Category Archives for "End of Day Analysis"

Apr 08

How to make money when you’re wrong

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

In Tuesday’s free after-hours post, I explained why I felt the market’s recent runup left us vulnerable to a near-term pullback. Those suspicions seemed confirmed by yesterday’s intraday selloff that erased all of the impressive opening gains. While I liked what I saw and in a normal market I would have held that short for multiple days, unfortunately, these are most definitely not normal times.

It has been my policy for a few weeks now to not hold positions overnight. These 2%, 3%, and even 5% opening gaps leap over any sensible stops we use to protect ourselves. Sometimes the gaps are higher, other times they are lower, and so far I haven’t figured out a reliable way of anticipating how the market is going to react to the overnight headlines. Rather than risk losing my profits the next morning, I take those profits in the afternoon and look for a new trade the next morning. While I normally don’t like day-trading, we trade the market we are given and this is the one we get.

But as unreliable as the open gaps have been, the market’s first move has been quite reliable and often signals a much larger intraday move. Most of the time that means buying the early move, hanging on, and taking profits in the afternoon.

While it’s been a good strategy, it doesn’t always work and that’s why we need a nearby stop to minimize the cost of any mistakes. And more than just that, the other thing I noticed lately is when I’m wrong, I tend to be really wrong. Rather than simply pull the plug and try again the next day, I pull the plug and switch directions. As much as it feels wrong to go against my gut, it gets a lot easier to tolerate when we see the profits pile up.

And that’s exactly what happened today. I started the day flat and the initial dip from the open got me in on the short side. This is the swoon I was looking for and everything was going according to plan. But by midmorning, the early slide bounced and overtook the opening levels. Rather than argue with the market or convince myself to give the trade a little more time to work, I pulled the plug. And more than just pull the plug, as I said, when I’m wrong, I tend to be really wrong, so I switched directions, went long, and held on.

While no one is getting rich from a 1% or 2% intraday move, do it enough times and the profits start to add up.

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

Apr 07

What to expect from the market’s next move lower

By Jani Ziedins | End of Day Analysis

Free After-Hours Update

The S&P 500 3% popped at the open as global Coronavirus infection rates showed their first hints of moderating. This was welcome news for fatigued markets and the relief extended the market’s rebound more than 500-points above our lowest point.

As I often write, the market loves symmetry. It was almost inevitable that a historic crash would be followed by an equally historic rebound. As incredulous as people were two weeks ago when the market rebounded 20% and headlines proclaimed the bear market was over, here we are, still standing. As bad as things seem in their darkest hours, we always manage to push through them and this episode will be no different.

That said, there is a huge difference between starting to heal and being recovered. This market is still incredibly volatile and that means big moves in both directions. While the free-fall might be behind us, that doesn’t mean we should expect clear sailing back to the highs. There are definitely promising signs in the battle against the Coronavirus, but the economic cost of this progress is staggering and cannot be ignored. Following this brief relief rally, expect our economic reality to start weighing on stock prices again. We saw the first signs of this second-guessing show up this afternoon as stocks retreated from their early highs.

Markets move in waves and this latest rebound will invariably end in the next move lower. I don’t expect a major crash, but any retest of support feels scary. It has to. If it didn’t feel real, people wouldn’t sell and we wouldn’t dip. But rather than tumble out of control, realize this next move lower is simply an exhale, not a crash.

As for how to trade this, anyone with short-term trading profits should have locked them in. As volatile as this market is, waiting a day too long is the difference between harvesting profits and accumulating tax write-offs. While no one likes taxes, I definitely prefer paying taxes on profits than using losses as a tax deduction.

More important than how the market opens tomorrow is what its initial move is. Gap lower or higher doesn’t matter as much as that move in the first 30 minutes. Buy an early bounce with a stop just under the opening levels or short a dip with a stop just above the open. If we get stopped out, consider switching direction and going the other way. Collect profits before the close and limit overnight exposure. Repeat this process again on Thursday.

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

Apr 02

The only way to figure out where this market is headed next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

In a bit of a mixed day, the S&P 500 recovered a big chunk of yesterday’s selloff. Initial unemployment claims surged past 6 million, easily shattering last week’s record and the economy continues screeching to a halt at an unprecedented rate. That said, the stock market is already coming to terms with this staggering uncertainty. As dramatic as the crash seems, we are only down about 25% from February’s highs. While it felt like we fell off a cliff, stocks are actually holding up fairly well all things considered.

As usual, there are two ways to interpret this. Bulls are impressed by the market’s reluctance to continue falling. If we already chased off most of the fearful sellers, supply will dry up and prices stabilize. Remember, headlines don’t move markets, only people actually buying and selling stocks do that. Quite simply, when owners stop selling the headlines, the headlines stop mattering. The bear’s counterpoint to this resilience is it is little more than a pause on our way lower and we are in the middle of a dead-cat bounce.

Who’s right? That’s a hard question and people are desperately searching for answers in many different places. Some are consulting charts, moving averages, and ratios. Others are looking to fundamental data. Some are even consulting the stars or reading tea leaves. At this point, one approach isn’t any better than the other. This scenario has never happened before and nothing based on historical data is of any use in figuring out what comes next.

The effectiveness of these social-distancing campaigns and lock-downs can’t be found in stock charts, ratios and moving averages that are based on past price data. The only thing that matters is if this epidemic continues spiraling out of control, or if the fever finally breaks and we start getting a handle on it. No moving average or ratio that can predict what happens next so quit looking for one. Trade this market by looking ahead, not behind. Watch what the market does next and then react to it. If prices keep falling, get out and go short. If they find support and bounce, buy it and hang on. Quit looking for the easy answer. There isn’t one. This is a very tradable market, we just need to cut out the noise and focus on what matters. Follow the market’s lead and the rest will take care of itself.

Over the next couple of weeks, expect prices to retest 2,300. While dipping back to those levels will feel scary, as long as they hold, this situation is getting better, not worse and we should be buying this dip, not selling it. But if prices slice through 2,300 and the selling accelerates, short the weakness and see where it goes. One of the greatest strengths we have as independent traders is our nimbleness. We don’t need to predict the future if we are nimble enough to follow the market’s lead.

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

Apr 01

What to make of today’s 4.4% selloff

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 tumbled nearly 5% in what would normally be classified as one of the worst days in stock market history. Today, it seemed like just another routine midweek dip. As callous as it sounds, 5% crashes don’t feel all that dramatic after experiencing -7%, -10%, and -12% plunges over the last few weeks. It’s almost gotten to the point where we could find ourselves saying, stocks “only” fell 5% today.

The financial press claims today’s selloff was in response to Trump’s new estimates of 100,000 to 240,000 American deaths from Covid-19. While that excuse sounds plausible enough to satisfy newspaper editors, the simple truth is today was little more than a natural snap-back from last week’s towering 20% rebound. These 100k and 200k estimates have been floating around for days and are actually far less draconian than the 2 million fatalities that were initially projected. Trump’s update didn’t surprise anyone who is paying attention and it sure didn’t catch the market off guard. The truth is today’s move was nothing more than the natural ebb and flow of supply and demand. But rather than take place over 1%, 2%, or 3% increments, we are seeing 5%, 10%, and even 20% swings. This is routine stuff, just super-sized.

As for what comes next, expect more of the same. Last week’s towering rebound consumed a truckload of demand and now it is time for the sellers to take control. Unless we see these social-distancing efforts have a dramatic impact on infection rates over the next few days, expect the market to slip back to the lows. Whether we bounce above, at, or under the prior lows has yet to be seen, but we should expect more down than up over the next handful of trading sessions.

That said, this is still an incredibly volatile market and that means big moves in BOTH directions. Just because we will retest the prior lows at some point doesn’t mean it will be a straight line getting there. Expect volatility to remain off the charts and the best trading plan includes taking profits early and often. Hold a few hours too long and today’s profits turn into tomorrow’s losses.

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

Mar 31

Is anyone still interested in TSLA?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update

It’s been a historic few weeks with this viral pandemic sweeping across the globe and grinding the world’s economy to a halt. While those headlines dominate the financial press, it’s easy to forget about the other things going on in the market. It seems like forever ago, but TSLA was the hottest trade less than two months ago. While the world has largely moved on to bigger things, this trade matters for the people still holding it, so let’s take a look.

Along with everything else, TSLA’s stock plunged in late February. But as is often the case, the higher they go, the harder they fall. At one point, TSLA was down nearly 65% from those heady highs. While it seemed inevitable this stock would tumble from those unsustainable levels near $1,000, no one could have predicted the tsunami that was coming. This was an unprecedented global catastrophe that pummeled all stocks, not just the highfliers. But that still doesn’t justify someone holding this thing as it shed nearly 2/3 of its value.

While I was skeptical of the frenzied buying that propelled this stock up nearly 100% in just a few weeks, it was obvious to most this was too good to last. If it wasn’t a global pandemic, it would have been something else. That’s why it was critical to protect our profits by following this up with a trailing stop. Not long after the stock bumped up against $1k, it tumbled back under $800. That would have been a good place to lock in some profits. The stock did a good job clawing back above $800 over the next few weeks, but that second violation of $800 was definitely our signal to get out.

Rather than “hold and pray”, we should have locked-in profits and waited to see what comes next. As individual investors, our greatest strength is the nimbleness of our size. We can jump in and out of full positions with a few mouse clicks. If we don’t take advantage of this ajility, we give up one of the few advantages we have over the larger institutions.

That said, hindsight is 20/20 and the horse is long gone. What owners really want to know is what comes next. While I like these big discounts in the other high-flying FAANG stocks, it is hard to feel the same way about TSLA’s future prospects. Without a doubt, this was a momentum story and the momentum has clearly been broken. The giddy buyers are long gone and won’t be back anytime soon. While I could see the FAANG stocks returning to their all-time highs over the next several months, it is hard to see TSLA getting back near its highs for a long, long time.

Now don’t get me wrong. This is still a great company with a great story. The stock will do well, but well is a relative term. While we will most likely return to the pre-bubble highs near $600 over the next few weeks, I wouldn’t count on anything above that for a good long while. There are a lot of people who have lost a lot of money in this stock and it will take them a while to admit defeat and get out. Until then, expect this to remain rangebound between $400 support and $600 resistance. Once these retakes and holds $600, we can revisit it as a buying opportunity.

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

Mar 26

If you’re not taking profits, then you’re taking losses.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 produced its first three-day win-streak since early February. Congress agreed to a $2 trillion stimulus package and the Fed assured us they have “unlimited ammunition”. Those headlines were enough to launch stocks nearly 20% above Monday’s intraday lows. Looking beyond this relief rally, the bigger question is if these government interventions are enough to solve the market’s problems or if this strength is just another fleeting bounce on our way lower.

Three days ago bears were gloating over their investing prowess. Today it’s the bull’s turn. And so goes the swinging pendulum of sentiment in this violently volatile market. While it was definitely better to be a bull today than a bear, is the Coronavirus epidemic really solved? Did our politicians actually accomplish anything more meaningful than adding $2 trillion to our national debt? Ummmmm, no. We are in much of the same place we were Monday…and last Friday…and the Friday before that. Nothing has been fixed but at least some issues have been addressed…if only marginally.

These constructive headlines were at least good enough to stem the cascade of relentless selling. That said, we shouldn’t expect prices to race back to the highs anytime soon. The world is still gripped by fear of a killer virus and all the economic damage that goes along with these extreme preventative measures.

As I wrote on Monday, this market is incredibly volatile and that means huge swings in BOTH directions. One day’s gains become the next day’s losses (plus or minus a day or two). In periods like this, if swing-traders are not taking profits, then they are taking losses. Rather than gloat over the corpses of your adversaries, be savvy enough to realize that if you hang around too long, your corpse will soon be the one underfoot. While giving up on a winning trade is always hard to do, if you don’t, the market will take all those profits back.

I warned bears a few days ago and now I’m warning bulls. Lock-in those profits and be ready to go the other direction. The next big swing is just around the corner.

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

Mar 24

Why both bulls and bears insist on losing a lot of money

By Jani Ziedins | End of Day Analysis

Free After-Hours Update

The S&P 500 surged more than 9% today, putting up one of the market’s strongest performances in 100 years. While nothing concrete happened, stocks rallied in anticipation of Congress’s comprehensive stimulus bill that is inching closer to becoming law.

Who could have possibly seen today’s huge rebound coming? Easy, anyone who’s been paying attention. (Or at least reading this blog.) The strong, unidirectional moves are long behind us. This market entered the choppy, basing period a couple of weeks ago, typified by extreme volatility in BOTH directions. While it feels like the market’s done nothing but go down over the last two-and-a-half weeks, that’s hardly been the case. Over this period, we’ve seen up-days of +5%, +9%, +6%, and now today’s +9%. In fact, nearly every day over the last 12 sessions alternated between huge gains and towering losses.

As much as bulls and bears want to believe the next move will be a huge, multi-day rally or collapse, we are most definitely in the choppy phase of this correction and that means a lot of back and forth. One day’s dip is followed by the next day’s pop. These are great swing trading opportunities for the bold and nimble, but it is chewing up anyone coming to the market with a strong bias. Savvy traders are buying these dips and selling these pops, not gloating on social media that the other side is dumb, only to be left looking like the fool 24-hours later while holding a pile of losses.

Chances are good we haven’t seen the lowest lows of this bear market yet, but rather than crash lower, further losses will be nibbling at the edges, like yesterday’s dip, only to see prices bounce back into the consolidation a day or two later. As we transition into the basing phase, almost all of these daily breakdowns/rebounds are false alarms that should be traded against, not jumped on.

Avoid the temptation to fall into the bull or bear argument. No matter what we believe long-term, if we want to trade this chop successfully, we need to be pragmatic. Even if we’re bullish, that means shorting an unsustainable move higher. Or if we’re bearish, buying the next oversold plunge.

There is a ton of money to be made in this chop. But that also means we can lose a lot of money if we go at this the wrong way. Keep your biases in check and you will be miles ahead of everyone else getting ground up by these swings.

As for what comes next? Look for today’s huge rebound to fizzle and retreat back to the lows. Maybe this reversal starts tomorrow at the open. Or maybe we rally into midday before running out of buyers. Either way, be ready to short the next stumble. There is a good chance the next leg lower will follow the stimulus bill’s announcement in a classic buy the rumor, sell the news reversal.

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

Mar 23

Should we be buying or shorting these levels?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 tumbled another 3% Monday and set fresh lows for this selloff. Overnight futures were limit down, holding 5% losses for most of the night after the Congress failed to agree on a bailout package Sunday night. But spirits lifted shortly before Monday’s open after the Fed said they were prepared to buy “unlimited” Treasuries and mortgage-backed securities. Unfortunately, further gridlock on Capitol Hill rained on the Fed’s parade and is why stocks ultimately closed lower on Monday.

Higher, lower, or finding a bottom? That’s the question on everyone’s mind. Plenty of bulls are claiming this is a buyable dip while countless bears are screaming this is still the shorting opportunity of a lifetime. Who is right? At this point, both sides are doing nothing but blindly guessing in the dark. But they certainly don’t lack conviction in the accuracy of their blind guesses!

This is far and away the most uncertain time in anyone’s living memory, yet that uncertainty isn’t preventing anyone from telling us what they are convinced will happen next. I wish I had an answer for you, but no amount of fundamental, technical, or historical analysis will give us the answer. This situation is unique and it needs to be treated as such.

But just because this Coronavirus crash is unique doesn’t mean it will end any differently than any of the other “unique” crisis the market navigated. Assuming society doesn’t collapse, this is a buyable dip and is no different than any other crisis in market history. The only question is how low we go before bouncing.

Markets have fallen nearly 35% in a month. Could they fall 45%? Sure. But 6 months from now, how many people will be bragging about selling stocks when they were down 35%? Or is it more likely people will be bragging about buying stocks when they were down 35%?

The time to sell was four weeks ago when these waves of panic first hit the market, not now that the majority of the damage has already occurred. While prices could fall even further over the next few days and weeks, twelve months from now, no one will regret buying stocks at the lowest levels since 2016.

Once you admit you cannot pick the bottom, it simply becomes a choice between buying too early or too late. Either approach works well as long as it is consistent with a well thought out trading plan that includes risk management appropriate for this situation. (ie starting small, only buying sensible entry points, and keeping a valid stop nearby.) Don’t fall for the bull or bear arguments, be a pragmatic opportunist and the profits will come to you.

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

Mar 19

Why we should have seen this selloff coming and how to profit from it going forward

By Jani Ziedins | End of Day Analysis

The Coronavirus continues dominating financial headlines as “social distancing” takes a heavy toll on economic activity. What seemed like the worst-case scenario only a few weeks ago is now our reality. While the actual effect of the virus itself has yet to be felt by most people, preventative measures are definitely impacting everyday life.

I will be the first to admit I have a bullish bias and that’s because over the long-term, markets also have a bullish bias. But over the short-term, anything can happen and that’s why it pays to be pragmatic. Back in late February, when this crash first started, I told readers:

Whether the market is right or wrong about the Coronavirus, it doesn’t matter, we trade the market we are given. As it stands, this 3% kneejerk reaction could go either way. We bounce sharply off the lows and never look back as confident owners continue ignoring every bearish headline. Or this massive strawbale shatters the camel’s back and turns formerly confident owners into a herd of panicked sellers.

The next day I wrote

What happens next is where it pays to be pragmatic. Rather than dig in my heels and argue this selloff was unjustified, I recognized the market’s emotional state and knew a great trade was going to explode in one direction or the other. Sometimes these things bounce hard and fast. Other times they keep going. As an opportunist, it made no difference to me which way the market went as long as I was making money.

And the following day I shared an educational post about the best way to trade these volatile markets. This simple approach produced four weeks of outstanding trades.

If we know a big move is coming, all we need to do is jump on the next move that comes along and see where it takes us. Prices bounced this morning. Great, buy the dip, start small, get in there early, keep a stop near your entry, and only add more money after the trade starts working. If we’re wrong, prices slip under our stop, we take a small loss, and we try again next time. Maybe that is another rebound attempt. Maybe stocks tumble under the lows and we flip to shorting the weakness using the same sensible approach. It makes no difference to me what the market does next as long as it does something. If you leave your bullish or bearish biases at the door, you can make money too.

As for what comes next? We should be thankful for this buying opportunity the Coronavirus just gave us. Back during 2018’s late meltdown, I wrote a post about Bad Luck Brian who was unlucky enough to start investing at the dizzying height of the dot-com bubble. But as bad as his timing sounds, consistently buying the biggest market collapses in stock market history proved to be incredibly profitable for Brian.

And lucky for Brian, he kept buying those discounted Nasdaq shares for more than a decade. Accumulating 20 and 30 shares per month started paying off handsomely when the index finally climbed out of its hole. By the time the Nasdaq recovered to the old highs in 2015, Brian had been able to buy so many shares at a discount that his $93,000 of invested principle was worth $204,000! The index was flat, but amazingly Brian was up 120%!

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

Mar 12

A trading plan for this worst of days

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The following is an updated excerpt of what I shared with subscribers today during the trading session. This explains how I feel about this situation and I wanted to share it with my free subscribers too:

The S&P 500 crashed at the open and the bloodbath triggered the second trading halt this week. A tsunami of headlines hit us yesterday between the NCAA basketball tournament closing its doors to the public, the NBA suspending its season, and Trump banning Europeans from entering the U.S. And not to be left out, the NHL, Nascar, Formula 1, and countless other leagues put the brakes on their seasons today too. This officially puts us in full panic mode.

The Fed tried to cheer traders up with promises of a fresh liquidity injection, but the enthusiasm was short-lived and prices quickly retreated back to the lows. Today ended as the single worst trading day since the 1987 crash and it officially killed the longest-lasting bull market in U.S. history. 

As bad as this sounds, it is important to keep in mind these selloffs bottom just when everything seems its worst. While the spread of the Coronavirus will continue to get worse before it gets better, we won’t see a perfect storm of successive headlines like this again. In fact, yesterday and today’s gut punches moved the bar so low that no matter what happens going forward, even horrible news will still be less bad than what many people are fearing right now. School closings and the MLB suspending its season are foregone conclusions. The only way for this to get worse is a national militarized lockdown. While that could happen, I don’t think any of our politicians are willing to make that draconian of a call for something that is realistically only marginally worse than the seasonal flu.

The Coronavirus is definitely running out of control, but without a doubt, fear of the virus will prove to be far more economically damaging than anything the actual virus does. While this is terrible for anyone that is seriously affected, for almost everyone else, it will be little more than an inconvenience. Humans are really good at rationalizing away risk. They will panic for a few days or weeks. But after the worst fails to materialize, people will get lazy and be less willing to tolerate the incontinence. They will wear masks for a few weeks, but after no one gets sick, they will stop bothering. Now parents are insisting schools close down. In a few weeks, these same parents will beg schools reopen. After 9/11, everyone claimed nothing would be the same. A few months later, the only thing that changed was airport security and a war half a world away. 

There is a good chance this is the market’s darkest day and everything starts getting better from here. I’m buying the dip, but I’m staying as cautious as ever. My positions are small and my stops are nearby. But even if I get stopped out, I’m going to try again tomorrow and the next day. The bottom is close, but in a world where markets move 5 and 10% per day, we definitely need to be careful. 


Trading Plan

Most Likely Next Move: The capitulation point is close and this headline tsunami could very well be our darkest hour. There is a good chance pessimism is peaking and going forward we will start seeing a lot more “less bad than feared”.

Trading Plan: Buy the bounce with a stop under the lows. Add to what is working but keep overnight position sizes modest until you have a comfortable profit cushion. If stocks bounce tomorrow, ride that wave higher. If they devolve into another panic, short the weakness. But when shorting, take profits early and often because the biggest up days always come in the worst bear markets. 

If I’m Wrong: The public starts dumping their 401k’s and this bloodbath is only getting started. Our stops will get us out and our plan will have us short further weakness. No matter what happens next, we are prepared and will profit from it.

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

Mar 11

Why the Coronavirus matters when Trade Wars and Brexits didn’t

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

Anyone following the market over the last few years came to appreciate this market’s Teflon nature. No matter what headlines were thrown at it, it shrugged them off and continued higher. Earnings recessions. Brexits. Trade Wars. Rate Hikes. Nothing slowed this market’s relentless climb to, and then beyond, all-time highs. That is until the Coronavirus came along and now we are in the middle of the biggest and fastest stock market crash since the 2008 Financial Crisis. Why this? Why now? What makes this different?

The simple answer is all of the other events were economically quantifiable. After a brief shock and a few percent corrections, traders were able to quantify the financial impact of 25% tit-for-tat tariffs between the US and China. The Brexit was a little less clear since no country left the EU before, but after a few gyrations, the market quickly realized both sides would work this out and even if they didn’t, both economies could survive the divorce even if it got ugly. Rate hikes? Been there, done that. All of these things were bad for stocks but after a brief bobble, traders got used to them, priced the news in, and moved on.

But the Coronavirus? Nothing like this happened in modern history. There is no telling how far the economic damage could go. Business travel is suspended. Conferences canceled. Festivals canceled. Sporting events canceled, postponed, or held without spectators. Even the Olympics this summer is threatened. Airlines are already reporting a bigger decline in bookings than they saw after the 9/11 terrorist attacks and there are few things more disturbing than the images we saw that day.

We haven’t seen anything like this in our lifetime and that makes it impossible to predict the economic fallout. By nature, markets hate uncertainty more than bad news. It can price in bad news and move on. But the unknown, how do you price that in? You can’t and is why many investors are taking a sell now, ask questions later approach to their portfolios.

And unfortunately, I don’t see the uncertainty clearing up anytime soon. But that isn’t all bad for the market. While the headlines will continue to deteriorate, with every passing day and each successive headline, there are fewer and fewer scared owners left in the market. Once the last of those have sold, supply dries up and prices bounce no matter what is going on in the news. While some people are waiting for a slowdown in the infection rate or a vaccine to be announced, the stock market will rebound from the lows long before then.

When will that bounce happen? The honest answer is I don’t know. And no one else does either. This is an emotional selloff and conventional rules don’t apply. Trendlines, support levels, moving averages, P/E ratios, all of it is totally and completely meaningless to an emotional market. This selloff will end when we run out of scared sellers. Nothing more, nothing less. Are we close, yes, we’re very close. The challenge is in a market that falls 4%, 5%, and 7% in a single day, an imminent bounce might come to our rescue, but prices could be at much lower when it finally happens.

This is a day-trader’s paradise. Everyone else should resist the urge to react to these gyrations. That means either sticking with your long-term positions and buying more of your favorite stocks, or watching this unfold from the safety of the sidelines and only jumping back in after the overnight gaps and intraday swings calm down. As the saying goes, it is better to be a little late than a lot early.

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

Mar 04

How the market’s behavior is going to change over the next few days

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 rebounded from yesterday’s Coronavirus tumble following Biden’s decisive comeback performance in Super Tuesday’s primaries. That said, the Biden bounce was actually short-lived and didn’t last much beyond the open. This market continues to live and die based on Coronavirus headlines. And while those headlines didn’t improve overnight, they didn’t get materially worse either, which at this point, is a good thing. Last week’s tumble from the highs priced in a tremendous amount of bad news and most likely took things way too far. So while the Coronavirus headlines continue to be overwhelmingly negative, the market actually rallied from the lows because things haven’t gotten a whole lot worse.

As I’ve been telling readers since last Monday, this is a volatile market and we should expect sharp moves in both directions. Emotional markets always take things too far. That means crashes that go too low are quickly followed by bounces that go too high. Now that we are a few gyrations into this, expect the size and speed of these swings to moderate. Volatility will definitely remain elevated for a while, but we won’t see violent whipsaws like we lived through last week and the first half of this week.

Unfortunately, those oversized moves were a lot easier to trade than the choppy phase we are moving into. That’s because previously, the market would move from one extreme to the other extreme before changing direction. Now that some of the emotion has moderated, these swings don’t drive as far and that means bounces and breakdowns can also occur in the middle of the range. Just like today’s rebound that took hold well above the prior lows. And the same could happen for the next peak. Rather than stretch all the way to the upper limit, we could stub our toe tomorrow morning and tumble back to 3k.

These erratic and choppy moves are harder to trade and require us to be even more nimble. That means we will make more mistakes and our profits will be smaller. And more than ever, we need to take profits early and often. Wait a couple of hours too long and nice profits will turn into disappointing losses. Just ask yesterday’s gleeful shorts.

If a person collected some really nice profits over the last few days getting ahead of these oversized moves, there is no reason to stick around and trade this chop. In fact, quite a few savvy traders could take the next 10 months off and still finish with an outstanding year. But if a person insists on trading this chop, always be on the lookout for the next reversal. We closed strong today and there is a good chance we will open strong tomorrow. But rather than buy that strength, I would be ready to short it at the first signs of weakness. Short early, start small, only add after the trade starts working, and take profits early. Then repeat in the other direction the next day. While these moves won’t be nearly as profitable as the ones already behind us, there are still profits to be had for proactive traders that know how to manage their risk.

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

Feb 24

What it looks like when I’m wrong

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 cratered 3% this morning after Coronavirus anxiety hit full-panic-mode over the weekend. This health epidemic continues to spread beyond Chinese borders. While the number of reported cases outside of China is still quite small, the fact western governments are unable to contain it is leading to some doomsday predictions.

Whether the market is right or wrong about the Coronavirus, it doesn’t matter, we trade the market we are given. As it stands, this 3% kneejerk reaction could go either way. We bounce sharply off the lows and never look back as confident owners continue ignoring every bearish headline. Or this massive strawbale shatters the camel’s back and turns formerly confident owners into a herd of panicked sellers.

Which is it? It is a little premature to say conclusively, but the market’s midday rebound gives us some hope. While there is no telling how far an emotional selloff can go, the fact stocks mostly traded around opening levels is a good initial indication. It signals most owners are staying calm and not rushing for the exits. The midday dip under the opening lows could have triggered another cascade of defensive selling, but within two hours, supply dried up and prices bounce back. It is definitely a tad early to be celebrating, but this is a good first step. Anyone with a little cash can buy the bounce and put a stop under the midday lows. As always, start small and only add to a position that is working. If prices go the other way and violate the lows, a short could position be called for. Times like this, we simply follow the market’s lead.

As for my personal trading, this morning’s tumble caught me off guard. Last Friday I liked the way the market went into the weekend and I put on a small position. I wrote about the reasoning here. The Cliff Note’s version is three weeks ago I had a great trade that started with buying a Coronavirus Friday slump. Two weeks later, the S&P 500 was nearly 200-points higher and I locked in some really nice profits. Last Friday’s setup was similar and presented an attractive opportunity. But as we saw today, there are no guarantees in the market. Luckily, this isn’t my first rodeo and I was prepared for this outcome, both strategically and emotionally.

First, I bought wisely last Friday. I entered nearly the daily lows and even more importantly, I started with a small position. I always start small and only add more money after the trade is working. That way, when I’m wrong, it doesn’t hurt and I’m still in a great position to jump on the next trade. Between experience and modest position sizes, waking up to a morning like this isn’t a big deal. In fact, I’m excited by today’s price action because this volatility screams profit opportunity.

This is definitely a buyable dip, the only question is how low we go first. While I took it on the chin this morning, I actually welcome this dip because there is far more profit opportunity following a 5% plunge than there would have been riding Friday’s 1% rebound.

We don’t get to chose the opportunities the market gives us and we need to be ready for everything. This morning’s tumble got me out of my small position, but as soon as I bailed out, I started looking for the next opportunity to get back in. An aggressive approach is buying the midday bounce with a stop under the lows. Buying this tumble means I can make even more money than if I were originally right about Friday. If I’m wrong, I get squeezed out and try again, this time buying even more attractive discounts.

The key to surviving this game is always trading from a position of strength. We don’t need to be right all the time, but we do need to know how to respond confidently to every situation the market presents us. Many times that response is even more profitable than if we had been right all along.

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

Feb 20

Should we be selling the dip or buying it?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 started the day with modest losses and even rebounded back to breakeven. But moments before lunchtime, the crowd got spooked and prices fell off a cliff.

If you believe the financial press, this waterfall selloff was triggered by a renewed fear of the Coronavirus epidemic and the impact it is having on the economy. Were these recycled headlines really worth falling nearly 30-points over just a few minutes? Or was something else at play?

As I wrote previously, here, here and here, this market likes to slow down and consolidate gains near the round 100-point levels. It has been a nice, nearly 200-point rally since the February lows. To expect this rate of gains to continue indefinitely would be a tad nieve.

If the market was going to pause at these levels anyway, it doesn’t really matter what the headlines are. Supply and demand needs some time to catch up and is the real reason stocks stalled under 3,400 this week. If it wasn’t these headlines, it would have been something else. Rally this far and inevitably you run out of new buyers. It is that simple.

Now that we know the real reason behind the market’s stumble, we are in a better position to figure out what comes next. Since this wobble was triggered by a supply and demand imbalance, not a fundamental change in the market’s outlook, this is nothing more than a routine and healthy dip. The kind that bounces within days, if not hours.

If we understand why the market is doing what it is doing, we are far less likely to overreact to these periodic wobbles. If a reader has been following along, they knew this was coming and included this possibility in their trading plan. Hopefully, you were taking some profits proactively last week and had cash ready to buy the dip. If not, don’t worry about it, there is always next time. Just make sure you create a plan ahead of time that includes possibilities like this and you won’t worry about days like today. In fact, you’ll be happy to see them because they are profit opportunities for those of us that come prepared.

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Feb 18

Why we don’t need to predict the headlines

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 slipped from record highs following the long Presidents’ Day weekend. The biggest market-related headline was Apple warning investors Coronavirus interruptions would cause the company to miss its revenue forecast. That disclosure renewed concern about the financial impact of this health epidemic half a world away. While today’s headlines and declining stock prices threw some cold water on the market’s previously blasé attitude, a 0.3% decline is hardly panic selling.

As I wrote last Friday, the market is quickly approaching 3,400 and that seems like a good place for the rate of gains to take a break. I didn’t have any insight into this weekend’s headlines, but I didn’t need to. The market is a pendulum and after swinging in one direction, it is only inevitable that it comes back the other way. If it wasn’t these headlines, it would have been something else.

The market receives mixed messages every day. There is never a day when the news is all good or all bad. What matters more than the headlines is where we are in the supply and demand cycle. The higher we go now, the harder it is for us to make that next push higher. Eventually, every wave higher runs out of momentum and the rate of gains either stalls or pulls back. Most of the time it has nothing to do with the headlines the journalists are pointing to. It is simply the laws of supply and demand coming back into balance.

Last Friday I suggested readers lock-in some worthwhile profits. Not because I knew something bad was going to happen. But because it was time. If we are in this to make money, the only way we do that is by selling our winners. Friday felt like a good time to lock-in profits and that’s what I did.

But the thing to remember, once we are out, the very first thing we do is start looking for the next opportunity to get back in. Maybe prices slip a little further and give us a nice dip-buying opportunity. Or maybe prices firm up over the next few days and we consolidate under 3,400. Hold here for a week or two and the market will be ready for its next rally leg. I don’t need to predict what the market will do if I have a trading plan that factors in these different outcomes.

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Feb 12

Is it finally safe to buy NFLX?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

Is it finally safe to buy NFLX?

Short answer:
Ummmm……No……..

Long answer:
If anyone finds themself asking this question, where have you been the last four months???

Without a doubt, NFLX looks good right now and is finally climbing out of the hole it put itself in last summer. But if a person is only noticing this now, they are a day late and a dollar short……or make that five months and $120 short.

NFLX disappointed investors last summer when its quarterly earnings report fell flat, triggering a long and bloody slide that shaved more than 25% off the stock.  But as is often the case, the market overreacted. After two months of relentless selling, long-time bulls finally reached their breaking point last September and unloaded the stock in the biggest three-day selloff since the initial earnings disappointment.

But rather than signal the start of the next leg lower, that frenzied selling represented the capitulation bottom. This is when things finally got “so bad they were good”. And that is exactly what I told subscribers when it happened.

As bad as NFLX looked back then, we should never lose sight of the fact risk is a function of height. The lower a stock falls, the less room it has left to fall. While we cannot use this logic on dying companies and obsolete industries, it works really well when we believe in the underlying fundamentals.

A person with a lot of courage and a sensible stop just under the lows could have bought NFLX last September when everyone else was selling it. The first good sign was when prices refused to undercut the lows and bounced. That was our signal to add more to our initial position. Then, a few weeks later, the company announced earnings in October. But rather than fear another earnings disappointment, savvy investors knew the latest selloff lowered expectations so much that this time around the bar would be far easier to clear. And as expected, the stock popped following earnings.

Unfortunately, nothing is ever easy in the market and regretful owners who bought at much higher prices used that post-earnings strength to finally get out. But as is usually the case, the crowd gets it wrong and that happened again here. Rather than fear another tumble lower, opportunistic investors should have been buying the stock. The worst was already behind it and sentiment had finally turned. From that point on, NFLX has done nothing but climb and today it is within a few points of making all-time highs.

Those that had the courage to go against the crowd are counting their profits. Those that listened to the herd are left wondering what happened. While I still like NFLX at these levels, buying now is definitely late in the game. While the stock will almost certainly continue higher, the easy money is long gone.

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Feb 11

Is AMZN the next TSLA?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

By now everyone is familiar with the wild ride TSLA took investors on and without a doubt, that story is far from over, but I will save that analysis for another day.  Today I want to write about AMZN and the hints of similarity its recent price action has with TSLA’s explosive move.

AMZN reported better than expected earnings two weeks ago and the stock popped 10% the next morning. That opening surge put the stock back near all-time highs and it spent a few days consolidating those gains. The initial risk was a conventional retreat that closes the gap, as is typical following big moves. But AMZN bulls are a stubborn bunch and resisted the temptation to take profits. Instead, after a few days, the stock started climbing again. And more than just climb, the last three sessions it started racing higher.

While AMZN has been on my radar for a long time and I told subscriber before earnings that a strong result would push the stock into record territory, this sharp acceleration the last few days really stands out. While I would be suspicious of something like this during more normal times, that buying frenzy in TSLA shows just how extreme buyers are willing to take things.

Now, I need to preface this by saying this is still a remote possibility and I am not predicting this is what will happen. I am simply saying this could happen. And if it does happen, we need to remember AMZN is 10x the size of TSLA and there is no way AMZN can climb 50% in two days. That said, AMZN stock owners are nearly as “cultish” as TSLA owners and this type of fanatical ownership group can lead to some extreme moves. Could we be on the verge of one of these extreme moves? This is really starting to feel like it.

First, there is no way I would want to be short AMZN at these levels. Without a doubt, a lot of TSLA’s lift came at the expense of short-sellers getting squeezed out at steep losses. And we could see a similar phenomenon in AMZN. If you are short AMZN, do something to protect yourself. If you are contemplating shorting AMZN don’t!

Second, if someone wants to get on this ride, remember, this is an extremely risky and low probability trade so adjust your position size accordingly. Start small and only add after it starts working. And not only that, keep a hard stop loss. Probably starting with something near $2050 and then move your stop up as the stock climbs.

And third, this is a quick trade. If this takes off, please don’t fall in love with it. Take profits quickly and don’t feel bad if you sell too early. People who ride these moves all the way to the top inevitably ride them all the way back down. Don’t be that guy.

How high could this go? I have no idea. But if a person has a huge appetite for risk, this could be an entertaining ride. Just be sure to keep your head screwed on tight and don’t fall for the hype if it works out.

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Feb 07

Is there such a thing as “too good”?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The monthly employment report came in better than expected. In fact, the market actually thought it was a little “too good” and the S&P 500 dipped on the news. Traders are not rooting against the US economy but they are leery an overheating economy will pressure the Fed to back away from its accommodative monetary policy.

While people have feared “too good” for years, good news hasn’t held stocks back in more than half a decade. But old habits die hard and people keep reflexively selling good news because they think maybe this is the one that finally breaks this bull. Yeah, I don’t think so. This logic didn’t work last time and there is a good chance it won’t work here either.

Investors are also a little skittish about potential Coronavirus headlines over the weekend. Two weeks ago the market was hammered Monday morning and there is still a little “better safe than sorry” thinking going around the market ahead of this weekend.

But the thing about selling ahead of time is it actually reduces the risk of holding through the weekend. The more stocks go down now, the less room they have to fall Monday morning. This isn’t to say we cannot open even lower, but today’s 20-point decline took some sting out of any headlines that might crop up this weekend. And if nothing bad happens, expect those 20-points to come racing back Monday morning. We fear a market that is oblivious to the risks, not one that is preparing for them.

So far the market is acting really well and anyone who bought last Friday’s dip or this Monday’s bounce is sitting on nice profits. Move your stops up and start reviewing your plan to take profits. When the crowd finally starts thinking it is safe to start buying again is when we want to be selling.

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Feb 04

The right way to buy this rebound

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The following is a brief excerpt from the Premium Analysis email I delivered to subscribers today during trading hours and builds on Friday’s free post. Since this covers exactly what I wanted to write about this evening, why recreate the wheel? If you like what you see, have this and more delivered to your inbox every day during trading hours while there is still time to act on these insights.

The S&P 500 popped this morning and is inched toward 2% gains. What was the source of this strength? Well, if we go strictly by the biggest headlines, it is the ever-expanding Coronavirus epidemic and the voting mishap in Iowa. Those seem like strange headlines to rally on but that is exactly what we got.

Obviously the market isn’t rallying because of those headlines. But more importantly, we can say the market is rallying despite those headlines. Traders are shrugging off news that very easily could have sent us tumbling under the lows again. Instead, most people are choosing to ignore the noise and are buying stocks anyway. The encouraging sign is there are few things more bullish than a market that refuses to go down on bad news.

Granted, this is only the second day of this rebound attempt and it is definitely premature to claim the selloff is dead, but this is definitely a good start. If this market was fragile and vulnerable, today’s headlines were definitely bearish enough to send us lower. Instead, prices bounced and that tells us this market wants to go higher, not lower.

The market looks great, unfortunately, anyone who waited for the clouds to clear missed a lot of this week’s discounts. And more than just paying higher prices, these gains expose late buyers to the increased risk of an intermediate dip. The best buys always come when uncertainty is at its highest. Throwing some money at the market Friday afternoon and yesterday morning was tough, but those smart buys gave us 1) good entry points, 2) the safety of nearby stop-losses, and 3) a fair amount of profit cushion to ride out any near-term undulations.

As always, the best plan is to start small and add to a position only after it starts working. A small buy on Friday afternoon was followed up by another position Monday morning. Do that and we are in good shape to add a little more today. The challenge with today’s purchase is the sensible stop-loss is all the way back at yesterday’s close. Not ideal, but we have to take what the market gives us. At least the prior profits give us some padding to cushion against any near-term gyrations.

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Feb 03

Why TSLA is going to be like TSLA

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Normally I like to mix the subject of these free posts up a bit, but TSLA keeps dominating the headlines and it is hard to ignore what is going on over there.

Shares exploded 20% today and you’d think the company made a huge breakthrough. Nope. An anonymous analysist upgraded the stock. While an upgrade is definitely better than a downgrade, the thing to remember about analysts is if they knew how to trade, they wouldn’t be an analysists. Think about that the next time you feel the urge to trade based on their opinions.

As for my opinions, I got a fair amount of criticism for my post last week when I said people need to be careful chasing TSLA at these levels. While I’m sure my critics are strutting around today, this pop doesn’t change anything. This is an incredibly dangerous place to be buying the stock and I have no doubt it will end in tears for many people.

I’ve been doing this a long time and could cite countless examples from WMT, MSFT, PALM, AOL, BB, Oil, Gold, Bitcoin, or any of the thousand other investments that made explosive moves. But if I did, no doubt my critics would complain that TSLA is different. Okay fine, I can work around that. Let’s compare TSLA to TSLA.

TSLA came public in 2010 at $17 and obviously it’s been a great ride since then. But it hasn’t been all up. In fact, there has been a whole lot of down along the way. Everyone knows the market moves in waves, but somehow they always forget that basic fact when the market is at the top and the bottom of a wave.

Last year people were writing TSLA’s obituary. Now we have other people claiming it will take over the world. Who is right? Easy, neither! Don’t fall for this extreme thinking. In fact, when the extremists take control of the conversations is when we need to be the most afraid.

In the attached chart, you see the five different occasions TSLA stock fell nearly 40% and on three of those, the losses exceeded 50%. Owning a stock that’s tripled over the last few months is great, but don’t mistake serendipity for skill. Remember, if we are in this to make money, the only way we do that is by selling our favorite stocks. While the fools are spending all of their time daydreaming about what they will buy when the stock breaks $1,200, smart money is selling their stock to those greedy dreamers.

As I said in my last post:

Now don’t get me wrong, I’m not calling today a top and I most definitely wouldn’t short something just because it is “too high”. But I do know for certain at some point soon this stock is going to come crashing back to earth and anyone who is patient will be able to buy all the TSLA they want at lower prices.

That is even more true today than it was last week. But feel free to ignore me because without a doubt “this time is different”.

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