Category Archives for "End of Day Analysis"

Nov 23

The biggest risk facing us this week

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 popped Monday morning after a 3rd vaccine candidate proved 90% effective in preventing Covid-19.

Multiple successful vaccine candidates and the dramatically increased manufacturing capacity that goes along with multiple vaccines is a huge step in getting life back to normal. But as far as the stock market goes, vaccine breakthrough headlines are quickly running up the curve of diminishing returns. We saw a huge pop after the first candidate proved 90% effective. Then a modest pop after the 2nd. And this 3rd bounce struggled to even hold its early gains and briefly turned red in midday trade.

This is the Thanksgiving holiday week and that means less participation and lower volumes. Most years this is a sleepy period where the few professionals still around are itching to getaway. But occasionally, the lower volume can lead to increased volatility.

Which will this year be? That’s hard to say. If we hold current levels, it will be fairly boring. Where things get interesting is if prices retreat under recent lows. While a lot of people might not be trading this market, many have standing stop-loss orders that will execute even if they are not there to do it themselves. At the same time, dip buyers are also gone and unlike the sellers, they don’t have standing orders to buy the dip. This means there won’t be anyone to save us once the selling starts.

But rather than fear stocks if they crash over the holidays, we should recognize the source of the weakness is nothing more than retail investors overreacting to the headlines and subsequent weak price action. When big money returns from vacation, things will go back to normal, which means grinding sideways between 3,500 and 3,650.

Personally, I don’t see anything compelling to trade. The market isn’t breaking out and it isn’t breaking down. Stocks are not undervalued or overpriced. Without a risk/reward skewed in my favor, I’m left watching this one from the sidelines. Which, isn’t a bad way to enjoy a little R&R over the holiday.

If stocks fall under 3,540, I’ll short the weakness but I have low expectations this trade turning into anything worthwhile. The same goes for a breakout above 3,640. I’ll buy it, but without much enthusiasm. But sometimes the next big move starts when we are least expecting it and is why we have to follow our trading plan no matter what we think will happen.

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Nov 19

How to trade ahead of the holiday week

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped at the open, extending yesterday’s weak close. Fortunately, those early lows were as bad as it got and prices bounced into the green in the second half of the day.

Coronavirus headlines continue to be dreadful, but investors don’t price stocks based on where we are today, but where they think we will be six or twelve months from now.

As bad as these headlines are, most investors don’t want to sell their stocks at big discounts when they know things will get better if they hold on a little longer. And it is hard to argue with that logic. Between the expected stimulus, ultra-low low-interest rates, and highly promising vaccine candidates, the light at the tunnel gets brighter every day.

As I wrote last week, it looks like we are settling into a 3,500(ish) to 3,650(ish) trading range. And so far that’s been the case. There isn’t a reason to throw fresh money at stocks near the highs and there isn’t a reason to abandon good positions either.

Swing traders should take profits near the highs and those with cash should wait for something more interesting. Short a break under 3,500(ish) or buy a breakout above 3,650(ish). Until then, there isn’t much to do other than wait for the next trade. (and enjoy the holidays!)

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Nov 18

Don’t get forced into making an impulsive trade

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday afternoon got a little rough for the S&P 500. The day started off well enough with the index posting modest gains. Unfortunately, that was as good as it got. Prices started skidding shortly after lunch and the selling accelerated into the close.

There wasn’t a single headline driving this selling. Instead, it was mostly a counter-action to the latest runup in price. Two steps forward, one step back.

Cognitively, most traders understand this is the way markets work, yet they get caught off guard every time prices take a step back.

As I’ve written over the last few days, it’s been a great run since the start of November. A 10% run over a few weeks is outstanding. (It was even better in a 3x ETF!) But rather than get greedy, savvy traders recognized their good fortune for what it was and were taking profits above 3,600, not chasing prices higher with reckless abandon.

We buy before it is obvious and we take profits when the latecomers are showing up.

I am in no way bearish and am not predicting a crash. But it’s been a good run and stocks need to rest. Maybe that means a near-term pullback to support. Maybe it means trading sideways for an extended period of time. Either way, this is a better place to be taking profits than adding new money.

If you haven’t gotten out yet, make sure you have a thoughtful plan in place so you don’t get pushed into making an impulsive trade if the market continues moving against us.

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Nov 17

What to expect headed into the holidays

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped modestly Tuesday, but this shouldn’t surprise anyone. The index rallied 11% in November alone and we’re barely two weeks into the month! Anyone holding out for more gains is getting a tad greedy.

Two steps forward, one step back. That’s the way this works. Always has, always will.

Without a doubt, momentum is higher and we could coast up to, and even though, last week’s intraday highs (3,646), but we shouldn’t count on stocks going a lot higher. This is definitely a better place to be taking short-term profits than adding new money. Novices chase prices after an 11% runup. Savvy traders are the ones taking their money.

Stocks consolidate gains one of two ways. The far more predicted way is stepping back to support. But far less appreciated is the sideways grind. Stepbacks are quick and great for swing trading. Sideways moves bore us to tears. Unfortunately, we don’t get to choose what the market gives us.

Heading into the year-end holiday season, we should dial back our expectations. Most of the big buying has already happened and institutional money managers are either going skiing or flying south for the holidays. That means little guys are taking control. And while little guys make absurd trading decisions, they don’t have a lot of money and cannot drive the market very far. That means choppy moves that don’t go very far before reversing.

Expect stocks to trade sideways into year-end. Maybe we grind up to 3,650 resistance. Maybe we dip back to 3,500 support. Either way, plan on stocks bouncing back from these support and resistance levels, not extending into a much larger move.

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Nov 16

Is it safe to chase this strength?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Monday was a good day for the S&P 500. It reclaimed the psychologically significant 3,600 level one week after momentarily cresting above this level exactly seven days ago.

In a bit of a groundhog day, today’s pop was also driven by a different vaccine candidate that proved 95% effective in preventing Covid. That makes two separate vaccines that can get us out of this mess and the light at the end of the tunnel keeps getting brighter

Without a doubt, our reality is far less bad than people feared six months ago when we were falling into the Covid abyss.  But there is a huge difference between “less bad” and “good”.

Now don’t get me wrong, I’m all for buying stocks during uncertain times because that’s where the best profit opportunities come from. But what makes those periods so profitable is buying stocks at irrationally steep discounts and then waiting for sanity to return.

Unfortunately, that’s not the case here. At this point, the S&P 500 is 6% HIGHER than it was BEFORE Covid! Does anyone actually believe this Covid pandemic has been good for corporate earnings?!?!

There is no way I would ever allow myself to trade against a strong market, but we shouldn’t fall in love with it either. (The AAII Investor Sentiment Survey is near record highs!) Trade this market for what it is: strong momentum with questionable fundamentals. Just be sure to always keep the big picture in view. Long-term gains will be far harder to come by, especially if 2021 falls into a more conventional economic recession due to the growing number of permanent layoffs.

While I’m wary of this strength, I know better than to fight it. There are a lot of shorts getting run over by this strength. In fact, a big chunk of recent buying is coming from bears scrambling to get out of their painful short positions. Remember, savvy traders always trade in the direction of the market, not in the direction of their opinions.

Assume this market is rangebound until we have evidence that it isn’t. That meant buying last week’s dip near 3,500 and selling this week’s bounce near 3,650. While stocks could keep going higher over the next few days, we always need to protect our profits. Often that means selling too early. But that definitely beats holding too long and watching those profits evaporate. If this market breaks out next week or next month, we can always jump back in when it exceeds the prior highs.

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Nov 12

The simplest, no-brainer trade to make during opportunities like this

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 lost 1% Thursday. The recent spike in Covid infections unnerved investors and Monday’s bullish vaccine headlines are already old news.

Are we standing on the edge of a precipice or at the lower end of a longer-term trading range? That’s a great question and there are a million different opinions being shared online. And to be honest, both sides have great arguments.

What’s a person to do when the market could break either way? As obvious as this sounds, follow its lead! If stocks are going to breakdown, prices will have to cross 3,500(ish) support first. If we’re staying in a trading range above 3,500, then obviously prices will remain above 3,500.

This isn’t rocket science. Short a break under 3,500(ish) and buy a bounce off it. Put a stop on the other side of 3,500(ish) and wait to collect your profits. If the first move proves to be a false alarm, no big deal, close and trade in the opposite direction.

Emotional markets give us some of the best trades because they are prone to large, one-way moves. No matter which way this goes, grab ahold and collect your profits a few days later. It doesn’t get any easier than that.

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Nov 11

What’s coming up next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

It’s been a crazy few days for the S&P 500.

Stocks exploded higher Monday morning after a vaccine candidate proved 90% effective in preventing COVID-19. Unfortunately, the buying frenzy didn’t last and within a day the index “closed the gap”. So much for that breakout.

But this retreat isn’t a surprise. Stocks were already at record highs and there wasn’t a lot of upside remaining no matter how good the news. But rather than get discouraged after seeing all of those gains evaporate, most owners refused to join the profit-taking and stocks quickly bounced after closing the gap. While investors were not prepared to chase stocks higher with reckless abandon, most didn’t want to sell their favorite stocks either.

And that leaves us where we find ourselves today. Somewhere between Friday’s 3,500ish close and Monday’s 3,650ish open. Support and resistance. Sometimes stocks refresh following a big rally by taking a step back. Other times stocks rest and recuperate by taking time off and grinding sideways for a bit.

As long as the S&P 500 remains between 3,500 and 3,650, expect the sideways grind to persist for a while. Break under support and we can short the market with a stop just above this level. If prices rally above resistance, that is also a buyable move. But as long as we stick between support and resistance, don’t expect much.

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Nov 10

Wednesday’s trading signal

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Tuesday was a bit of a timeout for the S&P 500 as it closed pretty much where it started. Whether this is good or bad depends on which side of the bull/bear debate you fall on.

Bears will point to Monday’s dreadful intraday reversal and today’s pathetic bounce. Bulls are encouraged that yesterday’s one-way selling stopped after we filled the gap and buyers felt more comfortable getting in at these levels.

Who’s right? Well, Tuesday was a tie, making this a best-out-of-three contest. If bulls prop up prices Wednesday, then all is well again. If the profit-taking ramps up tomorrow, we could easily fall another 200-points.

The thing about market collapses is they are breathtakingly quick. If you stop to ask what’s going on, you are already too late. That means if we are standing on the edge of the precipice, we will figure that out real quick, probably within hours of Wednesday’s open. If on the other hand, not much is going on by lunchtime, then Monday’s dreadful reversal was more bark than bite.

Which will it be? To be honest, I couldn’t tell you. This remains an emotional and volatile market and those are the hardest to anticipate. That said, these are also some of the easiest to profit from because prices go in large, one-direction moves and all we need is the courage to grab on early and enjoy the ride.

If Wednesday starts weak and prices keep falling, that is our signal to stay short or get short if we are not already short. If the day ends near the lows, we can hold that short position overnight. But don’t get greedy. This is still a bull market and that means dips bounce hard and quick. Hold a few hours too long and really nice short profits morph into humbling losses.

On the bullish side of the spectrum, it is hard to envision a lot of near-term upside. If recent gains don’t consolidate through a quick step-back to support, they recuperate with a prolonged sideways grind. If that’s the case, we’re going nowhere fast and there is no need to rush in.

Short an extension of Monday’s reversal. If the market doesn’t breakdown, there isn’t a whole lot to do here other than wait for the next trade. That should cover it.

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Nov 09

Today’s breakout: The good, the bad, and the ugly

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 exploded higher at the open after a vaccine candidate tested 90% effective in preventing the COVID infection. That’s the home run we need to end this pandemic and get life back to normal. Investors were justifiably excited by this development and sent stocks sharply higher.

Unfortunately, the enthusiasm didn’t carry over to the close and stocks finished well under their opening highs. As exciting as this vaccine is, there is still a gigantic chasm between today and when a large percentage of the country will be vaccinated.

While almost all recent developments turned out far less bad than initially feared and we are steadily moving to a better place, the biggest hurdle for stocks is their huge runup in valuations. Prices are well above their pre-COVID levels despite this fairly dramatic economic contraction and an earnings recession. Everything is pointed in the right direction, but stocks have already priced that in and then some.

I like this bull market. I like the direction the economy is headed. I truly believe the worst days are long behind us. That said, stocks have a tendency to get ahead of themselves and today’s price-action was absolutely dreadful.

The fact we couldn’t hold this huge breakout to fresh highs on outstanding news is deeply troubling. I still like where the world is headed over the medium and long-term, but we should be ready for a near-term stepback in stock prices. Investors clearly told us today they are not comfortable buying stocks at these levels and the only thing that will cure that is time.

Whether that means a bigger pullback to support or a longer sideways grind near current levels has yet to be decided, but either way, we should temper our expectations for a while. The levels are definitely a better place to be taking profits than adding new money. The bull market is still alive and well, we just need prices to pull back and rest a little bit over the near-term. Two-steps forward, one-step back.

An aggressive trader can short further weakness Tuesday, but this is still a bull market and that means taking short profits quickly and often. On the other side, any dip is a buying opportunity, just be smart about your entries. Start small, wait for the bounce, keep a nearby stop, and only add to a trade that’s working. If the first bounce doesn’t work, get out and try again next time.

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Nov 05

We’re back near the highs, now what?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 surged another 2% Thursday, bringing the weekly gains to more than 7%. Not bad for a few days of work.

While the early strength Wednesday morning was largely attributed to optimism following Trump’s strong showing, Biden has been eating into those margins and is clawing his way back to frontrunner status. But rather than tumble on Trump’s dimming prospects Thursday, the stock market kept charging higher.

Thursday’s enduring strength confirms the market’s optimism isn’t due to Trump’s prospects, but instead, relief of a split government. As I wrote yesterday evening, the stock market loves ineffective governments. It can always price in good news and bad news, what it can’t handle is constantly changing rules. A slit government greatly increases the odds of legislative gridlock. As far as the stock market is concerned, the less that comes out of Washington, the better.

And while it was nice to see stocks explode higher the last few days, we must acknowledge this strength consumed an awful lot of near-term upside. This move puts us back near all-time highs.

If the only thing we were dealing with was an undecided election, everything is set for a continued march higher. But what is largely hidden behind these vote-counting headlines is today was the first time the U.S. had more than 100k positive Covid tests in a single day.

The election was great and we are well on our way to a completely ineffective and unproductive government. But once that euphoria wears off, the front pages will fill up again with Covid headlines and the news definitely isn’t good.

Two steps forward, one step back. Expect the market to run into some near-term resistance near the old highs. Maybe prices slump after Biden is declared the winner. Maybe stocks fall if Trump refuses to concede and promises to fight the result. Or maybe prices simply climbed a little too far and need some time to cool off.

No matter the reason, this is a better place to be taking profit than adding new money. If a person is sitting on nice profits, at the very least, follow this strength higher with a trailing stop. Remember, we only make money when we sell our winners.

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Nov 04

It’s not Trump and it’s not Biden. The real reason stocks surged Wednesday.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

2020 is a year for the record books and this election is no exception. 24 hours later and we still don’t know who won. And whoever takes it will do so by the slimmest of margins.

As disruptive as this appears, the stock market doesn’t seem to mind. In fact, it cheered the results, surging more than 3% in midday trade.

Some people think investors are excited Trump proved the pollsters wrong and made this an incredibly close contest. And while this might be true for small, retail investors who are big Trump supporters, institutional money is far more excited Democrats didn’t take over the entire government.

The stock market loves split governments. As much a people complain about political gridlock, markets love it because no one is changing the rules on them in the middle of the game. Good news or bad news, the stock market can price anything in and move past it. What the market cannot deal with is constantly moving goalposts.

Dems seem poised to keep the house. Republicans will probably keep the Senate. And that means president Biden/Trump is less important because the opposing party in Congress will keep a lid on their boldest ambitions.

Anymore it seems like “compromise” is a dirty word in our highly partisan society, but the only thing the market loves more than sensible compromise is total gridlock. Here’s to wishing for four years of absolutely nothing.

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Nov 03

The best way to trade the post-election move (no matter who wins)

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

At some point, hopefully soon, we’re going to know who won the election. For the sake of this analysis, it doesn’t really matter who wins, just what the market does next and how we’re going to trade it.

I don’t subscribe to the conventional wisdom that Republicans are better for stocks. I’ve been trading for more than 30 years and some of the market’s best years occurred when Democrats occupied the White House and some of the worst bear markets started on Republican’s watch.

Trading through countless economic and political cycles, the one thing I learned a long time ago is the stock market and the economy are far larger than any one man. The initial knee-jerk might be lower or higher based on deeply ingrained cliches, but within weeks and sometimes even days, the market forgets about the election and start focusing on what’s coming next. In our case, Covid and the next round of economic stimulus. Those things matter far more than the (R) or (D) that follows our president’s name.

Stock futures are all over the place as I write this. One minute we’re up 1%, the next minute we’re down 1%, only to be back up 1% a few minutes later. Four years ago stock futures plunged 5% after Trump won Florida. And you know what happened the next day? Stocks finished in the green. Don’t pay attention to this overnight noise. Only inexperienced, impulsive retail traders are participating in this after-hours nonsense. The only thing that matters is what big money thinks and we won’t know their opinions until tomorrow afternoon.

As a trader, I don’t care who wins the election, only what the market does. Regardless if stocks open up or down, use those early few minutes as a starting point and then trade based on the market’s next move. If it rallies from the open, buy it. If prices retreat from the open, short it. Start small, get in early, and place a stop on the other side of the open.

There is a very good chance the first move will fizzle and reverse within an hour. If the opening dip bounces or the early rally fizzles, close the initial position near breakeven and flip the other way. More often than not, this second move is the real move and given how volatile the market’s been lately, expect this next move to cover multiple percent. If the market continues to trade strongly in that direction through the afternoon, add more and consider holding overnight. Most likely once this freight train starts moving, it will keep moving in the same direction for a few days.

After a couple of days, if the above trade is a short trade, look to lock in profits because short trades tend to be strong and fast. Take profits and get ready to buy the bounce. But if stocks rally over the next few days, these moves take longer to play out and expect near-term strength to stick around for a while, most likely taking up to and past the old highs.

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Nov 02

The best way to position yourself Tuesday afternoon

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Stocks rebounded Monday, reclaiming 1.2% of last week’s 5.6% decline.  There was not any obvious news driving Monday’s strength, in fact, the weekend’s international headlines were quite the opposite with portions of Europe headlined back into Covid driven lockdowns. Luckily, those overseas headlines didn’t bother U.S. investors who are far more focused on Tuesday’s election.

As I wrote last week, Monday’s contrarian strength was largely predictable and a combination of “a little too far” and “less bad than feared”.

Most likely, prices will bounce Monday morning after nothing bad happens this weekend. Buy that bounce and ride it higher through the day. But remember, volatility is off the charts and that means every bit of up is followed by a bit of down. Take profits Monday afternoon and get ready to throw the tripwires out again Tuesday morning.

As for the election, my plan is to keep limited overnight exposure and trade the next couple of days as day-trades. There is a lot of uncertainty ahead of Tuesday night/Wednesday morning’s vote counting. I’m fairly certain things will go smoothly, but this is one of those situations where it is better to be a little late than a lot early.

And to be honest, part of the reason I don’t want to hold anything over election night is because I can easily envision the market going either way Wednesday morning. We could bounce on relief of a clean election. Or we could fall on sour-grapes selling as the losing side takes their toys and goes him. Both factors will be at play Wednesday morning, I just don’t know which one will be more dominant.

But no matter what happens Wednesday morning (rally or fall), I expect stocks to do well over the last few weeks of the year and that means any near-term weakness is a buying opportunity. But as is always the case when buying a bounce, start small, get in early, keep a nearby stop, and only add to a position that is working.

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Oct 28

The real reason stocks are tumbling and it’s not what you think

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 entered free-fall territory Wednesday, producing the biggest single-day decline since June’s 6% plunge.

Coronavirus infection rate headlines overwhelmed most coverage in the financial press of stimulus and the election. But that’s not a huge surprise.

At this point, a follow-on round of $2 trillion in stimulus appears inevitable, the only question is if happens in a few weeks with Republican support or an even bigger package passes in a few months if Democrats take control.  Either way, the free money is coming!

As for the election, most people believe they already know who is going to win; either they believe the polls or they believe the polls are wrong. Either way, neither side has any doubt about the outcome.

And that leaves us with this runaway surge in Covid infections as the biggest uncertainty in front of us.

That said, I don’t know anyone headed for the hills because of this spike in Covid. In fact, I don’t know anyone that changed their behavior because of this latest surge. National and international infection rates have never been higher, yet most people seem to be going about their lives like they were earlier this summer when infection rates were far lower.

Sure, wash your hands, cover your face, avoid large crowds, and all the other sensible things people did this summer. But even in the face of this surge in infections, most people are still going to work and most people are still shopping. And let’s be honest, those are the only things the stock market cares about.

Even in Europe, where infection rates are far higher and their willingness to aggressively lock down the continent earlier this spring, not much is changing because of this surge in infections. It seems most people are already doing everything they are willing to do for themselves and other people and they are comfortable with the risks.

And that leads us to today’s stock market meltdown. I bet most of the people abandoning stocks today at big discounts are not afraid of Covid either. And I bet they are not even predicting another wave of widespread lockdowns. Instead, these people are selling because they think other investors are afraid of Covid and lockdowns.

This is classic herd psychology. I didn’t see the lion, but everyone around me is freaking out so I’m going to freak out too. After all, the one person who didn’t freak out and run was eaten by the unseen lion. Unfortunately, survival instincts that worked so well in the caveman days compel us to do the exact wrong thing at the exact wrong time in financial markets.

Smart money sells because they don’t like their thoughtful outlook. They don’t sell because other people around them are selling. In fact, if they have a positive outlook, they are the first to line up and buy the discounts.

And we don’t need to look far to see the aftereffects of panic selling. Twice since the Covid lows, the market has been hit by big waves of panic selling. Once in June (-6% in one day) and another time in September (-7% over 3 days). And you know what? Both times the bottom was near and that big collapse was a better time to be buying, not selling.

Will this time be any different? Probably not. Prices could fall a little further and volatility will remain elevated until after the election. But the bottom is not far. Maybe we slip and test 3,200 over the next week or two, but don’t expect prices to fall a lot further than that. That said, don’t be foolish and rush out to buy this dip. Smart money buys the bounce and protects itself with a nearby stop. If prices keep falling, no big deal. Their stop gets them out and they try again during the next bounce.

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Oct 27

When a setup doesn’t work out

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped a modest 0.3% on Tuesday and it finds itself down another 0.5% in after-hours trade. Not what I was hoping for and it seems like this weakness ants to stick around a little longer.

As I wrote Monday evening, retaking 3,425 Tuesday would have been a great entry point. Remember, we don’t buy dips, we buy bounces. Reclaiming 3,425 support would have done two things. First, it would have demonstrated resilience and proved dip-buyers were back in control. Second, it would have given us a clear entry-point with a sensible nearby stop-loss. Buy the bounce with a nearby stop and the risk/reward is skewed heavily in our favor. If the bounce returns to the upper end of the trading range, we make a few bucks. If it fizzles and retreats, we lose a few pennies. I really like that risk/reward.

Alas, it wasn’t to be. Stocks never reclaimed 3,425 and I was left watching this listless grind from the sidelines. While I didn’t get the bullish trade I was hoping for, by having a clearly defined prerequisite for entering the market, I never bought the dip and I avoided this subsequent weakness.

Going forward, if prices fall even further, no big deal. In fact, additional weakness works out even better for me because the lower prices fall now, the more profit opportunity there is buying the next bounce.

Adjusting this trade for the more aggressive trader on Wednesday: If prices undercut Monday’s lows (3,365ish) and continue falling, short that weakness with a stop just above this level. If prices gap under Monday’s lows at the open but quickly bounce back above, buy that bounce with a stop just under this key level.

As volatile and emotional as this market is getting, expect the next directional move to be swift and decisive. That means jumping in early and hanging regardless of which direction it is headed.

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Oct 26

Should we fear Monday’s tumble?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 crashed Monday as investor sentiment soured following record-high Coronavirus infection rates in Europe and the U.S. and the next round of Covid stimulus negotiations are postponed until after the election. At least that’s what the financial media told us.

While both of these headlines are extremely concerning, do they qualify as new and unexpected? Nancy Pelosi’s stimulus deadline came and went nearly a week ago and European infection rates have been spiking since September and the U.S. rates have been trending higher for nearly as long. If a person didn’t see these things coming from a mile away, clearly they were not paying attention. Yet the financial press spins these obvious events as if they caught everyone by surprise. I don’t know about you, but neither of these headlines surprised me. While I might be more cynical than most, I doubt these predictable headlines surprised even optimists among us.

If stocks didn’t tumble today because of a surge in infection rates or the postponement of stimulus negotiations, why did they crash? Simple, stocks move in waves. Always have and always will. Every bit of up is followed by a bit of down. Everyone knows this, yet it is amazing how many people are caught off guard when the next wave comes.

Large institutions already positioned themselves ahead of the election. Bullish or bearish, big money placed their bets weeks ago and that means supply and demand is modest and prices are mostly drifting sideways into the election.

The thing to remember about trading ranges is prices typically rally to the upper bound before stalling falling to the lower end. The S&P 500 challenged 3,500 in early October where it peaked and now it is testing 3,425 support.

If that’s all that’s going on, should people be running around in a panic? No, of course not. But if people didn’t panic and sell, prices wouldn’t fall. Investing 101: Every dip feels real. If it didn’t, no one would sell and prices wouldn’t fall.

As bad as Monday’s selloff felt midday, prices bounced and finished well above the early lows. As is usually the case, how we close is far more important than how we started. The early wave of selling capitulated and prices bounced back near 3,425 support by the end of the day. If stocks reclaim support Tuesday, that’s a buyable bounce with a stop just under this level. Start small, get in early, and keep a nearby stop. If the market trades well tomorrow afternoon, add more. If it doesn’t, no big deal, pull the plug and try again next time.

Previously, I was expecting some weakness after the election. But maybe that weakness came a little early. Until further notice, I will treat this test of support as a buying opportunity, not a reason to abandon ship. If prices tumble under 3,400 Tuesday, all bets are off and I will reevaluate. Until then, this is a great entry point with a well-defined stop.

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Oct 22

How the stock market will react to the election

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The final presidential debate came and went and stock futures barely noticed. But that isn’t a surprise. As ridiculous as the first debate was, it didn’t move the market in a meaningful way and this slightly less crazy version was even less likely to matter.

The debates are done. As many as 1/3 of voters have already cast in their ballots and if you believe the polls, only 4% of the electorate remain undecided. (If a person hasn’t made up their mind by now, clearly they are not paying attention!) This election is going to turn out how it is going to turn out and tonight’s debate didn’t change anything.

At this point, Trump needs the polls to be way off if he’s going to win reelection. He pulled off the upset before and he can do it again. I just think it is less likely this time because pollsters recalibrated their formulas after 2016’s miss and are most likely are doing a better job counting Trump supporters, both the outspoken and the shy.

While the stock market loves Republicans’ tax cuts and reduced regulations, chances are good that if elected, Democrats will unleash a stimulus bonanza like we’ve never seen before. Whether all that debt that is good for the economy long-term can (and should) be debated, the stock market will love all the free money and will likely rally over the near-term.

If Trump wins, stocks go up. If Biden wins, stocks go up too. Sounds plausible.

So what’s really going to happen? Stocks will most likely tumble Wednesday morning as supporters of the losing side dump stocks in a giant wave of sour-grapes selling. Whether that lasts a few hours, days or weeks has yet to be decided, but no matter what happens, expect stocks to bounce back and any near-term weakness after the election will be another buying opportunity.

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Oct 21

Is this latest run in bitcoin sustainable?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

It’s been a while since I wrote about bitcoin and it has largely been flying under the radar this summer. Rather than act as a safe haven during the Covid crash, it tumbled alongside everything else. Since then, most pundits gave up on it and it isn’t attracting much coverage in the financial press. Maybe today’s run-up to $13k will change that.

As I’ve been telling my premium subscribers this fall, $10k has been the key level for this cryptocurrency. I’m not a big fan of virtual currencies by any stretch of the imagination, but as long as this held above $10k, it was doing everything it needed to do to earn our respect. It took a few months, but it finally delivered on that promise, surging nearly 30% in a month, most of that happening over the last few days. Not bad.

What’s behind this strength? There are a lot of opinions being thrown around between Paypal integration and a mountain of U.S. stimulus coming our way, but if I had to guess, a lot of nervous Republicans and Democrats are hedging their portfolios in case “the other guy” wins the election.

It doesn’t matter who you talk to, but it seems everyone is convinced the apocalypse is coming if their guy loses. While I have opinions about both candidates, I’m pragmatic enough to know the presidency isn’t nearly as important as most people believe. I’ve traded under both Democrats and Republicans alike and markets go up and down regardless of who sits in the oval office and this election cycle won’t be any different.

By the time December and January roll around, most of the reflexive sour-grapes selling will have passed and the market’s attention will long have since shifted to something else. The same goes for Bitcoin. When the world doesn’t collapse after the election, BTC will lose its appeal and will most likely retreat back to $10k support.

There is nothing wrong with riding this latest wave higher but be sensible and follow this rally with a trailing stop. Remember, we don’t make money until we take profits in our best trades.

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Oct 20

Why the market can rally without a stimulus deal

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Tuesday turned into a decent day for the S&P 500. While the index only gained a modest 0.5%, more important is Monday’s selling didn’t continue. At least for the moment, the market seems to be finding its footing near 3,425 support.

The big talking point continues to be the next round of Covid stimulus. Nancy Pelosi put a Tuesday deadline in order to pass something before the election. While that now seems unlikely, a few days here or there doesn’t matter that much to the market. More important is a deal gets done and so far all things are pointing in that direction, even if it turns out a little delayed.

That said, I don’t think the market is placing a lot of emphasis on these stimulus negotiations anyway. If it was, we would see far larger swings following these deal/no-deal headlines. While a 1% pop or drop feels like a big deal in the moment, this is more meaningless noise than the catalyst for the next big directional breakout or breakdown.

The market is expecting something around $2T in stimulus. If it doesn’t happen today, then it will come shortly after the election. If it gets delayed into next year, that is most likely because Democrats won the election and Republicans are dragging their feet. But even a multi-month delay isn’t that bad for stocks because a Democrat-led stimulus will almost certainly be larger than anything allowed by Republicans today. The stimulus could be late, but the size will more than make up for it.

No matter what happens, there seems to be more upside than downside as everything turns out less bad than feared. The election will go off without a hitch. Our politicians lack the will to lock the country down again. And more stimulus is coming. All of those things are near-term bullish for stocks.

That said, anything could happen over the near-term and that includes a pullback under 3,425 support. But Monday’s dip to could easily be “close enough” to check that box and the market never looks back. If the index trades well Wednesday, all is forgotten and forgiven. If we get another dip under Monday’s lows, prices will most likely undercut 3,400, even if just momentarily. As soon as the index retakes 3,400, that is our signal to jump back. As always, start small, get in early, keep a nearby stop, and only add to something that is working.

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Oct 19

Why we should have seen this pullback coming

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Monday started off well enough after the S&P 500 rallied nearly 20 points shortly after the open. Unfortunately, that was as good as it got. By the end of the session, prices had retreated 75-points from those early highs in the biggest single-day decline in nearly a month.

As ugly as Monday looked, it shouldn’t surprise anyone. Stocks were approaching the old highs and some near-term resistance was inevitable. Cognitively everyone knows markets move in waves, yet people are still surprised every time stocks take a near-term step back.

Hopefully, everyone who bought September’s bounce was following this rebound with a trailing stop and were able to lock-in some really nice profits over the last few days. If a person bought September’s rebound using a 3x ETF, they locked-in a pretty easy 20% gain over the last few weeks. Not bad.

The key to buying dips is starting small, getting in early, keeping a nearby stop, and only adding to what is working. Even if we got shaken out in September’s first couple of failed bounces, our losses were small and easily offset by riding this 300-point wave higher.

As always, the key is being willing to act when everyone else is afraid of making a mistake. Fortune favors the bold.

As for what comes next, we could see some near-term weakness, especially if our politicians fail to agree on a Covid stimulus bill this week. But if we’re in cash, the lower we go now, the better. It means we make even more money buying the next bounce. That said, unfortunately, I’m not expecting prices to fall a lot further. The market will most likely remain rangebound leading up to the election and the next big trade won’t happen until November.

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