Category Archives for "End of Day Analysis"

May 12

The start of something bigger or more of the same?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 opened with modest gains, but that was as good as it got and prices quickly retreated back near breakeven, where they remained through midday. Unfortunately, the situation got even dicier after Anthony Fauci testified to Congress that he felt many of the states’ reopening were acting prematurely given federal infection and testing guidelines. Any threat to the recent wave of economic reopenings put investors on the defensive and stocks ultimately finished 2% lower following an acute wave of selling into the close.

Stocks have been trading really well the last few weeks, rebuffing every bearish headline and they continued hovering near the rebound’s highs despite the economic carnage surrounding us. Did today’s late-session selling change anything? Or is this more of the same and the rebound will be back to normal tomorrow?

This is one of those half-full, half-empty situations. How you feel about this market determines how you view today’s late swoon. Bulls think this is more of the same and are not worried. Bears are hoping this is finally the long-awaited pullback.

Which side is right? There are legitimate cases for both outcomes and unfortunately, only time will tell. That said, just because we don’t know what happens next doesn’t mean we cannot come up with a sensible plan to trade it. We know this market will either breakdown or it won’t. If it breaks down, we short it. If it doesn’t breakdown, we don’t do anything. Pretty simple, eh?

Pick a level tomorrow, maybe the market’s open. If prices fall under that mark in the first 30 minutes, short it with a stop just above the early highs. On the other hand, if prices rally above the opening levels, don’t do anything unless prices retreat under those early levels. That’s where go short with a nearby stop.

If this market is finally breaking down, it will be spectacular. If we get anything short of spectacular Tuesday or Wednesday, then the status quo remains in effect and this is still a strong market. If there is one thing bears learned over the last few weeks, we definitely don’t want to short a strong market.

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

May 07

TSLA: Hitting its head on resistance or refusing to go down?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

TSLA has been struggling with $800 resistance the last two weeks. The most promising day occurred last week when the stock smashed through resistance following a strong earnings report, yet more ominously, it tumbled 10% from those early highs and finished the day solidly in the red.

I won’t bother with a fundamental analysis of Tesla. Number one, there are plenty of other articles written about how under or overvalued TSLA is (take your pick). But more importantly, number two, I don’t care. I trade the stock, not the company. If it wants to go higher over the near-term, I’m more than happy to hop on and enjoy the ride. If it wants to go lower, I can do that too. By the time the stock eventually settles into its “true” value, I’ll be long gone and it doesn’t matter to me.

Back to the stock, there are two ways to interpret this price action just under $800. What a person sees largely depends on their preexisting bias. Bears see a stock hitting its head on resistance and on the verge of tumbling back to $600 support. On the other side, bulls see a stock that refuses to go down. And the best part about a stock that refuses to go down? It eventually goes up.

Last week I would have sided with the bears. Smashing through resistance following a strong earnings report only to be overwhelmed by a tidal wave of profit-taking is never a good sign. And then the next day Elon slammed the stock even further by calling it overvalued. Yet rather than unleash waves of follow-on selling, supply dried up and prices bounce back to $800 and have been stuck there ever since.

For the time being, this is a strong sign and breaking through resistance in a sustainable way seems inevitable. That means the most likely next move is higher and if we get through $800, then all-time highs near $1,000 is the next stop. But that’s a big “IF”. If prices remain stuck under $800 into next week, this starts looking a lot more like stalling and the real problem turns out to be a lack of demand.

Which is it? Who cares? As nimble independent investors, we don’t need to commit ourselves to these positions ahead of time. Wait for the $800 breakout, buy it, and keep a stop under this level. If prices race higher, hang on and enjoy the ride. If the retreat again, bail out and go short. While I don’t know for certain which way this stock will go next, I do know it will move fast once it makes up its mind. Whether that is up or down, I don’t care as long as my trading plan keeps me on the right side.

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

May 06

The bearish developments that could be taking place under our nose

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 is perfectly content hanging out between 2,700 and 2,900, a range it’s been stuck inside since early April. As shocking and unprecedented as the headlines have been, it is definitely strange to watch stocks slip into a relatively tight trading range.

Uncertain markets are typically volatile. And without a doubt, this market had its share of volatility in February and March. And by some measures, it is still incredibly volatile with 2% and 3% moves occurring multiple times a week. The difference is now most of these big swings are offset by equally large swings in the opposite direction. One day up, the next day down.

One way to interpret this sideways grind following a strong runup is distribution. Smart money is getting out and dumb money is getting in. And to a certain extent, it is hard to not see that point of view when looking at this stubbornly resilient market. This is the worst economy since the Great Depression, yet the S&P 500 is only down 15%. The Nasdaq even less. Something definitely doesn’t compute.

The next big move hinges on what comes next. Do infection rates continue to moderate? Will the virus largely disappear once warmer summer temperatures arrive? Will a stir-crazy public start going back to their normal routine even without a vaccine? That’s the scenario this optimistic market is pricing in. And so far that is the way things are progressing.

But success in the market doesn’t come from predicting what comes next. It comes from understanding the risk/reward and exploiting skewed opportunities to our advantage. If the market is expecting good things, then most of those good things are already priced in and there is not a lot of upside left for recent buyers. On the other hand, these optimistic projections put a lot of air underneath us if there is even the slightest hiccup along the way. Limited upside and unlimited downside, that’s definitely not a risk/reward skew I want to own, let alone be buying.

I like the way this market is trading and it deserves our utmost respect. Only a fool is stubbornly shorting this strength. But the bear is no more foolish than bull buying stocks with reckless abandon at these levels. Both sides are making the same mistake and allowing their bias to cloud their judgment. While these ideologues are arguing why their side is better than the other, opportunists are grinding out a few bucks from this rally and that dip. Smart money doesn’t care who wins. All they care about is following the market’s lead.

While I don’t trust this market, I know better than to fight it. I’m fully prepared to short this strength, but I won’t pull the trigger until I see those cracks forming. And if those cracks never show up, then I’m just as content grabbing this rebound and riding it all the way back to the highs. It makes no difference to me** as long as I’m making money. (**For the country and front-line workers, I definitely hope this is a sharp v-bottom recovery taking the economy back to the highs a quickly as possible.)

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

May 04

The right way to admit defeat

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 started the day in the red and threatened to extend the losing streak to a third day. But those early lows were as bad as it got and prices eventually rallied into the green by the close.

There are few things more popular in the market than predicting this rebounds demise. And without a doubt, I was on that side too. Markets move in waves and following such a long and sharp rebound, a pullback is inevitable. But the more people called for it, the more the market resisted.

While I’m still cautious around this market, I know better than to fight a market that isn’t doing what it is supposed to be doing. We have to respect this market’s strength and that means being quick to get out of the way. Last Thursday and Friday gave us an opening to short the rebound, but rather than accelerate lower, the selling stalled this morning and we finished near the day’s highs. That tells us supply remains stubbornly tight. No matter what the headlines say, when owners refuse to sell, stock prices defy gravity.

The next pullback is coming, but we need to be extremely careful trading for it. Trading against a trend is one of the most difficult ways to make money because it requires impeccable timing. This is definitely an “experts only” kind of trade. Most people are better off waiting to buy the dip. But for the more adventurous, recognize early when the trade is not working as planned. Use that as your signal to pull the plug. Do it right and you will often abandon a bad trade while it still has a small profit! Very rarely do we need to wait for our stops to be hit before recognizing the trade isn’t working as designed.

That’s exactly what happened to me today. I shorted Thursday and Friday. But when the market was trading resiliently this morning, I used that as my sign to collect my modest profits and wait for the next trading opportunity. I didn’t need to wait for the losses to pile up before admitting defeat. There are few things better actually collecting a profit after being wrong.

Now, who knows, maybe I should have continued to hold my short position this afternoon. But I’m a nimble trader and if the short trade starts working again tomorrow, I can always jump back in. I always find it better to be out of the market wishing I was in than in the market wishing I was out.

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

Apr 30

What comes next for $TSLA

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

TSLA exploded higher at the open after first-quarter earnings shocked Wall Street with a healthy sized (paper) profit. Plenty of other contributors are covering the earnings report so I don’t need to rehash the details here. More interesting to me is today’s subsequent price action. After smashing through $800 resistance at the open, that was as good as it got for the stock. The rest of the day was spent giving back all of those gains and eventually skidding into the red.

Since early February, I’ve been saying $800 was a key level for the stock. Back then it was a critical stop-loss for protecting profits following Dec-Jan-Feb’s spectacular surge higher. Then in early March, it became a ceiling for the subsequent rebound and most recently, it was a smart level to be taking swing-trading profits near following the $600 breakout.

After taking profits near $800, the plan was to get back in by either buying the dip to $600 support or a breakout above $800 resistance. With the stock trading in the middle of the $600 to $800 trading range, it could have gone either way. This time it happened to push back to $800 and breaking above $800 yesterday near the close created a buying opportunity.

Everything looked great this morning following the stellar earnings and the market’s initial enthusiasm. But rather than embrace the higher prices, traders started locking-in profits and shorting almost immediately. That’s never a good sign. We want to see follow-on buying, not overpowering waves of profit-taking. That tells us more investors are concerned about these highs than they are excited to chase them. In the “next greater fool” theory of trading, it appears (at least for the time being) we ran out of new fools.

I’m not ready to give up on the stock yet and a rally back above $800 is still buyable. But if prices cannot get back above $800, that tells us demand is a serious problem. If $800 turns into a ceiling, that is a great short entry with a profit target near $600 support.

As usual, no matter which way this goes, start small, get in early with a nearby stop, only add once the trade starts working, and if we get stopped out, consider switching directions and going the other direction. Being wrong is okay as long as we admit defeat early and start preparing for the next trade as soon as we jump out.

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

Apr 28

Did this rebound finally crack?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 gapped 1.5% higher at the open, reaching the highest levels since early March. Unfortunately, that was as good as it got and prices skidded back to breakeven in the first two hours of trade. And just as concerning, prices eventually finished near day’s lows.

While the market only gave up a seemingly trivial 0.5% and it remains just under recent highs, it is never good to see the market retreat from a push to new highs. Rather than embrace this strength, traders were more inclined to take profits. That’s the first real sign we’ve seen this rally could finally be running out of enthusiastic buyers willing to keep chasing prices even higher.

Anything can happen on any given day and we shouldn’t read too much into a single day’s price action. But this fizzle is definitely enough to give us pause. And the significance increases exponentially with each additional piece of concerning information we get over the next few days. Maybe the market shrugs this off tomorrow and prices continue rallying. But if we see further weakness develop over the next day or two, this could finally be the start of the long-awaited pullback.

Now I want to be clear, I’m most definitely not calling for a big crash. This market is trading really well and at this point we have no reason to doubt the sustainability of this larger rebound. But at the same time, everyone knows even strong markets move in waves and it is only time before this one experiences a perfectly normal and healthy pullback to support. Maybe this is finally that time. Or maybe this turns into something bigger. Lucky for us, both trades start the same.

If we see more intraday rallies fall victim to waves of profit-taking over the next few days, that is the first signs demand is falling off. If prices bounce and close strong, all is forgiven and forgotten. But if prices keep closing weak, that tells us the pullback is finally upon us. Another midday fizzle gives us a short entry and if prices close near the daily lows, it is worth holding a small short position overnight. But as I said earlier, close strong close and all short trades are off. If this turns out to be another false alarm, no big deal. We cover and try again next time.

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

Apr 23

The best way to approach this trading range

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 continues consolidating inside the 2,700 and 2,900 range. We’ve been stuck in this region for two weeks following the mammoth rebound from the March lows. Thus far, the market refused multiple opportunities to breakout/breakdown and no matter what the bulls and bears claim, it continues chugging sideways.

It’s been a fantastic run and obviously the market deserves a break following a historic 20% surge. There are two ways markets rest and reset. The first is a more conventional pullback to support. The proverbial, two steps forward, one step back. That’s what a lot of people, myself included, were expecting. But as resilient as this market’s been over these two weeks, most longer-viewed owners are refusing to sell their favorite stocks at a discount. When owners refuse to sell, it makes no difference what the headlines say or what the experts think prices should do.

That said, supply is only half of the pricing equation. While owners are supporting prices by refusing to sell, our upside momentum has been blunted by prospective buyers refusing to pay ever-increasing prices. Owners not selling and those with cash not buying is the recipe for a sideways grind.

Which side caves first? That’s a good question and unfortunately, I don’t have the answer. Bulls have a good case that many states are already starting to reopen their economies. On the other side, bears point to the sharpest economic contraction in modern history and a stock market that’s only down 15%. There’s something definitely wrong with that calculus. Either stocks are way too high or the economy will bounce back a lot quicker than the headlines portend.

Luckily for us, we don’t need to place our bets just yet. As independent investors, our greatest strength is the nimbleness of our size. Rather than commit to one side or the other, we should wait for the bandwagon to start rolling before we jump aboard. Only the partisans need to be right. The rest of us are satisfied collecting a few bucks jumping aboard this no matter which way it goes.

Until proven otherwise, assume any dip to 2,700 will bounce and rally to 2,900 will stall. Buy the bounce off the lower end and take profits at the upper edge. If the market breaks above the highs or breaks under the lows, close those positions and flip the other direction. By staying nimble, we can profit no matter what the market does next.

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

Apr 21

Is it finally time to short this market? (and how to do it safely)

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 shed 3% Tuesday, adding to Monday’s nearly 2% decline. As well as the market has been trading lately, these two sessions closed nearly the daily lows and their price action stands out like a sore thumb.

Stocks have been defying gravity every since they launched off of the March lows. This has been one of the biggest and fastest rebounds in history and most seasoned observers were skeptical this strength could last given the frighteningly dreadful economic headlines surrounding us. But the same thing could have been said last week and the week before that. And unfortunately, a lot of anxious bears got themselves run over shorting this meat-grinder rebound a little too early.

As I often say, knowing what the market will do is easy, the hard part is getting the timing right and that’s where all the money is made. Without a doubt, this market was going to pull back, the hard part is knowing when. Are we finally at that point? Great question but if we are approaching this the right way, it shouldn’t matter.

Far and away the greatest strength we have as independent traders is the nimbleness of our size. We can go from full long to full short with just a few mouse clicks. We don’t have big money’s army of analysts, supercomputers, or inside connections, but those things are not necessary if we know how to exploit our size. We don’t need to know what the market will do ahead of time because we are fast enough to react to events as they happen. Rather than short the pullback before it rolls over, we can (and should) wait for it to happen before we jump aboard that move lower.

The keys are knowing what signals to look for and then being able to recognize quickly when we get it wrong. Get in, get out, and try again. That’s the formula for our success as independent traders. With that approach, we don’t need to predict the future. We simply react to it as it happens in realtime.

Yesterday’s weak close, this morning’s early dip and finishing again near the daily lows gave us the first interesting overnight shorting opportunity in a while. For several weeks I’ve been day-trading this market because opening gaps have been large and unpredictable. But this is the first time in a while I felt like there was something worth holding.

That said, this trade needs to be done carefully. Shorting today’s weak open gave us a profit cushion going into the close. And more than that, locking-in a portion of profits this afternoon both guaranteed some profits and reduced our exposure by leaving us with a smaller position.

If the short trade doesn’t work tomorrow, it won’t hurt much between the reduced position size, existing profit cushion, and the portion of profits already locked-in. If that’s the case, we get out and try again next time. But if it works, add more at the open and see where it goes. Close weak for the third day and we follow the same formula tomorrow afternoon.

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

Apr 20

How to trade a market that lost its mind

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

As unprecedented and historic as this global shutdown has been, it keeps throwing curveballs at us that only a few weeks ago seemed too absurd to even be worth hypothesizing over.

The lastest unprecedented development was the most spectacular collapse in the history of commodity trading. $22 oil was shocking enough. Then we got barrels trading at $8 on the spot market a few days ago. But that was only warming us up for the main event.

People’s jaws were on the floor this afternoon when oil contracts for May delivery fell under one dollar. Fifty cents for 55 gallons of oil? Surely it couldn’t get any worse than that. And moments later, it did exactly that.

Traders were so desperate to avoid taking delivery of physical oil they became willing to pay people to take their oil. That’s just how bad the current situation is. And not just a dollar or two. The day closed with oil trading at minus $37 dollars! That’s right, traders were so desperate to get out of their positions they would pay you $37 for every barrel of oil you take off their hands!

How did one of the most important commodities in the world go from a coveted resource to something akin to raw sewage that requires payment to be disposed of?

But just as shocking as the collapse of May’s oil contract was the stock market’s indifference to it. The neighbor’s house was burning to the ground and the S&P 500 was too busy organizing its sock drawer to even look out the window.

Two months ago, if you told me oil would fall $55 dollars in a single day, I would have expected all financial instruments to be imploding. But not today. Today, it was just another headline the S&P 500 is ignoring.

At this point, we have three options. Argue with the stock market, fall in line, or get out of the way. No one wins an argument with the market, so please don’t do that. For our longer-term investments, buying at these levels still represents a decent discount if we plan on holding for a couple of years. For anything else, get out of the way!

There is a saying in the market, missing the bus is better than getting hit by the bus. If we don’t feel comfortable buying this strength for a long-term investment, there is nothing wrong with sitting this one out and waiting for a better opportunity. Remember, often the best trade is to not trade. Until the risk/reward lines up in our favor, wait patiently on the sidelines. That means waiting until this rebound is breaking down before shorting it. Or for the less aggressive, buying the next dip. But whatever you do, don’t allow yourself to argue with this strength.

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

Apr 16

What’s going on with TSLA and AMZN?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

After weeks of dramatic moves, the S&P 500 finally seems to be getting comfortable at current levels. While we are still experiencing elevated volatility with 1% and 2% daily moves, they have largely been offsetting each other from day-to-day around 2,800.

While the market has been finding its footing, there are a few stocks that have definitely been taking advantage of this calm to reassert their dominance. NFLX and AMZN are inherently well-positioned to do well during these lockdown times because they cater to customers at home.

As expected, these two companies navigated last month’s stock crash relatively well, losing less than the indexes. No surprise there. But then something curious happened Monday. Investors started piling into these stocks with reckless abandon. There wasn’t a definitive headline driving this strength. Instead, retail investors were hungry for something to throw their money at and these two stocks happened to be the beneficiary.

Fundamentally, nothing changed between last week and this week for NLFX and AMZN. Neither one found the cure to the Coronavirus or unlocked the secretes to sustained fusion. These were some of the best run and best-positioned companies last week when no one was paying much attention to them and they are the exact same well-run companies this week. The only thing that changed is they are now popping up every Tom, Dick, and Harry’s stock screen. Nothing attracts a crowd like a crowd and these two mega-caps are the hottest thing going right now.

Of course, this should look familiar to anyone who’s been following the market over the last few months. In late January, we saw the same thing happen with TSLA. A company that was doing well and going about its business when all of a sudden it became the hottest trade in the market, for seemingly no explicable reason. There wasn’t a headline breakthrough. TSLA reported earnings a couple of weeks before and showed a small profit but not much happened after earnings. And then all of a sudden, one day out of nowhere, the stock started racing higher, much like NFLX and AMZN are doing today.

Like TSLA before it, NFLX and AMZN are nothing more than momentum trades. People want to get in because they’re afraid of being left out. They’re not buying AMZN and NFLX because they love the companies. They’re buying them because everyone else is buying them. And unfortunately, these things rarely end well. I warned people to lock-in TSLA profits when the stock slipped under $800 and I definitely hope a lot of readers heeded that advice. As similar as NFLX and TSLA’s stock charts look here, only a fool would expect this to end any differently.

Unsustainable moves are unsustainable. They’re great while they last, but always recognize it for what it is. Stick with what is working and ride this higher, but never let it go to your head. Make sure you stay disciplined and use a trailing stop to protect your profits. No doubt this will pop like all of the other unsustainable surges higher that came before it. Some people will make money and other people will lose money. Make sure you are one of the people who end up on the right side of this trade.

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