Category Archives for "End of Day Analysis"

Jun 02

Why this market is still buyable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 continues racing ahead of the economy and is now less than 10% from all-time highs. The fastest economic contraction since the great depression and stocks are only down single digits? That’s the world we live in.

As I’ve written previously, this paradox largely comes down to expectations of a quick recovery combined with unprecedented levels of government stimulus. As bad as the economy looks today, when governments are throwing unlimited resources at the problem, that’s enough to placate investors.

As much as it seems like this market is ripe for a near-term dip and consolidation, it keeps chugging higher instead. I took some profits last week because that is always the smart thing to do following a strong run, but this week’s strength tells us it is already time to get back in. Maybe we are getting close to the top and these latest purchases will get stopped out prematurely. Or maybe this thing still has room to run. Either way, as long as we are thoughtful with our trading plan, entry points, and stops, we will be in good shape no matter what the market does.

As long as prices remain above last week’s close, this market is still ownable. If prices fall under this level, shift to a more defensive stance to protect our profits. We only make money when we sell our winners and it is foolish to let a good trade evaporate before our eyes. As nimble traders, it is far easier to get back in than it is to will the market higher after it took back all of our paper profits.

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Jun 01

Is TSLA’s breakout the real deal?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

It took a while, but TSLA finally broke away from $800 resistance. The stock first returned to this key level in late April but it has been suck drifting mostly sideways ever since.

As I wrote back in April, the first time we rallied to $800 was a great time to lock-in profits following a soilid breakout from $600. We only make money when we sell our best positions and anyone insisting on more than 30% over a couple of few weeks is definitely getting greedy.

The great thing about taking profits proactively is we can always get back in. When the stock held firm near $800 instead of hitting its head and retreating, that told us this was still buyable as long as prices held above $800. There were a few wobbles along the way, but whipsaws are part of this game and only a problem if we get discouraged and give up. The patient investor that stuck to their trading plan was finally rewarded with today’s nice pop. As the saying goes, better late than never.

Maybe this is the breakout we’ve been waiting for. Or maybe it is nothing more than a sympathy pop because Elon’s other company, SpaceX, made history this weekend after it safely launched astronauts into space. Either way, TSLA’s breakout is a good trade to participate in as long as we jumped aboard closer to $800 and have a stop near this level. In fact, those that have profits in this should at the very least move their stops up to their entry point, giving them a (mostly) free trade.

If TSLA’s strength was due to nothing more than a SpaceX sympathy plan, the air will probably come out of TSLA over the next few weeks and prices will retreat back to $800. If we bought right and moved our stops up, no big deal. It was a good trade and totally worth trying. That’s because the other possibility is a follow-on surge of buying that rechallenges $1k resistance. Win and we make money. Lose and we get out at our entry-level. Hard to argue with that risk/reward. While I don’t know if this breakout is the real deal, my trading plan has me covered no matter what happens next.

Looking ahead, if the stock rallies up to $1k over the next few weeks, that’s our chance to do this all over again. Take profits near the next resistance level and wait for prices to dip. If they don’t, then we have to greenlight to buy the next breakout.

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May 28

Is it finally time to start locking-in profits?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 continued climbing this morning and notched yet another higher-high for this unprecedented rebound. But just as the market was looking invincible, concerns about the long-forgotten Chinese trade war started seeping back to the forefront.

The last two weeks have been a great run as the market ricocheted off the May lows. The index bounced 300-points over a handful of days and as good as that felt, everyone knows this cannot continue indefinitely. Savvy traders buy weakness and sell strength. Now that this resilience is obvious to every Tom, Dick, and Harry, maybe it is time to start taking some profits off the table.

As I wrote yesterday, this is definitely late in the game to be adding new money. And given today’s weak close, it might also be time to start thinking about locking-in some profits too. Maybe that means taking profits proactively. Maybe that means tightening up our training stop. Or even better, a bit of both.

Wednesday’s lows look like a good spot for a trading stop. Fall under that level in early trade tomorrow and we should definitely be moving to a defensive posture. On the other hand, if traders forget about this afternoon’s fizzle and start piling back into the market as they have done countless other times during this rebound, stick around and let those extra profits come to you.

Everyone knows markets move in waves and it’s been a good run. Rather than get greedy or become complacent, start eying the exits. If we get squeezed out by a false alarm, no big deal. Just buy back in when prices resume their uptrend. But if prices fall further, even better, that gives us another opportunity to buy the dip.

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May 27

Is it still safe to buy this rebound?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

As unpopular as this rebound has been with the cynics, it could care less and keeps chugging higher. We saw the market rebuff another selloff attempt today. A promising pullback had a good start as the indexes skidded into yesterday’s close and then followed that up by converting a nice open this morning into a bearish reversal before lunchtime. As ominous as this price action looked, most owners shrugged and continued holding. When confident owners don’t care, headlines and worrying price action stop mattering. As long as confident owners keep holding stubbornly, every dip fizzles and bounce within hours.

Now obviously this cannot last forever, but this is our reality and we need to keep giving this rebound the benefit of doubt until it proves otherwise. What could have started the long-awaited pullback unsurprisingly turned into yet another push higher.

This two-week-old bounce has been a great trade for readers who had the wherewithal to buy two weeks ago at much lower levels. But what about the people who missed this move? That’s a much trickier question to answer.

With a couple hundred points of profit cushion acting as a buffer, proactive dip buyers have time on their side. Keep following this move higher with a trailing stop and let the profits come rolling in. But what about the guy who missed that initial move? Is it too late?

Unfortunately, this is a much riskier level to be buying in because prices have already realized a big portion of their near-term gains and pushed the risk/reward away from us. Buying these higher levels exposes us to a fair amount of risk and with each passing day, the profit opportunity gets smaller and smaller.

Sometimes the best trade is to wait for a better trade. I really like the way the market is trading here, but for anyone still out of this market, it is better to wait for the next lower-risk entry point. It will come along sooner than you think.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

May 26

The real reason this market is defying gravity

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 popped 2% at the open on the first day back from the long Memorial Day weekend. Governments around the world continue relaxing their economic restrictive policies. But even more important, they keep pumping out free cash. It’s gotten so excessive that some people are actually earning more on unemployment than they were in their jobs.

If we only learned one thing from the market over the last decade, it loves free money. As long as the Fed, ECB, and other governments continue handing out free money, expect stock prices to defy gravity. Why fight what is working?

Which is exactly what I wrote last week:

“when a market is trading this well, we follow those signals and keep jumping aboard the bounces. I have no idea how much longer this rebound can continue defying gravity, but as long as it keeps telling me it wants to go higher, I have no choice but to grab on and enjoy the ride.”

Unfortunately for the stragglers, now that the market is nearly 8% above the lows from two weeks ago, the easy money is behind us. Anyone waiting to buy the “confirmation” is putting themselves at risk of a very normal and healthy near-term dip. Two-steps forward, one-step back kind of thing. As much as I harp on this, the safest time to buy is when it feels the most risky. Buy the bounce early when you can place a sensible stop a nearby stop. If we’re wrong, we get dumped out for a small loss. If we’re right, we make big bucks and are sitting on a pile of profits when everyone else is debating whether it is too late to get it.

Is it too late to buy? I have no idea, but I will keep riding this as long as it keeps going higher. My stops are at Friday’s close and we’ll see if this afternoon’s late tumble into the close turns into anything more significant than the failed dips last week. Maybe we test Friday’s close and maybe we don’t. But for those of us with a profit cushion, riding these routine gyrations will be far easier than anyone who chased this strength today and bought high.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AAPL $AMZN

May 21

Was today’s down-day a warning signal or no big deal?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Obviously, many up-days are good days and down-days are bad days. But don’t overlook the fact there are also bad up-days and good down-days. Where in this matrix did today’s price action land? Good question.

Stocks rebounded nicely from last week’s modest selloff and set two fresh higher-highs this week. There are few things more bullish than responding to an attempted dip with higher-highs. Not only did the market refuse to breakdown, but prices resumed rallying to even higher levels.

That said, the market stumbled into Tuesday’s close. A waterfall selloff in the last hour of trade is always something to be wary of. If we get a few too many weak closes in a short period of time, that tells us big money is getting out and we shouldn’t be far behind. But rather than extend Tuesday’s weak close, the index bounced even higher Wednesday. All clear right? Well…not so fast. In a bit of groundhog day, today’s price-action produced another weak close. Is this second weak close something we should be worried about?

No, and I’ll tell you why. First, the weakness developed early in the day and rather than trigger another waterfall selloff, supply dried up and prices drifted sideways for the remainder of the day. The all-important final hour of trade was more flat than anything and that told us big money wasn’t abandoning ship today.

The second thing to keep in mind is down-days are a very normal part of every move higher. In fact, I get nervous if we go too long without a normal and routine down day. They are healthy and they keep uptrends healthy sustainable.

The short answer to the original question is today was a good down-day. There was nothing unusual or noteworthy about today’s 0.78% loss. That means the path of least resistance remains higher and there is no reason to worry about today’s very benign down-day. Until further notice, continue giving this rebound the benefit of doubt.

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May 20

Trading wisdom for the cynic in each of us

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 bounced back from yesterday’s late-day tumble. But this was expected. As I wrote yesterday:

I don’t see any reason to expect today’s late selloff will turn into anything more dramatic. Last week’s dip was our best chance to crack this rebound. If bears couldn’t get it done with a far better setup, I doubt they have what it takes this time around.

And not only did the market shrug off yesterday’s dip, it went ahead and set yet another high water mark for this rebound. As bad as the economy is today, investors are encouraged by the modest improvements and are forecasting a far better outlook six months from now.

There are two ways to approach any market. Trading what we think “should” happen, or trading what “is” happening. As obvious as the correct answer is, far too many people get caught arguing with the market. There are a million reasons this market should be lower (30 million reasons if you count the job losses!) Yet this market keeps grinding higher. The worst economic contraction in modern history and stocks are barely down 10%. Surely something is broken.

And you know what, something probably is broken. But when the market is broken, we go with it, we don’t fight it. The only other option is to get out of the way. At this point, a mountain of stubborn bears have been bankrupted by this rebound. The more they resist, the more they lose. Now, maybe at some point they will be proven right. But most of them will be long dead and buried by then and that small victory won’t matter.

No doubt this market will go down at some point. But this is most definitely not that point. Until then, expect every dip to be quick and shallow. If this rebound was going to break, it would have happened by now. It is okay to disbelieve this market. But it is not okay to trade against it.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

May 19

Is today’s late selloff a warning sign?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished in the red for the first time in three sessions. That said, today’s losses only gave up a small portion of yesterday’s gains. So far the rebound is fully intact and prices are just shy of the rebound’s highs. As long as this market keeps making higher-highs, everything remains on track.

While a 1% loss doesn’t mean much by itself, the one noteworthy attribute of today’s pullback is almost all of the selling occurred in the final hour of trade. This is when the largest institutions trade and almost all of their participation seemed to involve selling.

How much of that was swing-traders locking in recent profits and how much was fearful owners looking to get out before the next fall? We won’t have a conclusive answer for a few days, but here is what to look for. If it was simple profit-taking, then this is nothing more than a fleeting bout of indigestion and this weak close won’t amount to anything meaningful. On the other hand, if this is more chronic nervous selling, it could become contagious and trigger follow-on waves of defensive selling over the next few days.

Which is it? Well, since the market rebuffed a far more promising selloff opportunity last week, I don’t see any reason to expect today’s late selloff will turn into anything more dramatic. Last week’s dip was our best chance to crack this rebound. If bears couldn’t get it done with a far better setup, I doubt they have what it takes this time around. Last week’s bounce ended, continuing the trend of higher-highs and bulls remain fully in control as long as prices remain above Friday’s close.

Unless we see an extension of today’s waterfall selling, the path of least resistance remains higher. While I don’t have a problem shorting the next promising crack, remember, shorting is going against the trend and it must be done with extreme caution. That means starting small, keeping nearby stops, and admitting defeat early. Just ask anyone who held a short over the weekend what it feels like to give a short trade “a little more time”.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

May 14

Know when to hold ’em and know when to fold ’em.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 stumbled into a 2% hole not long after the open and it looked like the previous two days of selling was only just the beginning. The economy shed another three million jobs last week but as bad as that sounds, it wasn’t materially worse than the headlines we’ve been dealing with over the previous two months. If last week’s three million jobs lost didn’t dent the rebound, why was this week’s numbers any more significant? And that’s the conclusion investors came to as prices bottomed in midmorning trade and spent the rest of the day powering higher, finishing more than 3% above those early lows.

Is this week’s selloff already over? It sure appears like it. Rather than look at what the market is doing, I prefer looking at what it is not doing because often that is far more insightful. Far and away the most striking thing the market is not doing is selling off in the face of the most severe economic contraction in our lifetime. Rather than argue with what the market is not doing, we need to be savvy enough to recognize and respect the significance of the market’s defiance.

I’ve been there right alongside the crowd questioning the logic of this unbelievable rebound. It doesn’t make any sense. But that is also the reason we need to fear it. When the market disagrees with us, we are always the one that’s wrong, if for no other reason than the market is far more powerful than we are. If this market wants to trade strong, there are only two options, hop aboard or get the hell out of the way.

That said, even I couldn’t resist the urge to look for cracks in this facade. There is a lot of air underneath is and if this breaks, it could get ugly. I shorted the dreadful close two days ago and was adding to my short position yesterday. But rather than stubbornly stick with that trade this afternoon, I saw it was moving the wrong direction and I had no choice but to bailout. We don’t need to wait until our stops are hit to recognize when a trade is going off the rails. This morning was the perfect setup to extend the selloff. Instead, supply dried up and dip buyers flooded the market. That was my signal to lock-in the short profits I had and even get a little long.

If today’s bounce fizzles, I can always get short again. But if this strength persists, it will put a lot of shorts in a very uncomfortable position. As the saying goes, it is better to be out of the market wishing you were in, than in the market wishing you were out.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

May 13

Why this dip might be different

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 stumbled on Wednesday for the second day in a row. While economic headlines haven’t changed in a material way, the market’s previously upbeat mood seems to be shifting more cautious the last few days.

Is this finally the long-awaited pullback? Maybe, but prices still remain within a few percent of the rebound’s highs. To this point, the market resisted every other invitation to sell off, including the highest unemployment rate since the Great Depression and the fastest contraction in corporate earnings ever. If those shocking headlines couldn’t break this market, why should “a little cooling” off be any more successful?

As I often write, headlines only matter when they convince owners to sell. This time around, confident owners didn’t flinch during the latest employment report or when the appalling second-quarter earnings were released. Since confident owners didn’t care, the headlines didn’t matter.

But we also need to remember, supply is only half of the pricing equation. No matter how confident owners are, if we start running out of buyers willing to push prices even higher, then we also have a problem. The difference is oversupply happens quickly while running out of demand is a more gradual process. Rather than crash lower following an unnerving headline, flagging demand shows up more often as a gradual series of lower-highs and lower-lows. Are we at that point? Maybe, but it is a little too early to say conclusively.

For the time being, we can continue to short this weakness as I described in yesterday’s post. But until further notice, we need to be very careful shorting such a strong market. More specifically, that means if the short trade isn’t working, get out immediately and don’t wait for it to start working. A whole lot of bears shorted this market at much lower levels and their patience with a losing position only added to their misery. Counter-trend trades are one of the hardest ways to make money in the stock market and that means we need to be extremely nimble. Keep a nearby stop and be willing to admit defeat quickly. If the selloff resumes after we get out, we can always put the short trade back on. As the popular saying goes, it is better to be out of the market wishing you were in than in the market wishing you were out.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM