailed out. It’s gotten to the point where so few people are selling headlines that dips barely last more than a few hours and go further than a handful of points. Right or wrong, headlines no longer matter if people stop selling them. Without supply, it is hard for any dip to build momentum. And that has been the story of this half-full market. No matter what the headlines have been, traders assumed everything will turn out fine and to this point that has been the right call.

As a trader I love a little uncertainty and volatility. These create great trading opportunities because someone else’s fear becomes my payday. Unfortunately this has been a painfully boring market and I don’t think today’s headlines changes that. I fully believe this market is skating on thin ice, but this isn’t the headline that is going to take us under. The market will continue to give our politicians the benefit of doubt and Tuesday’s botched vote will be forgotten by Thursday. If we find support Wednesday, the selloff is done and we can go back to our summer naps. I wouldn’t be concerned until this market crashes through 2,400 support and keeps going. But even then I still think it is simply creating a larger buyable dip. Trends continue countless times, but they only reverse once. Fight this bull at your own risk.

Jani

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Jun 13

Why nothing matters to this market

By Jani Ziedins | End of Day Analysis

End of Day Analysis:

The S&P500 rebounded from Friday’s early selloff and finds itself right back near all-time highs. Anyone who sold Friday’s dip is kicking themselves for overreacting to that weakness. If they were paying attention to the way this market has been behaving, they would have known better and not made that mistake.

Last Thursday I wrote:

“While this market makes me nervous, the path of least resistance is clearly higher. If we were vulnerable to a crash, it would have happened by now. There have been plenty of excuses for traders to sell defensively. But when no one sells the headlines, they stop mattering. These things rarely end well, but they also last longer and go higher than anyone expects. I don’t trust this market, but it will most likely continue creeping higher for the foreseeable future.”

A few hours the market “crashed” in one of the biggest dips in nearly a month, but that was clearly a place to be buying the dip, not selling the weakness. To be honest, I cannot even remember what traders were so spooked over Friday morning it was that trivial. If interest rate hikes, a presidential scandal, and the U.K. government in disarray didn’t bother the market, why should some nominal headline Friday morning make a difference? And a few hours later, it turned out those headlines didn’t matter and we find ourselves right back near the highs.

Risk is a function of height, meaning this is the riskiest the market been in quite some time. But just like skating on thin ice, it’s only dangerous if you fall through. Right now the market continue skating on thin ice without a care in the world. The path of least resistance remains higher…….until it doesn’t.

While I’m skeptical of this market and don’t trust it, it will keep going higher until is has a good reason not to. So far it has refused every reason we’ve thrown at it. That’s because this market is built on high hopes for generous tax cuts. At this point it is clear nothing else matters. The market doesn’t care that a special counsel has been appointed to investigate our preside. That doesn’t have anything to do with tax cuts, so it doesn’t matter…..right?

But if this market is built on a foundation of tax cuts, that is also the thing we are most vulnerable to. If the Republican coalition in Congress devolves into party infighting, or this looming Russia/Trump scandal erodes all of the president’s political capital, expect this market to give back a big chunk of the post-election gains. At this point that is the only thing that will kill this rally. But until this happens, enjoy the slow glide higher and ignore all the other noise along the way.

Clearly this is a buy-and-hold market. Anyone trying to trade this crap is getting their ass kicked. Traditional breakout and breakdown signals mislead us when they fail hours later. The only trade to make is either sticking stocks, or staying in cash. Anyone trying to outsmart this market by jumping in and out is doing nothing but accumulating losses. There are trading markets and there are buy-and-hold markets. This is definitely a buy-and-hold. But don’t despair. This won’t last long and great trading opportunities will come to those who are patient enough to wait for them.

Jani

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