Category Archives for "End of Day Analysis"

Dec 20

How even a bull could tell something was wrong

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

Thursday was another brutal session for the S&P 500, and we now find ourselves 16% under the October highs. The latest fears stem from Trump’s threats to shut down the government if Congress doesn’t fund his wall. These headlines pile on the already fragile sentiment brought on by Trump’s trade war and the Fed’s latest round of rate hikes.

October’s stock crash was initially triggered by a spike 10-year Treasury rates. The ironic thing is interest rates have done nothing but tumble since then. But despite the reprieve in rates, the market has not been able to find its footing given the relentless barrage of bad news. In addition to the problems I already mentioned, Trump’s trade war is slowing global growth, and the US had a high profile Chinese executive arrested. Mix in fears the US economy is overheating, contracting, or somehow doing both at the same time and it becomes the perfect cocktail for impulsive herd selling.

I will be the first to admit I never expected the dip to get this carried away. But this isn’t a surprise. The market has a nasty habit of pushing things so much further than what is reasonable. And clearly that is the case here.

But just because I’m bullish doesn’t prevent me from profiting from this dip. While the initial selloff caught me off guard, the subsequent volatility created a rich hunting ground. I told readers in October that too much damage was done to sentiment in the first round of the selloff and we should not expect a quick return to the highs. That told us to greet every rebound with suspicion and be taking profits, not chasing prices higher. And the same applied to each dip, rather than sell the fear, I was buying it. Buy the dip. Sell the rip. Repeat.

I was, and continue to be bullish, so that made me reluctant to short the bounces, but even just buying the dips has been quite profitable and the extreme volatility allowed me to do in hours what it took weeks to achieve in a slower market. But even though I was bullish, I still had key levels I was watching. Last week after the market closed at 2,650, I wrote the post, “What this market needs to do to keep my faith“:

“the last three day’s has seen early gains fizzle and we closed well under the intraday highs. Multiple weak closes is never an encouraging sign. And as usual, the market is giving us conflicting signals. It is up to us to determine what it means.

I really like how decisively the market held support this week. But I’m disappointed we couldn’t add to those gains and these weak closes are a concern. What does this mean for what comes next? Unfortunately, this is one of those situations where we don’t have enough information and we need to see what the market does next.

A decisive rally Friday tells us all is well and we are on our way back up to 2,800. But a fourth weak close means a near-term test of 2,600 is ahead.”

The next day the market gave up early gains and finished flat. That warned us something was wrong and we should avoid the market. A day later, prices stumbled to 2,600 support and it’s been downhill ever since.

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But that was then and this is now. What readers really want to know is what comes next.

While I like these discounts, the looming holidays complicate the situation. What would normally be an attractive buying opportunity might struggle to get off the ground since big money already left for Aspen. Their absence puts impulsive retail investors in charge and that is rarely a good thing. Luckily, these little guys have small accounts and their emotional buying and selling cannot take us very far.

We saw similar emotional selling knock 100 points off the market during the Thanksgiving week. But a few days after the holiday, the market rallied 170-points when big money returned to work and started snapping up the discounts. No doubt we could see the same thing this time around. Unfortunately, January’s reprieve is still a ways off and until then we are subject to the whims of impulsive retail traders. But as I said, the saving graces is retail traders don’t have a lot of money and it won’t take them long to run out of things to sell. Once they’re out, the selling pressure evaporates and prices stabilize.

Or we could run around like chickens with our head cut off. You decide.

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Dec 18

Has anything changed?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

It’s been another rough stretch for the S&P 500 as prices tumbled to the lowest levels of the year. Monday crashed through 2,600 support, triggering an avalanche of defensive selling that didn’t stop until we fell another 50-points. Tuesday was a little bit better since prices closed unchanged, but that disguised the fact early gains didn’t stick and we stumbled back to breakeven. Few things are more disheartening than fizzled rebounds.

Bears want us to run screaming from this market because it is so obviously doomed. Unfortunately for them, they are living in the rearview mirror. They are beating their chest over what has happened. But in the market, we only profit from what is ahead of us. Currently, the market rests 13% under the 2018 highs. The question we need to be asking is if it better to be selling these discounts, or buying them?

A quick history lesson. The S&P 500 has only fallen more than 15% from all-time highs 11 times. The last two times were the dot-com bubble and the 2008 financial crisis. Do current conditions resemble the dot-com bubble where average p/e’s of tech companies were nearly 100? Or the financial crisis where the entire banking sector was so overleveraged it nearly went out of business? Some people think so and clearly they should be selling everything they own and burying it in the backyard. But for the rest of us, do we really believe the economy is on the verge of a collapse that has only been seen a handful of times over the last seven decades???

No doubt bears will crow that I was bullish two months ago in October when the market dipped to 2,600 support, and then again when it fell to the low 2,600s in November. I guess they were right since we now find ourselves under those levels. But the thing to note is it took two full months to fall another 50-points. That’s less than one-point per day. Wow, terrifying stuff!!!

While bulls and bears have been arguing passionately over who is right, I have been quietly grinding out profits riding the waves between these two extremes. I even wrote about it a couple of weeks ago in a post titled “Q: Who is right, Bulls or Bears? A: Neither!

“It is shocking to see the amount of gloating going on every time the market moves to one edge of the trading range or the other. We’ve been bouncing between 2,600 and 2,800 for most of the last two months. Today’s dip and reversal count as the 7th time the market challenged and failed to break out of this range.

But rather than use “common” sense and assume each dip is a great buying opportunity, or rally a time to take profits, these impulsive bulls and bears ignore the evidence and proclaim this is finally the big move they’ve been waiting for. Monday it was the bulls. Today it was the bears. And both sides got it exactly wrong.”

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Has anything changed? No, of course not. Bears are as confident as ever, and bulls are cowering in the corner. This is a mirror image of two weeks ago when the market was challenging 2,800. The last seven times bulls and bears were bragging about their success, the market reversed ran them over. Will this time be any different? No, probably not. But I don’t mind. I will continue betting against the crowd, and so should you.

While I like these discounts, the looming Christmas and New Years holidays complicate the situation. What would normally be an attractive buying opportunity might struggle to get off the ground since big money is leaving for vacation. That puts impulsive retail investors in charge and that is rarely a good thing. Luckily, these little guys have small accounts and their emotional buying and selling doesn’t go very far. We saw the emotional selling from Thanksgiving week erased the following week when big money returned to work. And the same could happen here.

Most likely the market will muddle into year end and the bigger bounce won’t happen until January. That is if nothing significant occurs between now and then. The one big thing that could happen is the Fed backing away from the widely expected rate hike on Wednesday. That would send the market surging higher. But if that doesn’t happen, expect the market to muddle along between 2,500 and 2,600 for the next two weeks. After that, if the financial world doesn’t collapse, expect the market to recover from these oversold levels as reality turn out far less bad than feared.

In my long-term investments, I love buying these discounts and hope prices fall even further so I can buy even more. In my shorter-term trading account, I would rather be buying these discounts than selling them, but I’m not eager to rush in ahead of what could be a volatile holiday.

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Dec 13

What this market needs to do to keep my faith

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday was a fairly uneventful day for the S&P 500. Early strength gave way to midday losses, but rather than tumble lower, prices recovered and we finished flat. While the price action was fairly “meh”, meh isn’t a bad thing given how dramatic volatility has been. A little bit of nothing helps calm frayed nerves, and that is never a bad thing.

This neutral price action continues what I wrote about on Tuesday:

While the intraday moves have been huge, the directional moves have not. We are still stuck inside the two-month-old trading range between 2,600 and 2,800. The thing to remember about market collapses is they are breathtakingly quick. Markets don’t wait to see how bad things are before they tumble, traders race for the exits at the first hints of trouble. But that isn’t happening here.

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On Monday, the S&P 500 briefly broke under October’s lows. But rather than trigger an avalanche of defensive selling, supply dried up and we bounced 60-points above the intraday lows. That was four days ago and so far the market resisted the invitation to collapse under those lows.

That said, the last three day’s has seen early gains fizzle and we closed well under the intraday highs. Multiple weak closes is never an encouraging sign. And as usual, the market is giving us conflicting signals. It is up to us to determine what it means.

I really like how decisively the market held support this week. But I’m disappointed we couldn’t add to those gains and these weak closes are a concern. What does this mean for what comes next? Unfortunately, this is one of those situations where we don’t have enough information and we need to see what the market does next.

A decisive rally Friday tells us all is well and we are on our way back up to 2,800. But a fourth weak close means a near-term test of 2,600 is ahead. And of course the most frustrating outcome, another indecisive day like Thursday that doesn’t tell us anything.

I continue to give the market the benefit of doubt because Monday’s reversal was so decisive. But my faith isn’t infinite and unless the market starts doing something constructive, we will likely stumble back to 2,600 support. From there, the situation gets more precarious because few things shatter confidence like screens filled with red. But if we withstand that second test without collapsing, the market is generously giving us another dip-buying opportunity.

The headlines have been overwhelmingly bearish lately between arresting a key Chinese executive to Trump threatening to shut down the government. While none of this is good, the pullback in prices means a good chunk of the negativity has already been priced in and these discounts compensate us for taking the risk. Most of the time reality turns out far less bad than feared, and that is probably what will happen this time too. But 2,600 is our line in the sand. Fail to defend that level and things will get worse before they get better.

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Dec 11

Why buying the dip is still the smart move

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

It’s been an incredibly volatile week for the S&P 500. The last five trading sessions produced intraday swings that approached and even exceeded 3%. Tuesday’s price action was no different as a strong open gave way to midday losses, only to see an afternoon bounce push us back into the green, right before a second fizzle left us exactly where we started.

This market is definitely in a hurry, unfortunately, it cannot decide which direction it wants to go. These wild swings are giving both bulls and bears something to crow about, but nothing sticks and strong moves reverse days, if not hours later. This extreme volatility is definitely a concern, but what is it trying to tell us?

I wrote the following last Thursday, and nothing has changed:

It is shocking to see the amount of gloating going on every time the market moves to one edge of the trading range or the other. We’ve been bouncing between 2,600 and 2,800 for most of the last two months. Today’s dip and reversal count as the 7th time the market challenged and failed to break out of this range.

But rather than use “common” sense and assume each dip is a great buying opportunity, or rally a time to take profits, these impulsive bulls and bears ignore the evidence and proclaim this is finally the big move they’ve been waiting for.

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Since I wrote those words, the market again challenged and even briefly violated October’s lows before bouncing decisively off of 2,600 support. And the cycle of bulls and bears yelling at each other and proclaiming they are right continues. All while smart money is making a boatload of money trading against the crowd.

While this volatility is a red flag, even more noteworthy is how resilient this market has been to crashing through support. We had last week’s arrest of a high profile Chinese executive. Then Trump tweets he is perfectly willing to go ahead with his Chinese tariffs. Then today he tells Democrats he would be “proud” to shut down the government.

While the intraday moves have been huge, the directional moves have not. We are still stuck inside the two-month-old trading range between 2,600 and 2,800. The thing to remember about market collapses is they are breathtakingly quick. Markets don’t wait to see how bad things are before they tumble, traders race for the exits at the first hints of trouble. But that isn’t happening here.

Monday’s dip under October’s lows on awful headlines was the perfect setup for bears. But rather than trigger an avalanche of emotional selling, supply dried up and prices bounced 60-points above the morning lows. Rather than sell the weakness, big money is more inclined to buy these discounts. After two months of relentless bad news, it the market chased off most of the weak owners and replaced them with confident dip buyers. That’s why these relentless waves of bad news are failing to dent this market.

Every bottom always feels like things are about to get a lot worse. By rule, it has to. If it didn’t, no one would sell and we wouldn’t dip. At this point, I’m a lot more impressed with the market’s resilience than I am afraid of these fearmongering headlines.

That said, we need to continue respecting support. A dip back under 2,600 support over the next day or two tells us demand is absent and lower prices are ahead of us. But if we hold above the lows for the next few days, the trading range is intact and a run back to 2,800 resistance is in the cards.

Buy weakness. Sell strength. Repeat.

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Dec 06

Q: Who is right, Bulls or Bears? A: Neither!

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

It doesn’t get wilder than Thursday’s crazy ride in S&P 500. Prices plunged at the open after the US had the CFO of a major Chinese tech company arrested for violating Iranian sanctions. That was a significant escalation in Trump’s confrontation with China and it crushed all positive feelings following last weekend’s trade truce.

The selling intensified and by late morning we were down more than 3%. But then something happened. We ran out of sellers. And more than just run out of sellers, the market erased almost all of those losses and closed practically flat. We went from one of the worst days of the year, to a trivial 0.15% loss. Talk about an epic reversal.

A big chunk of the afternoon’s strength was fueled by the Fed’s slowing stance toward future rate hikes. Rather than dole them out at regular intervals like they have been doing, the Fed is quickly shifting to a wait-and-see outlook. A similar ideal launched last week’s 2.3% surge higher and today it erased 3% of losses.

But this market’s resilience shouldn’t surprise readers of this blog. After Tuesday’s 3.24% collapse, I wrote the following:

“I expect global stocks to get hammered Wednesday as the world reacts to the U.S. market collapse. But after that, expect cooler heads to prevail. As I’ve been saying for a while, this is a volatile period for stocks. That means large moves in both directions. But so far these wild gyrations have been consolidating October’s losses, not extending them. There is no reason to think this time is any different.

Trading so close to 2,700 support means there is a good chance we will violate it. But as long as the selling stalls and bounces not long after, that tells us most investors would rather buy these discounts than sell them.”

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I will be completely honest, I expected us to poke our head under 2,700 and bounce. There is no way I could have foreseen those Huawei headlines sending prices cratering nearly all the way to 2,600 and then bouncing. Even I am dumbfounded by today’s resilience. But it still isn’t a complete surprise.

It isn’t controversial to say the majority investors know the stock market trades sideways most of the time. But the paradox is that most of the time, the same people also almost always assume each day’s gyration is the start of the next breakout or breakdown.

It is shocking to see the amount of gloating going on every time the market moves to one edge of the trading range or the other. We’ve been bouncing between 2,600 and 2,800 for most of the last two months. Today’s dip and reversal count as the 7th time the market challenged and failed to break out of this range.

But rather than use “common” sense and assume each dip is a great buying opportunity or rally a time to take profits, these impulsive bulls and bears ignore the evidence and proclaim this is finally the big move they’ve been waiting for. Monday it was the bulls. Today it was the bears. And both sides got it exactly wrong.

The ironic thing is by the time these chronic bulls and bears realize we are stuck in a trading range is right before we break out of it. No one said trading is easy. But it is a lot less hard if we know what to pay attention to.

As for what comes next, the US taking one of China’s top business executives into custody isn’t going to go over well and this story is a long way from being done. We should expect the situation to evolve and that will exacerbate volatility, but as long as investors would rather buy these discounts than sell them, we should be in good shape. The bottom of every market selloff feels like things are about to get a lot worse, and this time won’t be any different.

By this point, most of the Trump’s trade war is already priced in and the only thing that would worry me is we start shooting at each other. Barring that, this is just another buyable dip.

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Dec 04

How to profit from Tuesday’s collapse

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

In the market, a lot can happen in a few days. My last free blog post was last Thursday after the S&P 500 smashed through 2,700 resistance. A buying frenzy pushed prices up to the 200dma after the Fed Chairman suggested interest rates were approaching his neutral target.

But rather than cheer those gains, I cautioned readers in that post from last week:

The market was a great buy Monday and Tuesday. But risk is a function of height and Wednesday’s large gains make buying now a lot less attractive. A big chunk of Wednesday’s buying came from chasing and short-covering. Those are both fleeting phenomena and now that they’ve come and gone, we need another group of buyers to come in and push us higher. Unfortunately, many of those with cash remain nervous, especially following such a large move higher. Their fear of heights will likely keep a lid on prices for a few days. And even a dip back to 2,700 wouldn’t be a surprise. Two steps forward, one step back.

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While I expected this step-back, even I was caught off guard by the speed with which it happened. But even that isn’t a surprise. The market operates in two speeds, infuriatingly slow, or breathtakingly fast. This time the hivemind got together and turned the last few days of frenzied buying into a mad dash for the exits. Easy come, easy go.

While it was nice to see this weakness coming and prepare for it, that was then and this is now. What readers really want to know is what comes next.

Stock prices popped Monday after Trump and China reached an agreement this weekend to de-escalate the trade war. But that relief proved fleeting as traders started analyzing the details. The primary catalyst for Tuesday’s collapse was Trump disclosing the strings attached to his pledge to not increase tariffs on Chinese imports. The shine further wore off when Trump reiterated his pledge to impose tariffs if the Chinese didn’t make substantial concessions. That sent risky stocks tumbling and safe-haven bonds soaring. So much for the relief.

But the thing we have to ask ourselves is if Tuesday’s collapse was lead by rational and thoughtful selling, or if it was nothing more than herd selling because people sold for no other reason than other people were selling.

There are few, if any, 3.25% declines that are led by rational and thoughtful selling. Today was no different. We opened near yesterday’s close and slipped to normal losses by lunchtime, but slipping under Friday’s close triggered an avalanche reactive stop-loss sell orders that didn’t stop until we shed another 60-points. As I wrote previously, 2,700 was a key support level and the market found support and bounced off that critical level in afternoon trade. Unfortunately, the bounce proved fleeting and we closed right back at 2,700 on the nose.

The market is closed Wednesday in observance of a national day of mourning for President George H.W. Bush. No doubt the inability to trade Wednesday caused many would-be dip-buyers to sit on their hands knowing they would be unable to trade for a day and a half. Better safe than sorry. But the other thing this extra day off does is give traders a chance to collect themselves and decide if they really want to be selling these discounts, or if they should be buying them instead.

I expect global stocks to get hammered Wednesday as the world reacts to the U.S. market collapse. But after that, expect cooler heads to prevail. As I’ve been saying for a while, this is a volatile period for stocks. That means we large moves in both directions. But so far those wild gyrations have been consolidating October’s losses, not extending them. There is no reason to think this time is any different.

Trading so close to 2,700 support means there is a good chance we will violate it. But as long as the selling stalls and bounces not long after, that tells us most investors would rather buy these discounts than sell them.

I bought the Thanksgiving massacre and sold the frenzied relief rally up to 2,800. And I will do the same thing again this time. If impulsive traders want to keep giving away free money, I will gladly continue taking it.

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Jani

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Nov 29

The real reason the market surged

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Two days ago my free blog post was titled “Why Tuesday was a great day.” Even though the index only finished 0.3% higher, the market’s resilience was impressive given the bearish trade war headlines dominating the financial press.

“There are few things more bullish than a market that fails to go down on bad news. That tells us most of the bearishness has already been priced in. Over the last two months, we have witnessed a ton of selling. But what happens every time a fearful owner bails out? He sells his stocks at a steep discount to a confident dip buyer who is willing to own those risks.

Over time these fearful sellers are replaced by confident buyers and there comes the point in every dip where we run out of fearful sellers. Once everyone who fears the headlines sells, there is no one left to sell and the headlines stop mattering. That is what happened today. Trump threatened to take his trade war nuclear, and the market yawned.”

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While I liked what I saw Tuesday, even I was caught off guard by Wednesday’s explosive surge higher in one of the biggest up-days of the year.

People often claim no one can predict the market, but that isn’t entirely true. I had zero idea the Fed Chairman would soften his stance on rate hikes Wednesday, but I didn’t need to know that to make an intelligent trading decision Tuesday.

I will be the first to admit I cannot predict the news. But the thing to remember is the news doesn’t matter, only the market’s reaction to the news. That one small shift in perspective totally changes how we go about figuring out the market’s next move.

Every day traders are bombarded with both bullish and bearish headlines. As traders, it is our job to decide how to interpret these conflicting signals. Sometimes traders gravitate to one piece of news while totally ignoring another one. But even more important than what traders think, is how they trade. Headlines don’t move markets. Neither does the opinion of traders. Only buying and selling moves markets and that is what we must pay attention to.

Trump’s latest threats to escalate his trade war and tax all Chinese imports at 25% was obviously a very negative headline. A big chunk of October’s correction was based on investors’ fears the trade war was damaging the global economy. There is no dispute Trump fanning those flames this week was bad. And given October’s plunge, clearly traders are worried about the trade war. But given all the negativity, why did the market finish Tuesday  0.3% higher?

It’s not because the news was good. Or because traders don’t fear the fallout of a trade war. It’s because everyone who fears the trade war already sold their stocks and they had nothing left to sell. Once an investor is out of the market, his opinion stops mattering.

We can think of the market like a stalled car on a hill. It takes almost zero effort to push the car downhill, while it takes nearly all of our strength to move it one foot uphill. There are times when the market is similar askew. This time it was nearly impossible for bearish headlines to push us any lower because we exhausted the supply of fearful sellers. But in the opposite direction, it only a few words from the Fed Chairman to launch one of the biggest buying frenzies of the year.

Without a doubt, it is impossible to predict the news, but if we know what to pay attention to, it isn’t hard to figure out which way the market wants to go. Then it simply becomes a matter of waiting for the right story to come along and give us a push.

And going back to what I wrote Tuesday because it is equally relevant today:

“The next most obvious target is reclaiming 2,700 support, and the 200dma after that. We are not out of the woods yet and we should expect volatility to stick around. But the swings are getting smaller and the fear of a collapse are dissipating. We currently find ourselves near the lower end of the trading range and are in a place where the market is brushing off bearish headlines. That tells me the near-term path of least resistance is higher. Things will look different after we run up to the 200dma, but we will discuss what comes after that when we get there.”

Everything played out as expected…..except I certainly didn’t expect to be talking about the market running into 200dma resistance 48 hours later. But here we are.

The market was a great buy Monday and Tuesday. But risk is a function of height and Wednesday’s large gains make buying now a lot less attractive. A big chunk of Wednesday’s buying came from chasing and short-covering. Those are both fleeting phenomena and now that they’ve come and gone, we need another group of buyers to come in and push us higher. Unfortunately, many of those with cash remain nervous, especially following such a large move higher. Their fear of heights will likely keep a lid on prices for a few days. And even a dip back to 2,700 wouldn’t be a surprise. Two steps forward, one step back.

But now that we reclaimed 2,700 support, we need to hold this level. Tumbling under this level tells us buyers have zero confidence in this market and lower prices are still ahead of us. But that is the less likely outcome. Right now things look good because big money would rather buy the discounts than sell the dip. Expect a near-term dip as we digest Wednesday’s huge gains, but after that, expect the rebound to continue up to and above 2,800 over the next few weeks.

If you found this post useful, Follow Me on Twitter so you don’t miss future updates: 

Jani

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Nov 27

Why Tuesday was a great day

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Tuesday was a great day for the S&P500. While the index only finished 0.3% higher, the numbers don’t tell the whole story.

Prices slipped at the open after Trump fanned the trade war flames by threatening to tax all Chinese imports at 25%. This isn’t the first time he made these threats, so it didn’t catch anyone by surprise, but it threw cold water on hopes the two sides were moving toward a compromise.

But rather than tumble lower, stocks quickly found a bottom and recovered into the green. This is definitely not the price action we’d expect if the market was fragile and vulnerable.

This resilience made Tuesday the opposite of last week’s fearful selling, but this isn’t a surprise. Last week I told readers:

“While this week’s price action slammed us underneath 2,700 support, the thing we have to keep in mind is this is a holiday-affected week. Big money managers who make millions of dollars a year are on vacation this week with their family, not toiling away in the office. Why this is important is because without big money’s guiding hand, emotional retail investors are running the show. Big money’s absence during holidays often leads to increased volatility, and the market shedding nearly 100-points over two days definitely qualifies as volatility.

But the thing to remember about retail investors is they have small accounts. That means they don’t have the firepower to drive large moves. Only big money can propel directional moves and if they’re not behind today’s selling, then we should expect the weakness to stall and reverse once emotional retail investors run out of things to sell.”

That is precisely what happened and this market finds itself well above last week’s lows. Sign up for Free Email Alerts so you don’t miss profitable insights like these.

Recovering from last week’s dip tells us big money would rather buy these discounts than sell the weakness. That was especially true Tuesday when the market failed to tumble on the ominous trade war headlines.

There are few things more bullish than a market that fails to go down on bad news. That tells us most of the bearishness has already been priced in. Over the last two months, we have witnessed a ton of selling. But what happens every time a fearful owner bails out, he sells his stocks at a steep discount to a confident dip buyer who is willing to own the risks.

Over time these fearful sellers are replaced by confident buyers and there comes the point in every dip where we run out of fearful sellers. Once everyone who fears the headlines sells, there is no one left to sell and the headlines stop mattering. That is what happened today; Trump threatened to take his trade war nuclear and the market yawned.

There comes the point in every dip where things go too far and prices are attractive enough for buyers to start ignoring the headlines. It certainly seems like this market is getting to that point.

The next most obvious target is reclaiming 2,700 support, and the 200dma after that. We are not out of the woods yet and we should expect volatility to stick around. But the swings are getting smaller and the fear of a collapse are dissipating. We currently find ourselves near the lower end of the trading range and are in a place where the market is brushing off bearish headlines. That tells me the near-term path of least resistance is higher. Things will look different after we run up to the 200dma, but we will discuss what comes after that when we get there.


Trump specifically called out Apple when threatening to increase Chinese tariffs to 25%. While that would put a massive hole in AAPL’s earnings, the stock largely shrugged off the news and finished practically flat. That tells us AAPL’s 25% tumble from last month’s highs has already factored in a lot of bad news. If further downside is limited because most of the bad news is already being priced in, that actually makes this a pretty safe time to be buying. While prices could continue slipping, the lower we go, the safer it becomes.

It’s been a while since I wrote about Bitcoin because I’ve been so consistently bearish about it there wasn’t much new to add, but now that prices dipped into the $3k’s, the situation has changed. While I’m still skeptical of Bitcoin’s long-term viability, every collapse includes multiple sharp rallies. Given bitcoins sharp fall, I would rather buy these levels than sell them. It wouldn’t be anything to see prices bounce 25% or 50% from current levels. For the most nimble of traders, that’s good money for a few days of work. The challenge is knowing when we will bounce. Anyone buying the dip better be willing to sit through some dramatic near-term weakness first.

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Nov 20

Who was selling today and why their opinion doesn’t matter

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Tuesday was another dramatic session for the S&P 500 as prices tumbled nearly 2%. The post-election relief is long forgotten as nervous selling pushed prices back near October’s lows. But as horrific as the headlines sound, we have only slipped back to where we started the year and are just 10% under all-time highs. If a person overreacts to flat years and pullbacks from all-time highs, then the stock market might not be a good fit for them. For the rest of us, this is business as usual.

While this week’s price action slammed us underneath 2,700 support, the thing we have to keep in mind is this is a holiday-affected week. Big money managers who make millions of dollars a year are on vacation this week with their family, not toiling away in the office. Why this is important is because without big money’s guiding hand, emotional retail investors are running the show. Big money’s absence during holidays often leads to increased volatility, and the market shedding nearly 100-points over two days definitely qualifies as volatility.

But the thing to remember about retail investors is they have small accounts. That means they don’t have the firepower to drive large moves. Only big money can propel directional moves and if they’re not behind today’s selling, then we should expect the weakness to stall and reverse once emotional retail investors run out of things to sell.

It is hard to ignore 100-point moves, but if big money is not involved, then it means the price action is not relevant to what comes next. Big money always has, and always will, drive the big moves. Emotional retail investors do little more than provide noise along the way. And unfortunately today, that noise was deafening.

As I started with, if a person cannot stomach a 10% pullback from all-time highs, they shouldn’t be the market. But for those of us that have been around a while, we are thankful these fearful people are willing to abandon stocks at steep discounts. Their loss is our gain.

As for how much further this can go, that is anyone’s guess. Emotional selloffs are the hardest to predict because fearful selling begets fearful selling. While stocks are at attractive levels, that doesn’t mean they cannot get even more attraction. But if I’m buying the dip, I’m not overly worried if I’m buying a 10% discount or a 12% discount. I’ll take every little bit I can get, but I don’t need to be greedy and am more than happy to settle for good enough.

As for the bears, it’s been a good run, but now that prices are into correction territory, they need the economy to get worse for us to keep tumbling. Unfortunately, most of the time reality turns out a lot less bad than feared. Will this time turn out any different, no, probably not. But that won’t stop the cynics from shouting that we should abandon the stock market.

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Nov 15

Should we have seen today’s bounce coming?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Thursday the S&P 500 gapped lower at the open, undercutting the widely followed 2,700 support level and triggering another wave of defensive selling. But in midmorning trade, supply dried up and by the end of the day, the market surged 50-points above those early lows.

Everyone knows the market moves in waves, but that doesn’t stop people from being surprised every time it moves in waves. Our bullish or bearish bias convince us each gyration higher or lower is the start of a much larger move. Last week bulls were convinced the market was racing back to the highs. This week bears claimed their long-awaited collapse was finally upon us. And you know what, both sides got it wrong. That’s because they forgot the market moves in waves.

In Tuesday’s free blog post, “Don’t fear the normal and routine”, I warned readers:

“Every dip feels real and by rule, it has to. If it didn’t, no one would sell and prices wouldn’t dip. Without a doubt, October’s correction felt real. This week’s collapse feels just as scary. But just because it feels real doesn’t make it real. In fact, all of the selling over the last few weeks makes it even harder for this dip to find new sellers. The longer this drags on, the more people sell, the fewer sellers we have left, and the more solid the market becomes.”

Guess what? Thursday’s early selloff failed because we ran out of sellers. Pundits love to tell us no one can predict the market, but it really isn’t that hard once we realize that the same things keep happening over and over. Sign up for Free Email Alerts so you don’t miss profitable insights like these.

I wish the only thing we needed to know was what comes next. Then making money would be easy. Unfortunately, that’s not how this works. Not only do we need to know what is going to happen, but more importantly, we need to know when it is going to happen. Getting the timing right is where all the money is made.

While no one knows precisely when the market will make its next move, we do know when the odds are on our side. For example, this morning we knew the market was ripe for a bounce. Number one, we remember markets move in waves. Number two, all of the selling over the last few weeks chased off a big chunk of would-be sellers and supply would be tight. While there are no guarantees in the market, seeing the dip under 2,700 support stall because supply was drying up was a great signal this was time to jump in and buy the dip.

If both bulls and bears agree the market moves in waves, then both sides should have seen today’s rebound coming. The main point of contention is what comes next. Bulls say today’s higher-low is a healthy part of the recovery process. Bears claim this bounce only delays the inevitable collapse. But as long as both sides agree we will go higher over the next day or two, there is only one way to trade this.

That said, I definitely fall in the bull camp. As we witnessed in October, crashes are breathtakingly quick. Selling begets selling and cracks turn into gaping holes. But that’s not what is happening here. Wednesday’s dip under 2,700 bounced quickly. As did Thursday’s dip under this critical support level. If the market was fragile and vulnerable, that was the perfect way to launch a tidal wave of defensive selling that knocks us under October’s lows. Is that what happened? Nope. Supply dried up and we bounced. At this point, it is harder to find fearful sellers than confident dip-buyers, and that bodes well for the market’s continued recovery.

But just because the market bounced today and things look good, don’t forget markets move in waves. That means this rebound will inevitably stall and pullback. The longer these consolidations drag on, the more volatility shrinks and the smaller these swings become. We are getting further along in the healing process and that means we shouldn’t expect this rebound to be as sharp as last weeks, or for the next dip to be as dramatic.

Of course, all of this goes out the window if we tumble under 2,700 support Friday and launch a tidal wave of defensive selling. But barring that worst case scenario, things look good and the path of least resistance over the near-, medium-, and long-term is higher.

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Nov 13

Don’t fear the normal and routine

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

Tuesday was a back-and-forth session for the S&P 500 as early gains fizzled and we closed modestly in the red. The early strength ran into resistance near the 200dma as last week’s relief turned into this week’s second-guessing.

As I warned readers last week, the sharp rebound from October’s lows was unsustainable and a pullback was coming:

This rebound recovered nearly two-thirds of the October selloff and that is about as far as these things go before they start running out of steam….this is definitely a better place to be taking profits than adding new money. At the very least, expect prices to consolidate for a while as investors warm back up to this market. But more likely, volatility will persist and that means a dip back to 2,700 support would be a normal and healthy part of this recovery.

Three trading sessions after I wrote that, we find ourselves testing 2,700 support. Sign up for Free Email Alerts so you don’t miss profitable insights like these.

People claim no one can predict the market, but it really isn’t that hard once we realize the same things keep happening. A decisive rebound following October’s sharp correction was never in doubt. The same goes for the subsequent rebound stalling and taking a step back. The question isn’t if, but when. The hard part is getting the timing right and that is where all the money is made.

Now that last week’s relief is long gone, we find ourselves questioning this market again. Monday’s collapse under the 200dma was as ominous as it gets and that triggered a wave of defensive selling. Traders who were paralyzed by fear during October’s correction and didn’t bailout were not going to make the same mistake this time.

But the thing to remember is most people can only sell once. Once they’re out, their opinion no longer matters. And in fact, the only thing they can do is buy back in. So while a huge number of people sold over the last several weeks, their pessimism no longer matters. And in fact, their pessimism is actually bullish because they will eventually turn into the buyers that fuel the recovery. Buying high and selling low is a poor trading strategy, but the crowd cannot help itself.

Every dip feels real and by rule, it has to. If it didn’t, no one would sell and prices wouldn’t dip. Without a doubt, October’s correction felt real. This week’s collapse feels just as scary. But just because it feels real doesn’t make it real. In fact, all of the selling over the last few weeks makes it even harder for this dip to find new sellers. The longer this drags on, the more people sell, the fewer sellers we have left, and the more solid the market becomes.

Tuesday’s price action was awful and the longer we hold near 2,700 support, the more likely it is we will violate it. But what matters most is what happens next. Does that violation launch another wave of defensive selling? Or does supply dry up and prices rebound?

I think the worst is already behind us, but there are no guarantees in the market. Traders nerves are frayed and anything could happen if panic sets in. But as long as that doesn’t happen, a dip under 2,700 that stalls and recovers is a great entry point for anyone that wants to get back in. Remember, by the time it feels safe, it will be too late to buy the discounts. But if we drop under 2,700 and trigger another avalanche of contagious selling, expect things to get a lot worse.

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Nov 07

Should we trust this rebound?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P 500 exploded higher Wednesday following the U.S. midterm election that saw Democrats take control of the House and Republicans add to their majority in the Senate. There was a little bit of good news for everyone and that put traders into a buying mood.

These gains erased a big chunk of October’s selloff. Anyone who sold defensively over the last several weeks is coming to regret that hasty decision. But that is the way the market works. Every buyable dip feels like we are on the verge of a much larger collapse. If it didn’t, no one would sell and we wouldn’t dip in the first place.

With the benefit of hindsight, it is easy to look back and see the bounce off of 2,600 support was the obvious bottom. But since this bottom was only a couple of weeks ago, it isn’t hard to recall exactly how hopeless the outlook was when we reached those lows. Traders were not excited to buy the dip, they terrified of the next leg lower. Remember how you felt at that moment and don’t forget it. That is what every buyable dip feels like.

For those of us that have been doing this a while and lived through countless dips like October, we know better than to overreact to periodic bouts of emotional selling. As I wrote on October 23rd:

“Over the last 69 years, only 11 times have prices tumbled more than 15% from the highs. We often think of big crashes like 1987, the Financial Crisis, or the Dot-Com bubble. But those events are exceedingly rare. All the other pullbacks over the last 69 years have been 15% or less. While 15% is a lot, it isn’t terrifying. And even better, all of those under 15% pullbacks were erased within a few months. Small and short. That sounds like something we can live with.”

And so far, that is precisely what happened this time. There was no real substance behind October’s selloff and that is why we recovered so quickly. The only people who lost out were the ones that overreacted to the fearmongering. That said, there is nothing wrong with selling defensively and it can even be profitable. The key is knowing when to get back in.

October 30th, the day after the market bounced off 2,600 support, I wrote a post titled “What Makes Tuesday’s rebound different

“no matter which side of the bear/bull debate you stand on, there is an excellent chance this market is ripe for a sharp move higher.

2,700 is the next most obvious price target. But the market likes symmetry and a rebound to 2,700 doesn’t even come close to matching the intensity of October’s selloff. While we could pause and even retrench a little at 2,700 over the next few days, the most likely target for this rebound is the 200dma/2,800/2,820 region the previous bounce stalled at in mid-October. Even rising up to and above the 50dma and the start of this selloff near 2,870 is on the table.”

That was a bold prediction when prices were in the low 2,600s and it was met with a lot of skepticism, but it doesn’t seem so far-fetched after the market closed at 2,813.

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Predicting the market isn’t hard because it keeps doing the same thing over and over again. The challenge is getting the timing right. While it was nice to see this 200+ point rebound coming before it happened, what readers really want to know is what comes next.

While I’d love to say we will continue surging up to all-time highs, that isn’t how this works. October’s selloff did a lot of damage to investor confidence and it will be a while before people feel comfortable chasing prices back to the highs.

This rebound recovered nearly two-thirds of the October selloff and that is about as far as these things go before they start running out of steam. Momentum could carry us up to the 50dma and even 2,870 where this whole thing started, but we should expect demand to dry up soon.

For short-term traders, this is definitely a better place to be taking profits than adding new money. At the very least, expect prices to consolidate for a while as investors warm back up to this market. But more likely, volatility will persist and that means a dip back to 2,700 support would be a normal and healthy part of this recovery.

Anyone scared out during October’s selloff and looking to get back in, resist the urge to chase prices higher over the next day or two. Instead, wait for the inevitable pullback and consolidation over the next few weeks. Volatility is still high and that means big moves in both directions are ahead of us. But as long as the economic data holds up, the worst is already behind us.

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Nov 01

Is this rebound still buyable?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

A lot can change in 36-hours. Monday afternoon stocks cratered, shedding more than 100 points from the early highs. There are few things more frightening than a strong open that devolves into a panicked selloff. That plunge shoved us under the prior October lows, triggered another avalanche of reflexive selling.

But just when things were the most hopeless, prices bounced sharply off 2,600 support and the market hasn’t looked back. While it is only three days, prices have reclaimed a big chunk of October’s selloff and the mood has definitely shifted. Panic has given way to cautious optimism. No longer is the crowd fixated on trade wars, Chinese growth, and peak earnings. Instead, traders are remembering the U.S. economy is still in pretty darn good shape.

There comes a point in every emotional selloff when things go too far and are ripe for a snapback. That is exactly what I told readers to expect in Tuesday’s free blog post:

“If there is one thing both bulls and bears can agree on, it is that markets don’t move in straight lines. It has been a brutal October for stocks. At the very least, a near-term bounce is overdue. After definitively undercutting the early October lows and setting off a tidal wave of panicked defensive selling, this is about as good of a double-bottom setup as we will ever see.”

Three days later and 140-points higher, that is precisely what happened. Sign up for Free Email Alerts so you don’t miss profitable insights like these.

So far I’m stating the obvious because everyone already knows what happened. What readers are more interested in is what comes next. And for that, we can also look back at what I wrote on Tuesday because it is still relevant today:

“2,700 is the next most obvious price target. But the market likes symmetry and a rebound to 2,700 doesn’t even come close to matching the intensity of October’s selloff. While we could pause and even retrench a little at 2,700 over the next few days, the most likely target for this rebound is the 200dma/2,800/2,820 region the previous bounce stalled at in mid-October. Even rising up to and above the 50dma and the start of this selloff near 2,870 is on the table.”

We already checked 2,700 off the to-do list, and as expected, the gains slowed a little after we reclaimed this critical support level. But this is just a pause before the next leg higher.

After Thursday’s close, AAPL reported record earnings, but gave a slightly disappointing revenue forecast. Last week the exact same story played out in AMZN and is what contributed to Monday’s collapse. But the thing about headlines is they lose their bite with each retelling. Apple’s disappointment could weight on prices Friday, but it won’t be anywhere near as big of a deal as it was when AMZN told us the same thing. The shock wears off over time and life moves on. That is exactly what is happening in Thursday’s after-hours trade as the S&P 500 only dipped a fraction of a percent following AAPL’s “disappointing” news.

While the next move is still higher, we shouldn’t expect prices to race back to all-time highs. As I wrote earlier, everyone knows markets don’t move in straight lines and that means any rally higher will end in a step-back. Bulls and bears will argue if this will be two-steps forward, one-step back, or one-step forward and two-steps back. At this point, it doesn’t really matter because the next move is higher and the move after that will be a step-back. Once we get there, we can weight the likelihood of higher-lows or lower-highs. But until then, enjoy the (somewhat bumpy) ride higher.

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Oct 30

What makes Tuesday’s rebound different

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

There is a good chance that weeks from now we will look back at this Tuesday as a key turning point in S&P 500. It was only the second time the index finished in the green in the last ten sessions, but that’s not the only thing that made it feel different. Volume has been ramping up over the previous six sessions and Tuesday’s rebound was the highest of them all. Clearly, something big is happening, the only question is what.

If there is one thing both bulls and bears can agree on, it is that markets don’t move in straight lines. It has been a brutal October for stocks. At the very least, a near-term bounce is overdue. After definitively undercutting the early October lows and setting off a tidal wave of panicked defensive selling, this is about as good of a double-bottom setup as we will ever see.

While nothing in the market is ever certain, double bottoms are some of the most resilient bottoming signals the market gives us. Prices undercut the prior lows, triggering an avalanche of reactionary selling. But rather than trigger the next leg lower, that dip is the last gasp of defensive selling. Once we run out of emotional sellers, supply dries up and prices rebound.

Monday’s frighteningly horrific collapse was as bad as it gets. We opened green, but it was downhill from there and by early afternoon, the index shed more than 100-points. But what if that really was “as bad as it gets”? Maybe, just maybe, that was the worst and everything will get better from here. As the saying goes, it is darkest just before the dawn.

As I already stated, both bulls and bears can agree a bounce is coming. And most bears will even concede that the biggest bounces come in bear markets. This means that no matter which side of the bear/bull debate you stand on, there is an excellent chance this market is ripe for a sharp move higher.

2,700 is the next most obvious price target. But the market likes symmetry and a rebound to 2,700 doesn’t even come close to matching the intensity of October’s selloff. While we could pause and even retrench a little at 2,700 over the next few days, the most likely target for this rebound is the 200dma/2,800/2,820 region the previous bounce stalled at in mid-October. Even rising up to and above the 50dma and the start of this selloff near 2,870 is on the table.

But just like how selloffs don’t go in straights lines, neither do recoveries. After recovering 200-points from the selloff’s lows, it will be time for another dip. How big of a dip depends on which side of the bear/bull debate you fall on, but at least both sides can agree that a bounce and a dip are still ahead of us. We can argue about the magnitude after we get there.

If a person wants a preview of what this looks like, scroll your favorite charting software a little to the left and see what took place this spring. A big crash in February, a sharp rebound from the lows, and a pullback from the rebound’s highs. Predicting the market isn’t hard. That’s because it keeps doing the same thing over and over again. The challenge is getting the timing right.

There are no guarantees in the market and the best we can do trade when the odds are stacked in our favor. This selloff is ripe for a bounce and right now that is the high probability trade. If it doesn’t work out this time, we retrench and try again.

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Oct 23

CMU: How much worse will this get?

By Jani Ziedins | End of Day Analysis , Free CMU

Free After-Hours Update:

Tuesday was another ugly open for the S&P 500 as overnight weakness in Asia and Europe pressured our markets. We crashed lower at the open and undercut this selloff’s prior lows near 2,710. But rather than trigger another avalanche of defensive selling, that early dip was as bad as it got. Supply of nervous sellers dried up after the first hour of trade and we recovered a majority of the losses by the close. Not very often does a 0.5% loss feel like a good thing, but that is what happened today.

Even though Trump’s tariffs haven’t done much harm to our economy, they are strangling the already weak Asian economies, most notably China. While this is Trump’s desired outcome, global markets are more intertwined than ever and what huts one is felt by everyone else. By taking down China, Trump is indirectly taking down our markets.

The biggest question is what comes next. Is the worst already behind us? Or are we on the verge of another tumble lower? I wish I knew for sure, but the best we can do is figure out the odds and make an intelligent trade based on the most likely outcome. For that, a look back at history is the most logical place to start.

The above chart shows pullbacks in the S&P 500 from all-time highs since January 1950. That gives us nearly 70 years worth of data to analyze.

One of the most notable things is how rare big selloffs really are. Over the last 69 years, only 11 times have prices tumbled more than 15% from the highs. We often think of big crashes like 1987, the Financial Crisis, or the Dot-Com bubble. But those events are exceedingly rare. All the other pullbacks over the last 69 years have been 15% or less. While 15% is a lot, it isn’t terrifying. And even better, all of those under 15% pullbacks were erased within a few months. Small and short. That sounds like something we can live with.

Currently we find ourselves 7% from the highs. Those losses are already behind us and we cannot do anything about them. But we can prepare for what comes next. Assuming we are not on the verge of another Financial Crisis or similar catastrophe, the most likely outcome is a dip smaller than 15%. From current levels, that is another 8%. But that is the worst case. The actual dip will most likely be smaller than 15%.

Over the last 69 years, the S&P 500 has tumbled between 10% and 15% 22 times. That’s about once every three years. Not unheard of, but not common either. The last pullbacks of this size were 15% in 2016 and 12% earlier this year. Are we due for another one? Maybe. But it definitely doesn’t seem like we are overdue given we already had two over the last two years.

More common are pullbacks between 5% and 10%. There have been 36 of these over the last 69 years, meaning these happen every year or two. From 7%, that means we could be as little as 1% or 2% from the bottom. And even better is most of these 15% or smaller pullbacks return to the highs within a few months.

We are down 7% and there is nothing we can do about that. But going forward we have a decent probability of only slipping a little further. And assuming the world doesn’t collapse, worst case is another 8%. While that wouldn’t be any fun, is that really worth panicking over?

The price action has been weak the last few days and that led to today’s weak open. And the market loves double-bottoms, meaning we could see a little more near-term weakness. But what is a little more downside if we will be back at the highs in months month? While I cannot say the bottom is in yet, the odds are definitely lining up behind buying this market, not selling it.

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Oct 18

Where this market is headed next

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

Thursday the S&P 500 tumbled sharply for the first time since last week’s big plunge. The market opened modestly lower, but the selling accelerated after the U.S. Secretary of State pulled out of a big economic summit in Saudi Arabia, heightening tensions between the two nations following the disappearance of a journalist. The market was already on edge after last week’s selloff, and it didn’t take much to push traders back into a selling mood.

But the thing we cannot forget is markets never move in straight lines, especially when emotions are this high. And not only are these sharp back-and-forth moves normal, they are actually part of the healing process. Every fearful seller over the last ten days has been replaced by a confident dip buyer. Out with the weak, in with the strong. While it would be more fun to watch the market zoom right back to the highs, that’s not the way this works. Buying dips are never easy, and that is true this time too.

Early weakness pushed us under 2,800 support. Without a doubt, quite a few traders used this widely followed technical level as a stop-loss. Their autopilot selling pushed the market down even further, triggering the next tranche of stop-losses, adding even more selling pressure. It didn’t take long for regretful owners to start having flashbacks of last week’s plunge and they reactively bailed out “before things got worse”. In a self-fulfilling prophecy, their fearful selling created the very plunge they feared. But by early afternoon, we exhausted the supply of fearful sellers, and prices found support near the 200dma.

There are two ways this story can play out. Bears believe this nine-year economic expansion is on the verge of collapse and it will take the “overvalued” stock market down with it. Blame it on interest rates, trade wars, or downright old age, pick your favorite reason. Or alternately, this is just another one of the 100+ dips and gyrations this nine-year-old bull market weathered on its way higher. 

While everyone loves predicting a top, what is more likely, the thing that happens 100+ times, or the thing that only happens once? Remember, bull markets bounce countless times, but they die only once. Could this be the top? Sure. But is it likely? Not even close. The odds are heavily skewed in favor of the continuation, but that never stops people from calling every dip a top.

The thing about this weakness is it is built on the premise that things will get worse. No one is afraid of 3.25% Treasury yields. The are afraid of 3.25% becoming 4.25%, and then 5.25%. Things need to get worse for the worst case scenario to materialize. But on the other hand, if things turn out less bad than feared, prices will rebound. Despite all the naysaying, there are plenty of reasons for stocks to keep going up. Namely, earnings are up 19% this quarter, while stock prices most definitely haven’t kept up with this phenomenal earnings growth. That sounds pretty bullish to me.

Bears need a lot of things to get worse for their thesis to turn into a reality. I just don’t see it happening. Reality is almost always less bad than feared and no doubt this time won’t be any different. People pray for a pullback so they can jump aboard the hot trade they missed, unfortunately, most people are too afraid to buy the dip when the market finally answers their prayers. This game is never easy, but that is what makes it so rewarding when we beat it.

Expect prices to remain volatile as the market comes to terms with recent events. But remember, collapses are brutally quick. The longer we hold last week’s lows, the less likely it is we will undercut them. The most nimble day-traders can buy these intraday dips and sell the intraday bounces. Those of us with a little longer timeframe can buy the larger dips and sell the larger rebounds. The biggest level ahead of us is 2,870 resistance where last week’s plunge started and is likely where this rebound is headed. It won’t be a straight line, but markets that fall down the elevator shaft usually land on a trampoline.

All of this assumes the worst is behind us. All bets are off if we undercut last week’s lows. That tells us buyers are afraid of this market and nothing shatters confidence like screens filled with red. But until then, this rebound is alive and well and believe it or not, we could see new highs before year-end.

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Oct 16

Is it safe yet?

By Jani Ziedins | End of Day Analysis

Free After-hours Update:

What a difference a few days makes. Last week the market was collapsing. This week we recovered a big chunk of those losses and things feel significantly better. The only question is if this rebound is the real deal, or just a false bottom on our way lower.

The buying kicked off Tuesday morning when Goldman Sachs and Morgan Stanley reported solid earnings. That was enough to move the conversation away from rising Treasury yields and put traders back in a buying mood. Last week’s selloff lowered expectations and now “not bad” is good enough to send prices higher.

There were a lot of “what ifs” last week asking if rising interest rates and trade war tariffs were going to strangle the economy and crush corporate profits. But if companies continue to hit their numbers the way GS and MS did, expect these “what ifs” to quickly fade from memory. Reality is rarely as bad as feared and it won’t take much to put traders back into a buying mood.

And this week’s dramatic reversal shouldn’t surprise anyone. Markets that fall down the elevator shaft typically land on a trampoline. Last Wednesday I wrote the following after stocks tumbled 3.3%:

“I fear the slow, insidious grind lower. Those are the losses that accumulate when no one is paying attention. What I don’t fear are the big, headline-grabbing down-days. The one that gets everyone’s attention and makes headlines around the world. That’s because those big, flashy days don’t have any substance. As the saying goes, the flame that burns twice as bright only lasts half as long.”

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While it is most certainly premature to claim last week’s selloff is over, the situation is far less scary than it was a few days ago. And that matters a lot when talking about emotion-fueled selloffs. Last week people reflexively sold first, asked questions later. But this week’s bounce gives traders more time to be thoughtful and make rational decisions. Without the pressure of falling prices, most owners will stop overreacting to the fear-mongering headlines.

Risk is a function of height and believe it or not, last week’s dip was actually one of the safest times to buy in months. Prices plunged and impulsive sellers bailed out, but those discounts and turnover in ownership made stocks far more attractive. It certainly didn’t feel that way, but buying dips is never easy. By rule, every dip feels real. If it didn’t, no one would sell and we wouldn’t dip.

We are not out of the woods, but we are close. Hold near 2,800 support through Wednesday’s close and we can say last week’s emotion-filled selloff is over. Even a dip to the 200dma wouldn’t be bad as long as it found support and didn’t trigger a waterfall selloff. Market collapses are breathtakingly quick and holding last week’s lows for four days means cooler heads are prevailing and the impulsive selling is over. Without a doubt, the market could experience another leg lower, but it would take a fresh round of headlines to trigger that next wave of selling.

And while I continue to believe in this market over the medium- and long-term, we should expect volatility to persist over the near-term. If we survive the next few days, then this bounce will continue all the way up to the old highs near 2,870. That is where waterfall selloff started, and the market will likely hit its head back toward 2,800 support. But rather than fear the next dip, that back-and-forth is the healthy way the market recovers from a big scare.

As usual, long-term investors should stick with their positions. More nimble traders can profit from these back-and-forth gyrations. A person that cannot stomach another dip should sell the strength as we approach the old highs and buy the next dip. And if everything goes according to plan, the market will put this bout of indigestion behind it, and we are still on track for a nice rally into year-end. Every dip over the last nine years has been buyable and chances are this one is no different.

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Jani

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Oct 10

What happened the last time we fell 3%?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P 500 was murdered Wednesday, collapsing 3.3% as the market plunged for the fifth-consecutive session as interest rate fears spiraled out of control. This was the worst down-day since last February’s selloff.

While that sounds dreadful, could this actually be a good thing? Did anyone look back at that fateful day in February when we fell 3.75%? If you did, you already know what happened next. Panic driven selling pushed us down another 50-points early the next day, but rather than collapse lower, supply actually dried up and we finished the day up 1.5%. And not only that, that morning’s lows were the lowest point for all of 2018 and we have been higher ever since. Will this time be any different?

Without a doubt, we could fall further, but is that an excuse to abandon this market? Or is this a golden opportunity to jump in? Only time will tell, but at this point, the best we can do is look at history.

I fear the slow, insidious grind lower. Those are the losses that accumulate when no one is paying attention. What I don’t fear are the big, headline-grabbing down-days. The one that gets everyone’s attention and makes headlines around the world. That’s because those big, flashy days don’t have any substance. As the saying goes, the flame that burns twice as bright only lasts half as long.

They don’t get any bigger than 1987’s 20% collapse. That day will forever live in market folklore. But what you rarely hear is the market actually finished 1987 with a respectable 6% gain. And not only that, all of those 20% losses were erased within 12 months. It doesn’t sound nearly as scary when you put that 20% loss in context.

But forget 1987, we don’t even need to look further back than earlier this year to see the same behavior. February’s selloff sliced nearly 10% off this market. Yet we reclaimed all of those losses within six months.

I will be the first to admit I didn’t see Wednesday’s dramatic selloff coming. I have been bullish on this market since February’s bottom and today’s 3% selloff doesn’t change anything. Dips are a healthy part of every move higher. And that includes frighteningly dramatic days like Wednesday. If a person cannot handle a 3% dip in the broad market, or a 10% dip in a highflying tech stock, they probably shouldn’t be speculating in stocks.

If I wasn’t already fully invested in this market, I would be buying this dip with both arms. I’ve been doing this for way too long to let a little irrational selling scare me off. But that is what works for me. If the market’s volatility is keeping a person up at night, that is a sign they need to reduce their position sizes to something that is more manageable. The key to surviving the market is keeping your head when everyone else is losing theirs. Do whatever is necessary to reclaim your perspective. If that means dialing back your position sizes, then that is what you need to do.

Back to the big picture, if a person believes a 0.25% bump in Treasury rates will strangle the economy, then they definitely need to sell and lock-in their profits. But if a person doesn’t believe this economy is teetering on the verge of a recession, then they can ignore the noise and wait for higher prices. As crazy as it sounds, I still believe this market is setting up for a year-end rally. Come back in three months and we’ll see who was right.

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Oct 04

While the ride was scary, did anything change today?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update

Thursday was brutal for the S&P 500. Ten-year Treasury yields surged to the highest levels since 2011 and fear of sharply rising interest rates sent global equity investors scrambling for cover.

The S&P 500 opened down a modest 0.2%, but that was as good as it is got and by midday, we crashed through 2,900 support and the selling didn’t stop until we shed nearly 1.5%. This was definitely a sell first, ask questions later kind of day. But not all was bad. A late-afternoon rebound reclaimed 2,900 support before the close. Not very often do we breathe a sigh of relief when the market finishes down 0.8%, but that was so much better than it could have been.

The question on everyone’s mind is what happens next. Today’s frenzied selling hit us out of the blue and is unlike anything we’ve seen in months. Wednesday we were flirting with all-time highs, but barely 24-hours later we crashed through support and shed nearly 60-points from the previous day’s highs. We have to go back to this winter’s big selloff to see two-day price-action that dramatic. It was especially shocking given how benign volatility has been lately. But the market has a nasty habit of smacking us when we least expect it, and that is exactly what happened Thursday.

While this price-action was dramatic, the first thing we have to ask ourselves is if anything actually changed. A surge in interest rates was the excuse for Thursday’s selloff, and while rates climbed to the highest levels in years, they didn’t really go up that much. We broke through 3% for the first time back in May and have been consistently above this level since September. And this week’s “surge” took us from 3.1% all the way up to 3.2%. It’s not nearly as impressive when you look at it that way.

But a segment of traders was looking for an excuse to sell, and once the floodgates opened, the race to the exits was on. Early selling pushed us under the first set of stop-losses, and that selling pushed us under the next tranche of stop-losses. That pattern of reactive selling, dropping, and more reactive selling continued until we triggered all the stop-losses and ran out of defensive sellers willing to abandon this market.

And so what happens next? We don’t need to look very far because what will happen next is the exact same thing that happened last time, and the time before that. This is an incredibly resilient market. Owners refused to sell an escalating trade war between the world’s two largest economies. They refused to sell an ever-expanding investigation into the president. They refused to sell the Fed raising interest rates three times this year and promising another hike before the end of the year. Should we believe confident owners would sit through all that, only to lose their nerve and turn into panicked sellers when Treasury rates go from 3.1% to 3.2%. Really???

I don’t see anything that materially changed Thursday and that means my positive outlook remains intact. Everyone knows stocks cannot go up every…single….day. Dips are inevitable. The thing to remember about dips is they always feel real. If they didn’t, no one would sell and we wouldn’t dip! Without a doubt, Thursday’s selloff felt real. But nothing changed, and that means we should ignore the noise. This is a strong market and the rally into year-end is alive and well. Savvy traders are buying these discounts, not selling them.

Last week I wrote the following and nothing changed since then:

There is not a lot to do with our short-term money. Either we stay and cash and wait for a more attractive opportunity, or we stretch our time-horizon and ride the eventual move higher. Of course, there is no free lunch and holding stocks is risky. Anyone waiting for the next move higher needs to be prepared to sit through near-term uncertainty and volatility.

If a person has cash, they are a great position to buy these discounts. If a person was taking a longer view, they should have expected dips and gyrations along the way. If they knew something like this could happen, they would be less tempted to reactively sell the weakness. Unfortunately, a lot of traders were not prepared for this dip, and they joined the crowd jumping out the window. But it’s not all bad, their loss is our gain when they sell us their heavily discounted stocks. Sign up for Free Email Alerts so you are on the right side of the trade next time.

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Jani

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Oct 02

When to ignore red flags

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

On Tuesday the S&P 500 continued hovering near all-time highs as it digests recent trade war and interest rate headlines. We’ve been trading near 2,900 for nearly six weeks as the market consolidates August’s breakout to all-time highs.

But this isn’t a surprise for regular readers of this blog. I wrote the following nearly a month ago, and the market has behaved exactly as expected since then:

 “I didn’t expect much out of this dip and that is exactly what it gave us. Since the market likes symmetry, we shouldn’t expect much out of this rebound either. The next move is most likely trading sideways near the psychologically significant 2,900 level. It will take time for those with cash to become comfortable buying these levels before we will start marching higher again.”

With the benefit of hindsight, it is obvious the market isn’t up to much. But that didn’t stop countless people from losing money by selling last month’s dip and chasing Monday’s rebound. Easy mistakes that could have been avoided if people were paying attention. Make sure you sign up for Free Email Alerts so you don’t miss profitable insights like these.

Over the weekend the United States and Canada struck a compromise on a revised NAFTA. That sent prices higher Monday morning, but the market has struggled to add to those gains.

Typically a market that fails to react to good news makes me nervous, and Monday’s fizzled breakout definitely raised a red flag. A lack of follow-on buying often tells us we are running out of buyers and a price collapse is imminent. But this is not a not a normal market and the same rules don’t always apply.

Without a doubt, yesterday’s fizzle got my attention. But at the same time, this muted reaction is consistent with this bull market’s personality. Volatility is extremely low and that works in both direction. Since market selloffs are quicker and larger than rallies, this market’s reluctance to sell off on bad news is far more impressive than this week’s inability to surge higher on good news. I’d love to see prices race higher, but I’m not overly worried about this modest move becaue it fits this market’s personality. As I’ve been saying for a while, this is a slow market, and we need to be patient and allow the profits to come to us.

I’m willing to forgive the market for not holding Monday’s early highs, but that does count as one strike. If I see more warning signs, it will force me to reevaluate my outlook. But until then, I’m still giving this resilient bull market the benefit of the doubt.


FB is still struggling to get its mojo back. Between last quarter’s earnings disappointment, looming privacy regulations, and last week’s hacking revelation, it’s been hard for this stock to turn sentiment around. This is still the hottest social media property and nothing else comes close. As long as technology continues to be the hottest sector, FB will continue to be a buy. But if FB cannot catch back up to its FAANG peers, that could be an early sign the other FAANG stocks are skating on thin ice. At this point, FB is far more likely to catch up to the other tech high fliers than it is to bring everyone else down to their level. Things still look good over near-term and into year-end, but the situation could look a lot different next year. Stocks and sectors often take turns leading the way higher and at some point technology will hand the baton to the next hot sector.

AMZN announced it is boosting starting pay to $15/hr for its warehouse and other front-line employees. The stock initially dipped on the news, but it has since recovered those losses. Paying employees well is far better than dealing with high turnover, disgruntled workers, and public relation campaigns against the company. Plus, this has always been a growth story, not one about profits. Attracting and retaining the best employees will help it extend its growth streak.

Despite the flurry of headlines over the last few days, TSLA is right back where it was last week. The bulls are as dug in and entrenched as the bears. Both sides are prepared to fight to the death, and that is resulting in this stalemate. At this point, I still give a slight edge to the bulls simply because we are still at the lower end of this summer’s trading range.

Bitcoin is still struggling to break $6.8k resistance. If buyers wanted to buy this dip, they would have jumped in already. The chronic lack of demand at these levels is a concern, and the path of least resistance remains lower.

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Jani

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