Category Archives for "End of Day Analysis"

Why this rally to all-time highs was obvious

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P 500 finished Tuesday higher for the fourth time in a row and is at the highest levels in six months, just a few points shy of all-time highs. While traders lived in fear of Trump’s trade war and the Fed’s rate-hikes, the market’s done nothing but climb higher.

Regular readers of this blog know we trade the market, not headlines. This market’s strength has been obvious to us for a while. I could quote any of my blog posts from the last six months, but I’ll save regular readers the repetition and invite new readers to browse my archive.

That said, at times even I was caught off guard by just how resilient this market has been. Last week it looked like we were on the verge of tumbling under 2,800 support, but that was yet again another false alarm. But rather than argue with this strength, we should embrace it. It has been a very profitable ride for anyone that understood why the market was acting the way it was.

Often it is more insightful to look at what the market isn’t doing than what it is doing. For months this market refused to breakdown no matter how ugly the headlines got. There are few things more bullish than a market that refuses to go down on bad news and that is exactly what happened here. While the cynics are dumbfounded we are within a few points of all-time highs, those of us that knew what was going on saw this coming from a mile away.

Of course that was then and this is now. Let’s not forget we are still in the slower summer months and institutional managers won’t return from their summer cottages until after Labor Day. Without big money’s deep pockets, we should expect these directional moves to run out of steam fairly quickly. Prices rebounded from 2,600 and paused at 2,700. When we finally broke away from 2,700, we stopped at 2,800. And now that we are approaching all-time highs near 2,880, we should expect yet another pause. The only question is if we trade sideways for a bit before breaking out. Or if we dip back into the mid-2,700s before launching the next leg of this bull market.

Either way, this is a better place to be taking profits than adding new money. The most profitable trade since February’s bottom has been buying weakness and selling strength. Nothing has changed and that means this week’s strength is a better selling opportunity than buying one. Even though everyone feels a lot better because we are no longer on the “verge of collapse”, the lack of fear and recent price gains actually make this a far more risky place to buy than last week’s fearful dip under 2,800 support.

Everything looks good and we should keep doing what has been working all summer long. For our longer-term investments, that means sticking with our favorite buy-and-hold investments. For our short-term trading positions, we need to shift our mindset from offense to defense and start thinking about locking-in profits as we run into overhead resistance near 2,880. If prices dip and retreat back into the mid to lower 2,800s, that is simply giving us another profitable dip to buy. If we trade sideways for a few weeks, then we jump back in ahead of this fall’s next bull leg higher. Either way this market isn’t going anywhere fast and we don’t need to worry about being left behind.

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Despite brief scares in FB and NFLX, the tech trade is still very much alive. While I cannot say it is well given the beatings FB and NFLX took last week, it looks like both stocks have bottomed and are starting their recovery. People who miss a big trade always pray for a pullback so they can jump aboard, unfortunately most of those people lose their nerve when the market finally answers their prayers. If someone wanted to buy FB and NFLX at discounted prices, they better move because those discounts are disappearing pretty quick. At this point the biggest risk to FAANG stocks is broad market weakness. As long as the indexes continue trading well, expect FAANG to keep leading the way higher.

It is hard to find anything positive to say about Bitcoin. Last week’s bounce above $8k support failed and rather than break the destructive trend of lower-highs, it looks like we made another one. Failing to hold $8k, it didn’t take long for us to crash under $7k as any hope brought about by the latest rebound vanished faster than it appeared. If we cannot retake $8k support over the next few days, expect us to tumble through $6k support and start making new lows. This is still a very broken chart and Bitcoin is guilty until it proves itself innocent. So far it hasn’t managed to that.

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Jani

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When does holding support become stalling?

By Jani Ziedins | End of Day Analysis

End of Day Update:

I’ve been bullish on this market for awhile and profited handsomely from this rally above 2,800. But all good things come to an end and I’m losing confidence in this latest move higher. Last week the S&P 500 surged to 2,850 after Trump agreed in principle to end his trade war with Europe. Unfortunately those gains evaporated after FB and NFLX failed to live up to investors’ lofty expectations.

Tuesday evening AAPL joined GOOGL and AMZN in beating expectations, but that wasn’t enough to put traders into a buying mood Wednesday. If this market was poised to go higher, there have been enough positive headlines to fuel a “half-full” move. Instead we remain stubbornly stuck just above 2,800 support as trade war fears simmer in the background.

Few things make me more nervous than a market that refuses to rally on good news and is why my conviction is fading. To be clear, I’m not bearish and don’t expect a large crash. But I am growing more cautious and worried this pause at support is turning into stalling. The longer we hold near support, the more likely it is we will breach it. I’d like to see us keep inching higher, but we are quickly running out of excuses to rally. If good news cannot lift us, eventually bad news will knock us down.

That said, I’m not looking for a large move lower; 2,750 seems reasonable. While a move that small hardly seems worth worrying about, and we shouldn’t worry about it, that is a lot easier to do when we see it coming. Those that are unprepared will watch us crash under 2,800 support and keep falling past 2,790…2,780…2.770…2.760…and…2,750. Those that don’t know what is happening get spooked more easily because it is natural to assume prices will keep falling. Unfortunately the point they finally call mercy and bailout is usually moments before prices capitulate and rebound.

There are two ways to trade a modest dip. Either have the confidence and conviction to ride through the dip and rebound. Or take profits before we stumble and buy back in at lower levels. What we don’t want to do is hold until pain and fear forces us out moments before prices rebound.

I’m not bearish enough to short this stalling, but am growing more cautious. Longer-term investors should be prepared to weather a little near-term weakness, while short-term traders should consider locking-in profits. I still expect good things over the medium and long-term, but I have less conviction over the near-term.

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Jani

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A market that refuses to go down will eventually go up

By Jani Ziedins | End of Day Analysis

End of Day Update:

As I’ve been saying for a while, a market that refuses to go down will eventually go up. That is exactly what happened this week and now the S&P 500 finds itself 1% from all-time highs. This is a long way from the fear and uncertainty that dominated the headlines for most of the year.

This “unexplainable” strength confuses skeptics and the only expiration they can come up with is the market is rigged. Personally I wish the market was rigged because that would make trading so much easier. All I would need to do is follow the people who are rigging it and I would be printing money! Unfortunately nothing is ever that easy and we actually have to work for our profits. But don’t fret, it isn’t that difficult if we know what to look for.

In this case it was recognizing the market’s strength. Remember, we trade the market, not the news. If the market doesn’t care about headlines (trade wars, rising interest rates, sex scandals, etc), then neither should we. This one idea could have saved a lot of people a lot of money this year.

If the market didn’t care about Trump’s trade war yesterday, last week, and last month, what are the chances it will start caring today? Almost none. It doesn’t get any simpler than this. Anyone still arguing with the market got run over and is much poorer for it. Don’t be that guy.

While it is easy to say these things after the market made it’s move and it is obvious to everyone, I’ve actually been saying these things for a while. I wrote the following last week as the market threatened to tumble under 2,800 support:

No matter what people think should happen, Trump’s trade war has largely been priced in. Anyone who fears these headlines bailed out months ago and was replaced by confident dip buyers. Right or wrong, this turnover in ownership means the remaining owners don’t care about these headlines. When no one sells the headlines, they stop mattering. That is how we find ourselves in a paradoxical market that rallies 100-points after Trump imposes billions of dollars of tariffs on the Chinese. These things don’t matter because no one is left to sell the news. This market is not “rigged”. It is not “irrational”. It is behaving exactly like it should. The people who don’t understand this strength are simply looking at the wrong things.

The market is actually fairly easy to figure out once we know what to look at. In this case it was ignoring all the noise surrounding us and seeing a strong market. That said, many of the easy gains are behind us. The path of least resistance is most definitely higher, but the gains will be slower and harder to come by. Anyone trying to profit going forward will need more conviction and patience to sit through the inevitable gyrations as we run into resistance near all-time highs. Stick with what has been working and keep believing in this market.

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FB is got hammered following disappointing earnings. I didn’t expect anything this dramatic and obviously neither did the market. This crushing loss highlights the importance of diversification when trading individual stocks. One misstep can send a highflier tumbling in a terrifying way. I don’t mind holding large positions in the indexes because they are naturally diversified. But with individual stocks it never makes sense to hold more than 20-25% of your portfolio in any one company. If a person had equal weightings of the FAANG stocks in their account, today’s 20% plunge would have only put a 4% dent in their portfolio.

That said, these stocks don’t trade in isolation and one highflier’s stumble risks taking down the entire group. Luckily GOOGL and AMZN carried their weight and it looks like the tech trade is still alive. It will just take NFLX and FB a little while to overcome their latest stumble. If these stocks hold current levels into next week, this is simply another buyable dip.

Bitcoin is struggling to hang onto $8k support and we are left wondering if this latest rebound is simply another “dead cat” bounce. Every significant selloff is littered with sharp rebounds. The problem is each of these bounces is less high than the one before it. This year we witnessed strong bounces to $17k, $13k, $12k, $10k and now $8k. Will this one end any different than those? I’m skeptical. To prove me wrong BTC needs to end this cycle of lower-highs by breaking above the previous lower-high of $10k. Until then this rebound is guilty until proven innocent.

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Jani

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Market that refuses to go down will eventually go up

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

On Tuesday the S&P 500 surged above 2,800 support following better than expected earnings from Google. This market resisted every invitation to selloff and all it took was a little good news to put traders into a buying mood.

I wrote the following last week after Netflix bombed earnings and trade war fears sent a shiver through the market:

What people want to know is what comes next. If it isn’t obvious yet, this market wants to go higher and it isn’t going to let headlines get in its way. Either we jump aboard and enjoy the ride, or we get out of the way. But we most definitely don’t fight it. If this market was fragile and vulnerable, we would have crashed months ago. Bears can talk all they want about complacency, but they forget periods of complacency often last months and even years before ending in a top. Confident owners don’t sell and the resulting tight supply props up prices. Headlines don’t matter when no one sells them and that is the exactly what is happening here. Right or wrong, it doesn’t matter, I trade the market and this market wants to go up.

After flirting with dip under 2,800 support, we now find ourselves at the highest levels in nearly six-months. While I wouldn’t call Tuesday’s 0.5% gain huge, it was far larger than any down-day we’ve seen recently. As I’ve been saying for a while, a market that refuses to go down will eventually go up. This was finally that day. Google’s earnings are not that important in the big picture, but it is the one piece of good news we’ve been searching for. The thing that puts traders into a buying mood.

This is just another example of why we trade the market, not the headlines. Trade war headlines are a far bigger worry for the economy than Google’s earnings are a positive. Intuitively we would expect the trade war to send us tumbling and Google to barely register a bump. Yet the exact opposite happened. The trade war is little more than a speed bump and Google triggered one of the biggest up-days in weeks. Anyone trading what “is” happening is doing a lot better than those trading what “should be” happening.

Tuesday’s strength confirms my prior analysis and there is no reason to second guess ourselves now. We are still in the slower summer months and we should’t expect a large move higher, but the path of least resistance is higher. Stick with what has been working and look for prices to creep toward all-time highs over the next few weeks. If bad news was going to knocks us down, it would have happened by now. This is a strong market, not a weak one. Those that are patient and don’t overreact to these daily gyrations will be rewarded.

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Jani

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Down days are normal and healthy

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P500 slipped back to 2,800 support as trade war fears flared up and Trump made comments about the Fed’s interest rate hikes and dollar strength.

While any kind of weakness feels scary following this month’s pleasant surge above 2,800 resistance, we need to keep it in perspective. Down-days are a healthy and normal part of every move higher. Given the magnitude of the headlines swirling around us, a 0.4% decline feels fairly insignificant. As I’ve been saying for a while, if this market was fragile and vulnerable, we would have collapsed months ago. There is far more than enough ammunition for a large market selloff. In fact most bears are shocked we haven’t collapsed given how dire the news is. But as traders, the thing we can never lose sight of is we don’t trade the headlines, we trade the market. If the market chooses to ignore these headlines, then so should we. If it didn’t matter last week, last month, and the month before that, why is it all of a sudden going to start mattering now? Quick answer is it won’t.

No matter what people think should happen, Trump’s trade war has largely been priced in. Anyone who fears these headlines bailed out months ago and was replaced by confident dip buyers. Right or wrong, this turnover in ownership means the remaining owners don’t care about these headlines. When no one sells the headlines, they stop mattering. That is how we find ourselves in a paradoxical market that rallies 100-points after Trump imposes billions of dollars of tariffs on the Chinese. These things don’t matter because no one is left to sell the news. This market is not “rigged”. It is not “irrational”. It is behaving exactly like it should. The people who don’t understand this strength are simply looking at the wrong things.

While it is easy to make these claims after the fact, I’ve been telling readers to expect this rally for a while. This is what I wrote last month as the market teetered on the edge of what most assumed would be another leg down.

Bears have been gifted everything. Horrible headlines. Violating key support levels. The largest one-day selloff in months. Yet they are unable to do anything with it. Instead of crashing, this market is holding up amazingly well. Respecting 2,700 support for four days demonstrates strength, not weakness. If this market was fragile and vulnerable, there has been more than enough to send us tumbling. Yet here we stand.

Back when everyone feared the worst, I told readers to not worry about it. Anyone who listened avoided giving away money by selling at the wrong time and profited nicely as the market surged 100-points over the next few weeks. I don’t have a crystal ball, but I have been doing this long enough to know what we need to worry about and what we can ignore. I fear the things I don’t know, not what everyone is talking about. Trump’s trade war has dominated the financial press for months. That meant it was already priced in and not something we needed to worry about.

And what was true last month is still true this month. This market doesn’t care about all the things the bears are talking about. If we were going to crash, it would have happened by now. That tells us we are standing on firm ground. That said, the 100-point rally from 2,700 support consumed a lot of upside and the easy gains are now behind us. From here every additional point gets harder and slower. That path of least resistance is still higher, but it requires more conviction and patience.

If a person bought last month’s dip and is sitting on healthy profits, there is nothing wrong with taking profits here if that is what their strategy dictates. But at the same time, those that are more patient can squeeze a few more dollars out of this market. If this month’s rebound pushed us to overbought and unsustainable levels, we would have fallen back into the trading range by now. Instead, 2,800 resistance turned into support and is holding us up quite nicely. The next obvious target is all-time highs at 2,880. We will get there eventually, but it will take a few weeks and there will be lots of back-and-forth between now and then. Remember, red days are a normal and healthy part of every move higher.

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Jani

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Don’t fight a strong market

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P500 ended Tuesday with nice gains, easily erasing opening losses. Monday evening Netflix reported disappointing subscriber growth and that sent a chill through the entire tech sector. But Tuesday’s weak open was as bad as it got and prices rebounded decisively through the day. This strength resulted in the highest close since February 1st and leaves us within 2% of all-time highs. Not bad given all the headline uncertainty swirling around the market.

Bears are left dumbstruck by this market’s resilience and no doubt they are crying foul. But it didn’t have to be this way if they had been paying attention. We trade the market, not the headlines. If a person kept this in mind, they would have embraced this strength, not challenged it.

I’ve been telling readers for months this is a strong market. This is what I wrote back on May 3rd when the market threatened to crash under 2,600 support:

As I’ve been saying since February, we are in a trading range. That means buying weakness and selling strength. Stick with what is working until something changes. Did something change today? Nope. That means today’s weakness was a buying opportunity, not a chance to bailout “before things get worse”. Maybe we slip a little further, but that’s not a big deal. Remember, risk is a function of height. The lower prices go, the less risky it is to buy. If this market wanted to crash, it would have happened months ago. There have been more than enough excuses to send prices tumbling. Instead, every time we slip to the lows, supply dries up and prices rebound. This is a resilient market, not a weak one. And the only people losing money are the ones overreacting to these gyrations. They lose money buying when they feel confident (high) and sell when they are fearful (low). If we want to make money, do the opposite of most people. That means buying fear and selling confidence.

The market is up nearly 8% since I wrote that. I don’t have a crystal ball, but I’ve been doing this long enough to know what to pay attention to. While fearful owners were panic selling, I was buying their discounts and it has worked out really well. And nothings has changed. If this market ignored bad news in May and June, why would that change in July? Given today’s resilient price-action, clearly it hasn’t.

But that was then and this is now. What people want to know is what comes next. If it isn’t obvious yet, this market wants to go higher and it isn’t going to let headlines get in its way. Either we jump aboard and enjoy the ride, or we get out of the way. But we most definitely don’t fight it. If this market was fragile and vulnerable, we would have crashed months ago. Bears can talk all they want about complacency, but they forget periods of complacency often last months and even years before ending in a top. Confident owners don’t sell and the resulting tight supply propping up prices. Headlines don’t matter when no one sells them and that is the exactly what is happening here. Right or wrong, it doesn’t matter, I trade the market and this market wants to go up.

That said, the easy gains are behind us. Long gone are the days of buying the dip-buying and racking up quick profits. Instead this market is approaching old highs and we should expect the rate of gains to slow. Confident owners don’t want to sell, but we need new money willing to chase prices higher and that is getting harder to come by. We are still in the slower summer months and we shouldn’t expect the real buying to start until big money returns from their summer cottages this fall. Things still look good for this market, but expect the rate of gains to slow. And remember, slow includes lots of back and forth along the way. The easy money was made weeks ago. Now it takes more conviction to hold through the inevitable gyrations like we saw Tuesday morning. But the rewards will be there for those that have the patience and conviction.

The market is acting well and that means we stick with what has been working. Longer-term, keep holding our favorite buy-and-hold stocks. Short-term wise, we are stuck in no-man’s land and a lot depends on a trader’s plan. Shorter-viewed swing-traders can start taking profits and waiting for the next trade. Those with a little more patience can continue waiting for higher prices. Over the next few weeks I expect this market will challenge all-time highs near 2,880. But rather than cheer that strength, I will be collecting my profits.

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Jani

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The reason we rallied in the middle of a trade war

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P500 surged to the highest levels in nearly six-months, erasing almost all of this winter’s big selloff. What’s driving this strength? If you go strictly by the headlines, it seems the market loves Trump’s trade war. That can’t be right, can it???

No of course not. The stock market hates anything that gets in the way of free trade and the only one winning this trade war is the taxman who is enriching himself at the expense of hard-working Americans. But if the market hates this trade war, why is it rallying so strongly after Trump started taxing $36 billion in Chinese imports and is threatening to add another $200 billion?

First, lets be perfectly clear, the market most definitely isn’t rallying because of Trump’s trade war. It simply isn’t selling off on the news because these headlines are already priced in. Rational traders sell the first hints of bad news. No one waits for the inevitable to happen before they react to it. When we see a rock flying toward our head, we move before it hits us, not after. The same goes for the stock market. Traders reacted to Trump’s trade war months ago when he first announced it. Anyone waiting until now to sell the trade war headlines clearly doesn’t understand how this works. All of this selling ahead of time meant there was no one left to sell the news when it finally happened. Remember, we fear what we don’t know, not the things everyone is talking about. Trump’s trade war is old news and is why the market doesn’t care about it anymore.

While this strength is obvious after the fact, these things are far harder to see ahead of time. But luckily regular readers of this blog saw this coming. (Don’t miss out next time, signup for FREE email alerts!) Two-weeks ago I wrote the following as this market teetered above 2,700 support:

Bears claim their time is coming, but is it really? If they couldn’t deliver the goods with such a perfect setup, what makes them think waiting a little longer will make a difference? Trade war headlines are as dire as they can get with Trump and China already threatening to tax all the trade between the world’s two largest economies. At this point things cannot escalate any higher. How did the market respond to this latest round of bearish headlines? With a lethargic, drawn out, two-week slide that barely gave up 2%. Everyone who has been doing this for any length of time knows market crashes are breathtakingly fast. Sell first and ask questions later affairs. Yet here we are two-weeks later, still waiting for the promised crash. The cold, hard truth is if it was going to crash, it would have happened by now.

And not only did we not crash, we rebounded to the highest levels in nearly half a year! People often claim the market is fixed when it doesn’t do what they think it should. The brutal truth is the market is most definitely not fixed, these people are simply looking at the wrong things. Everything makes perfect sense if you know what to look for. This was a strong market, not a weak one. Anyone who realized this wouldn’t have been surprised when the market brushed off stale headlines that had been priced in months ago.

But that was then and this is now. Most people already know what happened, what they really want to know what comes next. If this market was signaling strength two-weeks ago, it was shouting strength over the last several days as it defied conventional wisdom and rallied in the face of bearish headlines. If this market was fragile and vulnerable, there have been more than enough excuses to send us tumbling. Instead it is holding up incredibly well. Just imagine what will happen when we move past these negative headlines. This market most definitely wants to go higher and it won’t let anything get in its way.

I don’t expect a strong surge higher from here because we are still stuck in the slower summer months. Breaking 2,800 resistance is all but a done deal and no doubt that will trigger a short-squeeze as bears give up in frustration. But expect the gains to slow down after that because even though this market doesn’t want to go down, headlines are negative enough that those with cash will remain reluctant to chase prices higher. That won’t happen until big money returns from their summer cottages this fall. Those deep pockets will fuel the chasing into year-end and things are setting up for a strong finish to 2018. What doesn’t kill this market only makes it stronger.

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Jani

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Here we go again

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

Tuesday was a good day for the S&P500 as it extended its win streak to a fourth day. But that hardly matters anymore because after the close Trump announced tariffs on another $200 billion in Chinese goods. That sent after-hours markets tumbling nearly 1%.

Thus far U.S. stocks have largely ignored Trump’s trade war and Tuesday we closed within 3% of all-time highs. The same cannot be said for Chinese markets that are quickly approaching a bear market. The question for us is if this latest escalation is the straw that finally breaks the camel’s back and we join the Chinese with our own bear market. Or if this is just one more thing our “oblivious” market ignores and we continue defying gravity.

For a historical perspective, we only need to look back a few days. Last Friday Trump launched his second round of tariffs on the Chinese and they immediately responded in kind with their second retaliation. What did our market do? It had one of the biggest up days this summer. How could something so negative lead to such a positive reaction? Was this market even paying attention? No sane market would rally in the middle of an escalating trade war, would it?

Luckily for regular readers of this blog, the market’s strength came as no surprise. We know markets are always looking ahead and quickly price in new information as soon as it becomes widely known. Trump launched his trade war this spring and Friday’s escalation didn’t surprise anyone, even the bears saw this one coming. But here’s the thing about rational traders, they don’t wait for something to happen before they sell it. Instead they start selling as soon as the rumors surface. Since we’ve been talking about this trade war for awhile, owners who feared these headlines bailed out months ago and were replaced by confident dip buyers who demonstrated an obvious disregard for these headlines. The more we talk about a trade war, the less it matters to the market.

I’m not claiming the trade war doesn’t matter to the economy and the stock market. Without a doubt this is a negative event and will hurt businesses and consumers alike. The stock market hates barriers to trade because they create inefficiencies and only enrich the government. But the thing to remember is stocks don’t need to fall for something to get priced in. Going sideways is often enough to compensate for a headwind.

The market was on fire last year and Trump’s tax cuts added fuel to the fire. In fact the Fed is worried about the economy overheating. But what has the stock market done while the economy continued ramping up this year? A lot of nothing. We got hit by waves of rate hike fears, rising interest rates, Trump’s trade war, and the icing on the cake is a growing investigation into the White House. Take these things away and without a doubt the stock market would be significantly higher. If we are lower than where we would have been otherwise, then these negative headlines are actually priced in even though we haven’t crashed.

Back to the present, not only did the U.S. stock market ignore Friday’s escalation, it’s been ignoring the trade war for months. Overnight futures would dip on a negative headline. But the thing to remember is overnight futures are an extremely thin market and easily influenced by a small number of players. As soon as the regular market opened and real volumes returned, prices rallied from their opening lows. No doubt something similar will happen Wednesday or Thursday. If this market was going to crash on trade war headlines, it would have happened months ago. If it didn’t happen then, it’s not going to happen now. Prices could slip a little further over the next couple of days, but these are buyable dips and no one should be bailing out “before things get worse”.

Before anyone accuses me of being a perma-bull, I am most definitely not. I’m an opportunist and personally I wish the market would crash so that I could make even more money riding these waves down and back up again. Unfortunately this market keeps telling us it doesn’t want to selloff. I’ve been doing this too long to argue with a strong market and am more than happy to play along. Without a doubt the latest round of trade war headlines could trigger further near-term weakness (and I would love it if it did), but this market has told us time and time again it simply isn’t interested in these headlines. I would be surprised if we dip much lower than 2,650 and no doubt we will hear bears howling in pain again when prices bounce back and they claim the market is fixed. There is nothing fixed about this market and everything makes perfect sense if you know what to pay attention to. If this market was going to crash on trade war headlines, it would have happened months ago. Instead any near-term weakness is simply another dip-buying opportunity.

If you found this post useful, return the favor by sharing it on Twitter, Reddit, Facebook and StockTwits!

Jani

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What to do on the eve of Trump’s trade war

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

On Thursday the S&P500 closed higher, erasing Tuesday’s pre-holiday slump. Trump’s trade war continues to dominate headlines, but to the great frustration of bears, these negative stories have been unable to dent this market. Are we on the verge of collapsing as bears claim, or do they have this all wrong?

Trump’s Chinese tariffs go into effect Friday and China promised immediate retaliations. At this point the first round of tariffs is unavoidable and I don’t know anyone still hoping for a last-minute reprieve. Yet on the eve of the trade war, paradoxically the market finished higher. Something doesn’t seem right.

Either we stubbornly argue with the market, or we try to understand why the market is doing what it is doing. I learned a long time ago that no one wins an argument with the market, so I always go for the latter option. Rather than insist the market should be crashing, I want to understand why it is is holding up so well in the face of these obviously negative headlines.

Anyone who has been reading this blog already knows the answer since I have been talking about this market’s resilience for weeks. I wrote the following June 26th when we first tested 2,600 support and it is every bit as valid today:

News gets priced in over time and we have been talking about Trump’s trade war for months. Anyone who feared these headlines bailed out months ago and was replaced by far more confident dip buyers. This turnover in ownership created a far more resilient market and explains this lack of a crash. If owners don’t sell a headline, it stops mattering. Since we trade the market and not the news, if the market doesn’t care, then neither should we.

Anyone can identify the reasons the market did something weeks after the fact when everyone knows what happens. But it takes far more thoughtful insight and analysis to figure out what is going to happen before it happens. I wish I had a crystal ball, but after doing this long enough and learning the eccentricities of the market, I don’t need one because the market always tells us what it wants to do before it does it. This time the market was definitively telling us it wanted to go higher, not lower, and that made this latest bout of weakness a buying opportunity, not a time to bailout before things get worse.

Quite simply, if this market wanted to crash, it would have happened by now. We have been living under the clouds of a trade war for months. If it didn’t matter before, that tells us it is already priced in and we don’t need to worry about it. Without a doubt we could slip a little further, but that would just give us an even better buying opportunity. If this market was afraid of Trump’s trade war, we would have crashed months ago. If the market doesn’t care, then neither should we.

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Jani

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Don’t give up on this bull yet

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday was another frustrating session for bears as a day that started with so much potential failed to deliver that big draft lower. This was the third day the market challenged 2,700 support, but rather than accelerate lower, supply dried up and prices rebounded.

Bears claim their time is coming, but is it really? If they couldn’t deliver the goods with such a perfect setup, what makes them think waiting a little longer will make a difference? Trade war headlines are as dire as they can get with Trump and China already threatening to tax all the trade between the world’s two largest economies. At this point things cannot escalate an higher. How did the market respond to this latest round of bearish headlines? With a lethargic, drawn out, two-week slide that barely gave up 2%. Everyone who has been doing this for any length of time knows market crashes are breathtakingly fast. Sell first and ask questions later affairs. Yet here we are two-weeks later, still waiting for the promised crash. The cold, hard truth is if it was going to crash, it would have happened by now.

Bears have been gifted everything. Horrible headlines. Violating key support levels. The largest one-day selloff in months. Yet they are unable to do anything with it. Instead of crashing, this market is holding up amazingly well. Respecting 2,700 support for four days demonstrates strength, not weakness. If this market was fragile and vulnerable, there has been more than enough to send us tumbling. Yet here we stand.

Bears claim this market is too complacent and that alone is proof we are on the verge of a collapse. And I don’t dispute that this market is crazy complacent. But that’s not a surprise. After years of getting burned selling dips, only to watch prices rebound higher without them. Traders learned to ignore the bad news because they assume everything will work itself out in the end. But even though this market is extremely complacent, bears fail to realize complacency can last for years before it becomes a problem. As we are witnessing, complacent owners don’t sell spooky headlines. Without supply, it is near impossible for selloffs to build momentum and it only takes modest dip-buying to prop it up. And that is exactly what is happening here. Confident owners are refusing to sell the trade war fear mongering and that lack of supply is keeping a floor under prices. No doubt this bull market will die like every one that has come before it. But this is not that time. I fear markets that cannot rally on good news, not ones that refuse to go down on bad news.

Before anyone accuses me of being a perma-bull, two-weeks ago I warned readers to be careful as we approached 2,800 resistance:

Even though the market is acting well and the path of least resistance is definitely higher, we cannot forget risk is a function of height and the market moves in waves. If this is the highest we’ve been in several months, that also means this is the riskiest place to be adding new money in the same number of months. In addition, the strong move over the last week leaves us vulnerable to a subsequent down-wave. We are quickly approaching 2,800 resistance and we should at the very least expect the market to pause. We entered the slower summer season and many big money managers have flow off to their summer cottages. Without their big buying, we shouldn’t expect a large directional move. Things still look good for our medium-term stock positions and long-term investments and we should leave them alone, but for short-term swing-trades, this is a better place to be taking profits than adding new money.

This has been a mostly sideways market since the March lows and the best trade has been buying weakness and selling strength. Nothing has changed. Two-weeks ago we should have taken profits into that strength and this week we should be buying the subsequent dip. Everyone knows markets move in waves, so get with the program and trade the waves! The market could stumble a little further and even test the 200-dma near 2,670, but that is just a test and it is still a buyable-dip. I know I sound like a broken record, but some things are worth repeating. If this market was fragile and vulnerable to a crash, it would have happened by now.

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If the broad market is setting up for a bounce, then the FAANG stocks are in even better shape. They have led us higher in the first six months of the year and they will keep leading us higher over the next six-months. Keep doing what is working and that is buying-and-holding the market’s best performing stocks. Everything will likely continue consolidating through the summer, but we are setting up for a strong fall season.

The same cannot be said for Bitcoin. What is already low keeps getting even lower. This time we fell under $6k support. That means virtually every buyer over the last nine months is sitting on losses. Many of them breathtakingly large losses. BTC has turned from the thing that will make everyone rich to the butt of every joke. No one is heaping praise on bitcoin anymore. Instead most people are too embarrassed to talk about their BTC losses. These things reverse in a sharp capitulation bottom. Given this meandering wallow lower, we definitely haven’t reached capitulation levels yet. This thing won’t be over until we plunge dramatically lower and then rebound decisively. Maybe that will happen following a dip to $4k. Or maybe we need to fall even lower than that. Until then, expect the pattern of lower-lows to continue.

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Jani

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Is it time to give up on this bull market?

By Jani Ziedins | End of Day Analysis

The S&P500 treaded water Tuesday, the day after the biggest drop in a couple of months. Volume was average, but it was similar to Monday’s relatively benign volumes.

Trade tensions flared up over the weekend as Trump and China continue escalating their rhetoric. But even with Monday’s losses, we are still only a couple of percent from recent highs. As much noise as these trade war headlines create, they don’t seem to be affecting the market much.

And this won’t come as a surprise to anyone who has been reading this blog for a while. News gets priced in over time and we have been talking about Trump’s trade war for months. Anyone who feared these headlines bailed out months ago and was replaced by far more confident dip buyers. This turnover in ownership created a far more resilient market and explains this lack of a crash. If owners don’t sell a headline, it stops mattering. Since we trade the market and not the news, if the market doesn’t care, then neither should we.

Bears will say the crash is coming, we just need to wait for it. Unfortunately crashes don’t work that way. Significant stock market selloffs are breathtakingly fast; sell first and ask questions later affairs. They happen before most traders understand what is going on. Compare that to these trade war headlines that we’ve been talking about for months. Trump and China already threatened to tax all of the trade between the world’s two largest economies. While things could still get worse, it is hard to think of how much further it can go than it already has.

No doubt the market assumes we will avoid that worst-case scenario and that is only natural. Selling any negative headline over the last nine-years proved to be a costly mistake as regretful sellers watched the market bounce back even higher. These traders learned their lesson and now keep holding no matter what. While bears claim this complacency is signs of a top, what they don’t realize is periods of complacency can last for years. When confident owners refuse to sell, supply stays tight and it doesn’t take much dip-buying to prop prices back up. This bull market will die like every one before it, but the time is not now and these are not the headlines.

While we can safely take “crash” off the table, as regular readers of this blog already know, risk is a function of height and this month’s rally up to 2,800 resistance left us vulnerable to a normal and healthy pullback to support. The thing to realize is by rule every dip feels real. That’s because if it didn’t, no one would sell and we wouldn’t dip. Prices could slip a little further and undercut 2,700 support, but this is a buying opportunity, not a reason to bailout “before things get worse”. Bull markets rebound countless times through their life, but they can only die once. Looking strictly at the odds, what is more likely, this week’s dip is the thing that happens countless times, or we are watching the death that only occurs once? I know which one I am putting my money on.

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AAPL rebounded nicely and recovered its 50dma. The stock has been weighed down because China is an important market for the company, both as a manufacturer and a buyer for its high-end phones. The other FAANG stocks have been less affected by these headlines because they don’t have the same level of Chinese exposure. But as a group, these stocks have been incredibly resilient and that won’t change anytime soon. The same reasons that propelled these high flying stocks to these heights in the first six months of the year will keep pushing them higher in the second half of the year.

Bitcoin is barely hanging on to $6k support and another failure is inevitable. $9k support failed. Then it was $8k. After that $7k couldn’t hold us up and now $6k is on the verge of going down. Lower-lows keep piling up and the chart look downright horrible. Most bursting bubbles make new lows for more than a year and BTC doesn’t look like the exception. I don’t expect us to find any relief until we fall under $5k. And even from there any bounce will be a short-term trade. It will take years for this to be investible again, if it ever is.

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Jani

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Should we fear Trump’s trade war?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

On Thursday the S&P500 stumbled again as trade war nervousness persists. While things definitely feel ominous, don’t lose sight of the fact we are only 4% from all-time highs and prices barely slipped 1% since this latest round of trade war headlines flared up on Monday.

As with everything in the market, there are two ways to look at this muted reaction. The lack of a larger selloff could be telling us most owners don’t care about the escalating trade war because it is already priced in. Alternately, holding near recent highs leaves us vulnerable to further weakness as last week’s relief turns into this week’s anxiety.

The truth ultimately lies somewhere between those two opposing views. Clearly equities are holding up remarkably well given the headline uncertainty. Stock market crashes are brutally quick and typically happen before most people figure out what is going on. The classic “sell first, ask questions later.” That is definitely not happening here since this selloff has only managed to shave off a couple dozen points in nearly a week. Bears are telling us the crash is coming, unfortunately for them crashes don’t work like that. No doubt the trade war situation could get worse, but it is hard to imagine how much worse it could get worse since both sides are already threatening to tax nearly everything they import from the other.

For anyone still tempted to argue we are on the verge of collapse and missed what I wrote on Tuesday, let me share it again because it is just as relevant today as it was then:

Pundits love to tell us complacent markets are bearish. But what they forget to tell us is complacency can last an awful long time. Confident owners don’t sell and the resulting tight supply makes it easy for modest demand to prop up prices. And that is exactly what has been happening here. Rather than argue with a market that isn’t doing what we think it should be doing, we should try to understand why it is acting the way it is. If we used this approach, it wouldn’t take long to realize this is an incredibly strong market. We are not vulnerable. We are not overbought. Anyone who understood these things wouldn’t have been overly concerned by this morning’s headlines and weak open. Complacency will eventually catch up with us, but this is not that time.

The market’s muted reaction thus far means we can take “crash” off the table because if it was going to happen, it would have happened by now. But there is a big difference between a shocking crash and a drawn out grind lower. Even though we might not crash, we can still give back a large chunk of the latest gains. Risk is a function of height and this month’s gains left a lot of air underneath us and it wouldn’t take much to slip back to 2,700 support.

Most people would rather the market keep going up, but we knew that wasn’t reasonable given that we are in the middle of the slow summer season. 2,800 resistance was always going to be a hurdle and if we didn’t slip on trade war fears, something else would have knocked us down. So far the market is acting well. Resilience in the face of bad news is a good sign and means we should stick with what has been working. Don’t fall for all the misleading noise swirling around us. If this market was fragile and vulnerable, we would have crashed by now. Instead, view this weakness as a simple and routine dip. If this is nothing but a routine dip, then that means it is creating buyable entry point for those of us that are paying attention.

The headlines are predominately bearish, but the price-action remains constructive. Everyone knows markets trade sideways most of the time, but that is easy to forget when we are looking at the far right edge of a chart. Too often we convince ourselves every headline and price gyration means something. But the truth is today’s price-action will most likely be as inconsequential as any other random day over the last 12 months.

If there was something fundamentally wrong with this market, it would have shown up in the price-action by now. Instead we are holding up remarkably well and that tell us we are still standing on solid ground. But solid ground doesn’t preclude us from dipping modestly over the near-term. As I wrote on Monday, these things are rarely one-day events and we should expect uncertainty to persist. But I would be surprised if we failed to hold 2,700 support. In fact I doubt we even get that far. Which is unfortunate because I’d love to buy those discounts. Instead this dip will most likely bounce way too soon and won’t give us that great entry point.

As for our favorite buy-and-hold investments, there isn’t much to do except ignore the noise and keep holding.

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Apple is the only FAANG stock struggling with these trade war headlines, but that’s not a surprise. They are the only one with huge Chinese manufacturing exposure. The rest of the FAANG stocks are escaping this uncertainty and are a good place for investors to hide out. Most likely this trade war stuff will blow over, but if it doesn’t and AAPL keeps slipping, that would be a better place to be buying more, not getting defensive and selling. People beg for a discount and any further weakness in AAPL would be answering our prayers. Don’t be afraid to take advantage of it.

Bitcoin is muddling along in the $6k’s, but the same thing happened in the $9k’s, $8k’s, and $7k’s. Unless we can find buyers willing to pull us out of these lows, it is almost inevitable another negative headline will come along and send us tumbling lower. At this point dip buyers don’t want to (or can’t because they are already fully invested) save this cryptocurrency and that means lower-lows are ahead.

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Jani

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Should we fear a trade war?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

On Tuesday the S&P500 tumbled at the open as U.S./Chinese trade tensions flared up and global markets crashed. China retaliated against Trump’s initial tariffs and not to be outdone, Trump retaliated against the Chinese retaliations by adding tariffs to another $200 billion worth of Chinese goods. China hasn’t responded to Trump’s latest move, but in the past they said they would match Trump’s tariffs dollar-for-dollar. This latest back-and-forth sent the Shanghai market tumbling nearly 4% and put a big dent in European equities before the U.S. market opened. Following the global selling, the S&P500 opened down 0.8%.

If all of this sounds familiar, that’s because similar headlines sent us tumbling several weeks ago. Last time it was threats of tariffs, this time there is more intent behind the threats. But this morning, rather than send U.S. traders scrambling for cover, the S&P500 bottomed within the first hour and ended up erasing half of those opening losses by the close. Instead of panicking and fleeing the market, most traders were more inclined to buy the dip. But this isn’t a surprise to anyone who has been reading this blog over the last few months.

As I’ve been saying for awhile, if this market was going to crash, it would have happened by now. There have been more than enough bearish headlines to send a vulnerable market tumbling. Rate-hikes, increasing interest rates, the growing Muller investigation, and a brewing trade war. Those are all the extremely negative headlines this market endured. If these things couldn’t dent this market, why would today’s headlines be any different? Given today’s resilient price-action, yet again most owners chose to ignore the headlines and keep holding their favorite stocks. When confident owners refuse to sell the headlines, they stop mattering.

Pundits love to tell us complacent markets are bearish. But what they forget to tell us is complacency can last an awful long time. Confident owners don’t sell and the resulting tight supply makes it easy for modest demand to prop up prices. And that is exactly what has been happening here. Rather than argue with a market that isn’t doing what we think it should be doing, we should try to understand why it is acting the way it is. If we used this approach, it wouldn’t take long to realize this is an incredibly strong market. We are not vulnerable. We are not overbought. Anyone who understood these things wouldn’t have been overly concerned by this morning’s headlines and weak open. Complacency will eventually catch up with us, but this is not that time.

But just because this is a strong market doesn’t mean buying last week’s strength was a good ideas. As I wrote in last week’s free blog post:

This is a strong market, not a weak one. Bears have been wrong for months and they will stay wrong unless they change sides. But another thing I frequently point out is risk is a function of height, meaning this rebound to the highest levels in several months also makes this a more risky place to be adding new money. The best buys come when the crowd is scared, not when it is breathing a sigh of relief. The best time to buy was weeks ago, and anyone not invested is probably better off waiting for a better entry point.

The latest surge to 2,800 resistance left us vulnerable to today’s dip. I don’t believe today’s headlines will trigger a larger selloff, but they are enough to trigger a near-term consolidation and is what made adding new money last week a bad idea. That strength was a better place to be taking profits. While everyone understands this conceptually, we often forget it when contemplating buying and selling stocks.

While a full-fledged trade war isn’t good for the economy, most in the market participants don’t expect this to get that bad. We trade the market, not the headlines. That means if the market doesn’t care, then we shouldn’t either. The great thing about being a independent investor is we are small enough to change our mind and adjust our positions with a few mouse clicks. As long as this market keeps acting well, we should continue doing what is working. That means sticking with our favorite buy-and-hold stocks and waiting for a better entry point for our short-term trading account. Today’s dip was interesting, but we didn’t fall far enough to skew the risk/reward far enough in my direction and I will keep waiting for bigger discounts.

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Jani

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Does anyone still care about rate-hikes?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

On Thursday the S&P500 traded sideways for a fourth day as we consolidate recent gains under 2,800 resistance. Things got a little spooky Wednesday after the Fed said a fourth rate-hike this year was likely, one more than previously expected. Higher rates have been a concern and that was enough to send some traders scrambling for the exits and prices stumbled into Wednesday’s close. But the selling was short-lived and prices rebounded Thursday, hardly missing a beat.

As I’ve been writing about for months, the headlines that have been dominating the financial pages have already been priced in. If any of these headlines were going to knock us down, it would have happened by now. Instead, owners who feared these headlines bailed out months ago and were replaced by confident dip-buyers willing to own these risks. If they didn’t sell rate-hike headlines two, three, and four months ago, why would they sell them now? The answer is they wouldn’t. And as we saw Thursday, Wednesday’s dip was little more than a flash in the pan.

This is a strong market, not a weak one. Bears have been wrong for months and they will stay wrong unless they change sides. But another thing I frequently point out is risk is a function of height, meaning this rebound to the highest levels in several months also makes this a more risky place to be adding new money. The best buys come when the crowd is scared, not when it is breathing a sigh of relief. The best time to buy was weeks ago, and anyone not invested is probably better off waiting for a better entry point. Or at the very least, dollar-cost-averaging into the market.

The market is acting well and we should keep doing what is working. Our favorite buy-and-hold positions are doing great and we should stick with them. Even though the S&P500 is consolidating underneath prior highs, FAANG stocks are on fire and many of them are setting new all-time highs on a daily basis. The strongest stocks are leading the way as expensive keeps getting even more expensive. The downside is this rebound sucked a lot of emotion out of the market and volatility is crashing. While that is good for nerves, it isn’t so good for swing-trading. Those of us that were paying attention made good money this spring jumping in and out of the emotional gyrations, but unfortunately the market is transitioning back into slow-money where buy-and-hold works better than swing-trading.

Summer is often a slow time for the market, but that calm often sets the stage for a more exciting fall season. So far the market is acting well and that most likely means big money will start chasing prices higher into year-end when they return from their summer cottages. In the meantime, stick with what is working and right now that is buying-and-holding our favorite tech stocks.

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Jani

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Things look good, but is that a warning?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P500 continues inching higher and is at the highest levels since March. Long gone is the doom-and-gloom that dominated the market only a few weeks ago. Instead we are only a handful of points away from retaking 2,800 and erasing almost all of February’s stock crash.

I spent all spring reminding readers that risk is a function of height and it was far safer buying February’s crash than the calm that preceded it. The best opportunities come from buying heavily discounted stocks from fearful sellers. And just when people fear the worst is when the deals are the best. We saw a similar phenomena when the FAANG stocks tumbled in March following Facebook’s public relations disaster.

The thing about both the market’s crash and FAANG’s correction is countless people had begged for a pullback so they could get in or buy more. But when the market answered their prayers, most were too afraid to buy the dip and many more abandoned their favorite stocks. That is the curse of the “rational” trader, we are naturally drawn to stocks that are at premium prices and fear stocks that have been discounted.

Bears continue to pound the desk, insisting the market is going to crash for X, Y, and Z reasons (Fed rate-hikes, interest rates, and the Muller investigation). The problem with their argument is everyone knows about X, Y, and Z and rather than fearfully abandon their favorite stocks, confident owners shrug and keep holding for higher prices. While the cynics love to remind us that market’s peak on complacency, what they forget to mention is complacency can last for years. That’s because confident owners don’t sell and the resulting tight supply makes it really easy for stocks to rally on modest demand. Sound familiar?

Even though the market is acting well and the path of least resistance is definitely higher, we cannot forget risk is a function of height and the market moves in waves. If this is the highest we’ve been in several months, that also means this is the riskiest place to be adding new money in the same number of months. In addition, the strong move over the last week leaves us vulnerable to a subsequent down-wave. We are quickly approaching 2,800 resistance and we should at the very least expect the market to pause. We entered the slower summer season and many big money managers have flow off to their summer cottages. Without their big buying, we shouldn’t expect a large directional move. Things still look good for our medium-term stock positions and long-term investments and we should leave them alone, but for short-term swing-trades, this is a better place to be taking profits than adding new money.

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Bitcoin got pounded this weekend. I tried to warn people several weeks ago when BTC just slipped under $9k when I wrote the following:

Last week’s $9k support has turned into this week’s $8k support. And thus far it is giving every indication that $7k will become next week’s support. I hope you see the trend here. Cryptocurrencies are still very much in a downtrend and we should expect lower prices. It takes most bubbles between 6 and 24 months to finish bursting. If bitcoin is like most bubbles, that means the worst is still ahead of us and we should expect lower-lows over the next few months.

Then last week I wrote:

And unfortunately things don’t look any better now that we have dipped to $7k support. This cryptocurrency had a very ugly May and it looks like things will only get worse. This is a long-term downtrend and lower lows are still ahead of us. Breaking $7k support will trigger to another wave of selling, but the fear won’t strike in earnest until we undercut the $6k lows. Remember, double-bottoms are a common and powerful reversal pattern. But there is a reason why no one talks about triple-bottoms, because they are not a real thing. Hit bottom three times and you are headed much lower.

And on cue, Bitcoin crashed through support last weekend and is now hovering in the mid-$6k’s. $9k support failed. Then we broke $8k support. $7k was next. Anyone see a pattern here? What are the chances $6k will hold? I suspect by this time next week we will have our answer.

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Jani

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Why we should have seen this coming

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P500 treaded water on Thursday following four consecutive days of gains. This week’s rally leaves us at the highest levels since March and puts us within a few percent of all-time highs. That’s a long way from the panic selling that gripped markets in early February.

I know I sound like a broken record when I keep saying this is a strong market, unfortunately a lot of people didn’t believe me when we were 200-points lower. That is the biggest frustration with trading, by the time the answer is obvious, it is too late to profit from it. But for those of us paying attention, it is possible find the answers long before it is obvious to everyone else.

The following is a quote from my free blog back in early May, the day the market crashed under the 200-dma and 2,600 support and many were fearing the start of a much larger selloff:

“As I’ve been saying since February, we are in a trading range. That means buying weakness and selling strength. Stick with what is working until something changes. Did something change today? Nope. That means today’s weakness was a buying opportunity, not a chance to bailout “before things get worse”. Maybe we slip a little further, but that’s not a big deal. Remember, risk is a function of height. The lower prices go, the less risky it is to buy. If this market wanted to crash, it would have happened months ago. There have been more than enough excuses to send prices tumbling. Instead, every time we slip to the lows, supply dries up and prices rebound. This is a resilient market, not a weak one. And the only people losing money are the ones overreacting to these gyrations. They lose money buying when they feel confident (high) and sell when they are fearful (low). If we want to make money, do the opposite of most people. That means buying fear and selling confidence.”

Since I wrote that, the market is up 7%. I don’t have a crystal ball, but I’ve been doing this long enough to know what is real and what is market trickery. Last months selling was misleading because it was being driven by recycled headlines; Fed rate hikes, rising interest rates, Trump’s trade war, and the growing Muller investigation. All of these are real risk factors, but they became priced-in when they originally came out earlier in the year. The first and second time these stories flared up, waves of nervous owners bailed out of the market. These nervous sellers were quickly replaced by confident dip buyers who demonstrated a willingness to hold these headline risks. Out with the nervous and in with the confident. It didn’t take long for us to run out of nervous sellers and the third and fourth time these stories flared up, there was no one left to sell a recycling of these stories. When no one sells the news, we stop going down. And that is exactly what happened in early May and the same thing happened again last week.

Market selloffs are brutally quick. Hanging at these levels through countless waves of recycled headlines told us we had nothing to worry about. The most important thing to remember is we trade the market, not the news. Headlines cannot be bullish or bearish, only people’s reaction to them is what determines if they are good or bad for stock prices. And so far, everything looks pretty good.

But no one wants to hear what the market did last month since it is now obvious to anyone looking at a chart. What people want to know is what is ahead of us. I wish I could say everything looks great and we will surge another 200-points from here over the next few weeks. Unfortunately the market doesn’t work that way. In fact, most of the time it works the opposite way. Risk is a function of height. No matter how scary it felt in early May, that was one of the least risky times to buy stocks this year and the subsequent rebound proved that. But after that rebound put us at the highest level in months, the risk/reward looks far different. Everyone feels great because we rebounded off the lows, but that actually makes this one of the risker times to be buying stocks this year.

Momentum and the path of least resistance is definitely higher, but this is also the slower summer months and we are quickly approaching 2,800 resistance. That makes this a better place to be taking profits than adding new money. Anyone who bought last month’s dip should definitely start thinking about locking in some of those gains. Those that missed the rebound should let this one go and resist the temptation to chase prices higher. I’m most definitely not calling a top or predicting a large pullback, but a cooling off would be normal and expected. Everyone knows markets move in waves; unfortunately most forget that in the heat of battle.

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As well as S&P500 has been doing, the FAANG stocks have been doing even better, pushing the Nasdaq to record highs this week. Back in April I wrote the following about the FAANG stocks following a particularly painful down-day:

“Everyone’s favorite FAANG stocks got hammered today. But this isn’t a surprise. These highfliers magnify the market’s move in both directions. They go higher than everything else, but that also means they get hit the hardest on bad days too. Weeks ago people were begging for a pullback so they could get in. The market answered their prayers. The question is if any of those people have the courage to buy. While we could see a little more near-term weakness, months from now people will be kicking themselves for not buying more at these levels.”

Here we are a couple of months later and no doubt people are kicking themselves for not taking advantage of those discounts. Maybe next time……

And just so people don’t think I’m a perma-bull, here is my bearish call on Bitcoin from several weeks ago, just after BTC slipped under $9k support:

Bitcoin is a completely different story. Last week’s $9k support has turned into this week’s $8k support. And thus far it is giving every indication that $7k will become next week’s support. I hope you see the trend here. Cryptocurrencies are still very much in a downtrend and we should expect lower prices. It takes most bubbles between 6 and 24 months to finish bursting. If bitcoin is like most bubbles, that means the worst is still ahead of us and we should expect lower-lows over the next few months.

And unfortunately things don’t look any better now that we have dipped to $7k support. This cryptocurrency had a very ugly May and it looks like things will only get worse. This is a long-term downtrend and lower lows are still ahead of us. Breaking $7k support will trigger to another wave of selling, but the fear won’t strike in earnest until we undercut the $6k lows. Remember, double-bottoms are a common and powerful reversal pattern. But there is a reason why no one talks about triple-bottoms, because they are not a real thing. Hit bottom three times and you are headed much lower.

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Jani

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Does Italy change anything?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P500 crashed under 2,700 support Tuesday following a political flare-up in Italy. A populist movement is taking hold that threatens Italy’s membership in the EU and common currency and these headlines were enough to send global markets into a tailspin. Losing one of the largest economies in the EU and euro could be a fatal blow to entire union. These headlines echo Grexit and Brexit of years past. While both of those past episodes avoided the worst, it isn’t hard to imagine the economic devastation a collapsing EU would cause and is why markets are understandably jittery.

Owning stocks is risky. There is no way around it. Last week the stock market was acting well and even negative headlines surrounding rate hikes, interest rates, trade wars, and North Korean tensions couldn’t dent this teflon market. But the thing about all of those headlines is they had been in the news for months and were largely priced in. Anyone who feared those stories bailed out months ago and were replaced by confident dip buyers who demonstrated a willingness to hold these risks. After a period of turnover, we ran out of fearful sellers and recycling old headlines stopped bothering the market. When no one is left to sell a headline, it stops mattering. There are few things more bullish than a market that refuses to go down on bad news. And that is where we finished last week.

But that was then and this is now. These Italian headlines are new and unexpected. Few saw this coming and if the crowd doesn’t know about something, then by rule it cannot be priced in. That is what makes these Italian headlines a far more serious threat to stock prices than rate hikes, interest rates, trade wars, and North Korean summits. Sometimes we can ignore the news, other times we need to snap to attention and take them seriously. These new and unexpected Italian headlines most definitely deserve our full attention.

While Italy’s departure from the EU would most definitely be disruptive, this is a binary, black swan event. Either it happens or it doesn’t, and the chances of it happening are extremely remote. We saw similar episodes play out with Greece earlier in the decade. The ramifications of a Grexit were frightening, but the risks were so great that political leadership in Europe ensured it didn’t happen. And what could have been a catastrophe turned into a fantastically profitable dip buying opportunity.

No doubt most money managers remember the fear mongering surrounding the Grexit and Brexit. And most money managers also remember selling that fear and uncertainty was a big mistake. Just like the boy who cried wolf too many times lost his credibility, I expect the same to happen here. The typical reaction on Wall Street will be “not this again” and most will discount it as another EU drama that ultimately isn’t worth worrying about.

These new and unexpected events usually take at least a few days to work their way through the system and we should expect headlines to flare-up over the next few weeks. But as bad as the worst case sounds, I expect most money managers will be more confident sitting through this uncertainty than they were during the Grexit and Brexit episodes. We could see further near-term weakness, but I don’t expect this to go too far and any dip is still buyable. This will be more of a blip than a crash. There is no reason to abandon medium and long-term positions, but a short-term trader could wait for things to get a little worse before jumping in and buying the dip.

Of course the above assessment assumes Italy doesn’t destroy the EU. All bets are off if this situation escalates to the point of no return. But we are most definitely not there yet. I still think this market looks good, but I would let this situation play out for a few days before rushing in and buying the dip.

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Jani

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Is this market being manipulated?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P500 started Thursday with another abysmal gap lower. Trump called off his scheduled meeting with Kim Jong Un before the open and that sent stock futures into a tailspin. That mirrored Wednesday’s horrible open following a flareup of Trump’s trade war. Consecutive days of bearish headlines followed by horrid opens, can it get any worse?

As bad as we started, the S&P500 is actually ABOVE Tuesday’s close! How could two horrible days end in gains for the index? No wonder so many people feel like the market is “rigged”. When the market doesn’t do what we think it should, obviously the only plausible explanation is someone is manipulating it.

Of course that is far from the truth. There is there is no evil wizard hiding behind the scenes tricking and deceiving us. People who think the market is fixed simply don’t understand why it is doing what it is doing. There is no trickery. There is no boogie man. It is nothing more insidious than a simple misunderstanding.

When humans didn’t understand why the Sun came up every day, they assumed is was being controlled by the Gods. The same logic  occurs in the stock market today. When people don’t understand why the market does something, they blame it on some evil conspiracy that has rigged the market against them. It couldn’t possibly be that their analysis is flawed.

Luckily for regular readers of this blog, most of us understand what is going on and were not fooled by these bearish headlines and weak opens. As I’ve been saying for a while, this market is strong, not weak. There have been plenty of bearish headlines swirling around this market for months. Yet this market is consistently oblivious to them. Bears claimed it is only time before the “sheep” wake up and send stock prices tumbling. But the critical flaw in the Bear thesis is market selloffs are brutally quick. They happen so rapidly most people don’t have to react. Yet here we are, holding 2,700 support for two full weeks. What selloff gives us two weeks of warning before plunging? None. That’s how I knew the last two weak opens were not sustainable and were bound to bounce. If we were going to crash, it would have happened a long time ago. This market is strong, not weak. That meant recycling trade war and North Korean headlines were not going to make any more of a difference than the first time they occurred.

Everyone knows markets move up and down. This is one of the most fundamental principles of the stock market and it is plainly obvious to anyone who glances at a stock chart. We all know stocks mostly go sideways and most of the ups and downs don’t really mean anything. Yet most people forget this most basic concept in the heat of battle. If most day’s gyrations are meaningless noise, why do we always try to find a meaning in today’s price-action? Why do we automatically assume today’s bump in the road is the start of the next big move when most bumps in the road never go anywhere?

With the benefit of hindsight, we can confidently say Wednesday’s and Thursday’s gap lower opens were nothing more than meaningless noise driven by a handful of reactive traders trying to “get out before things get worse”. Their impulsive selling was clearly a mistake and just a few hours later they are poorer for it. As I’ve said countless times before, this is a strong market, not a weak one. If we were going to crash, it would have happened by now.

While the path of least resistance is most definitely higher, the easy gains are behind us. There is no way we could keep the sharp rebound from May’s bottom going indefinitely. We knew a cooldown and consolidation was inevitable. We also know gains slow down the further into a move we get. Applying that to this market, it seems pretty obvious that prices want to go higher, but that we should expect the rate of gains to slow down and for there to be more back and forth. And guess what? That’s exactly what’s happened.

Those of us that were paying attention during May’s dip and rebound have collected our fast money. But that trade has come and gone. Now we are into the slow money portion of the rebound and should expect the gains to accumulate much slower and be accompanied by a bunch of back and forth. Those of us that believe in this market should stick with our buy-and-hold positions and enjoy this slow glide higher. Anyone who has less conviction should simply sit this one out and wait for a better trading opportunity. Without the conviction to sit through dips like Wednesday and Thursday, that inevitably leads to reactive selling and poorly timed trades.

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FAANG stocks are acting well and these tech highfliers will continue leading this market higher. But just like the broad market, we should expect the rate of gains to slow down as we fall into the slow summer sessions.

Bitcoin still looks broken. $9k support two weeks ago gave way to $8k support last week, which has since given way to S7k support here. Hopefully everyone sees the pattern here. We are in a bear market and the downtrend is still alive and well. Expect prices to undercut the $6k lows over coming weeks. This bubble isn’t done bursting and that means lower-lows are ahead of us.

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What should we make of today’s reversal?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P500 started Tuesday with modest gains, putting us near the highest levels since March, but a late selloff pushed the market firmly into the red. The question is if today’s bearish reversal means anything, or if this is just more meaningless noise tricking over-active traders into making poorly timed trades.

Headlines have been relatively benign, allowing stocks to remain above 2,700 for nearly two-weeks. There has been some back-and-forth regarding Chinese tariffs, but to this point we seem to be avoiding a larger trade war. As expected, there have been some small bumps along the way. One day a positive development pushes us up 10-points. The next day a hiccup sends us tumbling 10-points. But so far last month’s resistance has turned into this month’s support.

Holding 2,700 this long is encouraging. Stocks tumble from unsustainable levels quickly. Maintain these levels for nearly two-weeks tells us we are standing on solid ground. There have been more than enough unnerving headlines and weak price-action to send us tumbling, but confident owners refuse to sell and that is keeping supply tight.

We’ve seen several dramatic dips over the last few months, largely driven by uncertainty surrounding Fed rate-hikes, rising interest rates, a looming trade war, and a potential scandal in the White House. While this uncertainty has created some near-term volatility, prices haven’t undercut February’s lows and this price-action looks more like basing and consolidating last year’s gains than standing on the precipice of another plunge lower. As I’ve been saying for months, if this market was fragile and vulnerable, we would have plunged a long time ago. This resilience against a larger selloff tells us this market is strong, not weak.

I’ve been encouraging readers to buy the dips over the last few months and that lead to some very profitable trades. But now that we are at the upper end of the trading range, should we be concerned about another dip? Two-weeks ago I was cautious and told readers the easy gains were behind us and that was a better place to be taking profits than adding new positions. As so far that has been wise advice since we have been trading sideways ever since. The sharp gains from the May lows made us vulnerable to a dip and the risk/reward was skewed against putting new money in stocks. But two-weeks later and the picture is shifting. The market resisted dipping back into the trading range and is holding up quite nicely despite the headline headwinds. That tells me the path of least resistance is still higher.

Unfortunately the easy gains are behind us. The best profit opportunities come during the scariest moments. Now that the fear and uncertainty has passed, the discounts have disappeared. Even though the market is acting well and the path of least resistance is higher, further gains are going to be harder and slower. It took little more than a week to bounce more than 100-points from May’s lows, but it could take all summer to rally the next 100-points.

The best short-term opportunities arise from emotional overreactions. Unfortunately this calm isn’t giving us much to trade. But just because we don’t have a short-term trade in front of us doesn’t mean we cannot make money. The path of least resistance is higher the best slow-money trade is buying-and-holding these near-term gyrations. The market is acting well and don’t let the bears scare you out of good positions. If this market was fragile and vulnerable, we would have crashed a lot time ago.

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The tech trade is alive and well. Most of the FAANG stocks are near all-time highs and even GOOGL is well off its lows. I told subscribers weeks ago that people would be kicking themselves for not buying the tech dip and no doubt that is what a lot of people are doing. It is human nature to beg for pullbacks so we can jump aboard the hottest trades, yet when the pullback happens, those same people are too afraid to jump in.

Even though the easy profits are behind us, the Tech Darlings are acting well and will lead this market higher. But just like the broad market, further gains will be hard and slow. The path of least resistance is higher and smart money is still sticking with these stocks.

Bitcoin is a completely different story. Last week’s $9k support has turned into this week’s $8k support. And thus far it is giving every indication that $7k will become next week’s support. I hope you see the trend here. Cryptocurrencies are still very much in a downtrend and we should expect lower prices. It takes most bubbles between 6 and 24 months to finish bursting. If bitcoin is like most bubbles, that means the worst is still ahead of us and we should expect lower-lows over the next few months.

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Jani

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Where this market is headed next

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

On Thursday the S&P500 closed mostly unchanged, losing a trivial 0.1%. This was the sixth consecutive close above 2,700 as last month’s resistance turns into this month’s support.

In Tuesday’s free blog post, I told readers May’s rebound could go one of two ways. Either we hit our head on the upper end of trading range and stumble back into the mid-2,600s. Or prices stabilize above 2,700 following Tuesday’s dip and test of support. Two days later and we are still holding 2,700 support and things look good for this market. If we were overbought and vulnerable to tumbling back into the heart of the trading range, it would have happened by now.

The lack of follow-on selling when we tested 2,700 earlier this week tells us most owners are confident and not interested in selling. Plenty of bad news has been making the rounds between oil topping $70, gas approaching $3, interest rates passing 3%, trade negotiations breaking down, and Trump’s North Korea summit on the verge of collapse. There have been more than enough reasons for this market to tumble, yet here we are still holding above support.

The thing to remember about headlines is if no one sells them, they stop mattering. All of the above headlines have been reoccurring themes that keep popping up over the last few weeks and months. The thing about recycled headlines is they get priced in. Anyone who fears these stories bailed out a long time ago when these issues first came up. Those nervous sellers were replaced by confident dip-buyers who demonstrated a willingness to own these headline risks when they bought. And it should be no surprise these confident dip-buyers are not flinching when these headlines come back around. As I said, when no one sells the news, it stops mattering. That is why prices are holding up so well despite the headline headwinds.

A market that refuses to do down will eventually go up. And while the path of least resistance for this market remains higher, the easy gains are behind us. A couple of weeks ago I encouraged readers to buy the dip. Risk is a function of height and falling near the lowest levels of the year made May’s dip one of the safest times to buy stocks this year. But now that the easy money and quick gains are behind us, the ride is going to get slower and harder. The market’s resilience this week tells us it still wants to go higher and 2,800 is very much in play. But it will be a grind getting there that could take a couple of months. If buying the rebound off 2,600 support was the fast money trade. Buying 2,700 support is going to be the slow money trade and it could take most of the summer to reach 2,800. That means lots of up and down between here and there.

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Last month I told readers people would be kicking themselves for not buying the Tech Highflier dip and no doubt a lot of people are now kicking themselves for not buying it. People had been begging for a pullback so they could jump aboard this year’s hottest trade. Yet when the market granted their wish, most were too afraid to by the dip they were asking for. Even though prices are nowhere near as attractive as they were a few weeks ago, the Tech Meltdown is over and these stocks are leading the way higher. Most of the FAANG stocks are back near their highs and will only go higher as the broad market climbs this summer.

The same cannot be said for Bitcoin. I wrote a couple of weeks ago that $9k support risked turning into stalling if we held that level too long. The problem with staying near support too long is it makes a violation inevitable. When BTC couldn’t rally beyond $9k, falling under it was the only option left. And now last week’s $9k support has turned into this week’s $8k support and we are on the verge of falling to $7k support next week. The rebound off $6k earlier this year boosted sentiment, but this dip is threatening to erase all of those good feelings. I don’t think the lows are in yet and that means lower prices are still ahead of us.

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Jani

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