Category Archives for "End of Day Analysis"

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

Apr 15

Is this market too hot, too cold, or just right?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 gapped lower at the open, making this the fourth consecutive day of large opening moves in opposite directions. One day the bulls are in charge, the next day belongs to the bears. As much passion as there is in the market, both sides have been equally wrong about this one.

Over the last few weeks, I’ve been discussing strategies to trade this rebound. Today I’m shifting gears and will get into why the market is doing what it is doing.

While it isn’t hard to point out a few historical examples of the market getting things wrong, the thing we need to remember is the market is right far more often than it is wrong. These cherry-picked instances ignore all of the other times the market got things right. This also means when the market is not doing what we think it should be doing, the very first thing we should question is ourselves. And even more important than who’s right or wrong, the market determines our profits and losses and by that measure, it is always right. Rather than fall into the argument of why the stock market should be dramatically higher or lower than it is right now, let’s figure out why it is where it is.

Tumbling 20% from the highs of only a few weeks ago is a dramatic move. But these are dramatic time and this kind of reaction is logical and expected. The world looks nothing like it did at the start of the year and that means the stock market should obviously reflect this new reality. Where we run into disagreements is if -20% is too hot, too cold, or just right.

At this point, most investors are encouraged by the moderating infection rates and they are hopeful people can start going back to work in a few weeks. This will require obvious adjustments to our old routines to include social-distancing and protective measures, but it will be a good start that gets most people back to doing what they need to be doing. There will be some outliers like concert venues and movie theaters that will continue suffering from bans on large groups, but the rest of the economy should start thawing soon. Or at least that is the market’s current expectation.

While the upcoming earnings reports will be some of the worst in history, the thing to remember is the market doesn’t care as much about what happened last month or what will happen next month, it is looking six months ahead and wants to know where we will be this fall. As bad as things look now, if the market expects economic activity to be picking back up this fall, that is how it will price stocks today. Everyone knows our economic numbers will be shockingly bad. But that also means we can assume this is already priced in. Just like the market, our attention needs to be focused on is where the economy will be six months from now.

As for this -20%, the bears think we haven’t fallen far enough and bulls believe prices are already too low. Split the difference between these two extremes and we end up right where we should be. That said, it is impossible for the market to stay at one level so we should expect these volatile gyrations to continue for the foreseeable future. But no matter how high or low we go, unless something dramatic happens (i.e. a vaccine is released or a flare-up races out of control), expect these big swings to cancel each other out and for the prices to move mostly sideways around these more moderate levels. That means buying the bigger dips and selling the bigger rebounds for the next six months.

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

Apr 13

Don’t count this rebound out just yet

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 stumbled at the open following the long holiday weekend. Coronavirus headlines were actually fairly encouraging with infection rates moderating in a lot of areas. Unfortunately, much that optimism was already priced in during last week’s 12% surge. Now that we are at the upper end of the recent range, the market requires even better news to keep pushing higher and today’s headlines didn’t cut it.

That said, after the morning’s selling ran its course, the market held up surprisingly well. I’ve been one of the countless cynics that are suspicious of this market’s nearly 30% rebound from last month’s lows. But despite the widespread criticism, this market keeps hanging in there. And today’s price action was no different. Rather than devolve into a mass of panicked sellers, supply dried up in late-morning trade and we spent the rest of the day climbing out of that hole. While prices still finished in the red, I actually count this as a win for the bulls. When owners were given the invitation to sell, they shrugged and bought the dip instead. How much longer this lasts is anyone’s guess, but for the time being, the market is still acting well and it still demands our respect.

While odds are high the market will stumble and test support at some point, it doesn’t seem like we are at that point yet. Maybe it finally happens tomorrow, the day after, or even next week. But either way, we need to be careful shorting a resilient market. Lately, I’ve been day-trading this market because I’d rather not be caught on the wrong side of a 3%, 4% or even 5% opening gap. There is still plenty of money to be made trading during regular hours and most importantly, this allows us to exercise prudent risk management by preventing prices from leaping over our stop-losses in the middle of the night. While I might miss some profits when the market gaps in my direction, inevitably, I am also missing those days when it would have run over me instead.

I don’t need to make all of the money, just the easier, lower risk stuff. I’ll leave everything else to the gamblers. If you want to read how I’m trading this market, check out last week’s free posts.

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

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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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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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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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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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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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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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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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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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