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Dec 09

ZM owners better look out below

Free After-Hours Analysis:

I wrote about ZM last week when the stock tumbled 15% after announcing 367% revenue growth last quarter. As well as the company is doing, investors were hoping for even more.

Last week’s post-earnings selling stalled just above $400 support. Unfortunately, that resilience only delayed the inevitable and today the stock finally retreated under $400. But this latest violation shouldn’t surprise anyone. As I wrote last week:

There are few things more worrying than a stock that falls on good news. That signals unrealistic expectations and once the selling starts, it usually doesn’t stop. The market loves symmetry and rallies that go too high are almost always followed by pullbacks that go too low.

While nothing is ever certain in the stock market, this chart looks as bad as it gets. Fall under November’s lows and we could see another wave of defensive selling push this stock back to $300 or even lower. As bad as a 35% retreat from all-time highs feels, this still has room to get a lot worse.

This stock is giving us a great short entry under $400 with a stop just above this level. But who knows, maybe this thing turns around and bounces back. It’s possible and it happens occasionally. But if ZM is going to return to the highs, the first thing it needs to do is retake $400. Until that happens, this stock is untouchable.

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Dec 08

A simple trading plan going into year-end

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 slipped into the red Tuesday morning, but rather than accelerate lower, the index turned around and finished the day up a quarter percent.

Equity owners are “fat, dumb, and happy” and ignoring every reason to sell. When stubborn owners refuse to sell, it doesn’t matter what the “experts” think the market should be doing.

Sentiment continues to be half-full and every dip bounces within hours. We are quickly approaching the final weeks of the year. If institutional money managers wanted to make major portfolio adjustments based on last month’s election or the latest Covid flareup, they have already done it. With all of those big trades behind us, we are setting up for a fairly quiet coast into year-end.

If equities were grossly overbought and set up for a collapse, there have been more than enough bearish headlines to trigger that collapse. The simple fact we are still standing near the highs confirms this is a strong market, not a weak one.

While it is easy to criticize this strength, the harder trade is usually the right trade. Everyone knows stocks should not be trading at record highs in the middle of a pandemic, but that’s exactly what they are doing. Rather than fight this strength, I’m riding this wave and only fools are fighting it.

Keep following this bounce higher with a trailing stop and see where it takes us.

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Dec 07

What’s going on with NFLX?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

There was some interesting price-action in NFLX Monday. This was the third bounce off of $475(ish) support since this summer. (Or the fourth or fifth bounce, depending on you choose to count it.)

This resilience is all the more impressive since NFLX had two disappointing earnings reports during this period and the stock tumbled -6.5% and -6.9% the day after each earnings report. Yet here we stand, still within 10% of all-time highs.

Bad news and a resilient stock? That’s a textbook case for a stock that wants to go higher.

Anything that refuses to go down will eventually go up. And right now, NFLX is acting like it wants to go back to the highs. And if it gets back to the highs, expect it to keep on going.

This is buyable with a stop under $500. If it keeps rallying, great, move our stops up and see where this move takes us. If it stalls and retreats for the 4th time, no big deal, we sell at our stop and try again next time.

As always, start small, get in early, keep a nearby stop, and only add to a trade that is working.

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Dec 04

Weekly Analysis: Why this market is doing so well

By Jani Ziedins | Weekly Analysis

Weekly Analysis:

It was another positive week for the S&P 500 with the index climbing 0.8% over the last five sessions. While no one is excited by a sub-1% week, given where we could be, this resilience is actually a noteworthy accomplishment.

Covid infection and hospitalization rates are off the charts and setting new records nearly every day. November hiring also tumbled dramatically from October’s levels due to expanding Covid restrictions. Either of these headlines could have triggered a stock crash, yet neither one did. Instead, stocks closed the week at record highs. Funny how that works.

This is another data point confirming this is a half-full market. Rather than sell the disappointing employment headlines, traders bought the increasing prospects of additional stimulus.

We don’t trade the news, we trade the market’s reaction to the news. At this point, there is nothing to do but go along with the trend and keep moving our stops up. Maybe this house of cards will come crashing down at some point, but we are not at that point yet. If this market was vulnerable to a collapse, it would have happened by now. Instead, most investors continue looking toward the future with optimism and that’s the way we need to trade this.

But none of this should surprise anyone who’s been reading this blog for a while. We know better than to trade what we think should happen. Instead, we always focus on what the market is doing. And right now, it is ignoring all of the bearish headlines. As traders, if the market doesn’t care about the headlines, then neither should we.

As with any bearish event, there always comes a point where the stock market has fully priced it in and it starts looking toward what is coming next. Everyone knows how bad this latest Covid flareup is and understands what it is doing to the economy. Yet these same investors keep holding because they know we are getting closer to the end of this mess.

I’m still concerned about the lingering collateral damage affecting the economy next year. But as long as investors are fixated on the recovery, that’s the only thing that matters and so far the recovery is progressing nicely. Once we get past Covid, investors might take a more critical eye of lingering unemployment and damage to corporate balance sheets. But as long as the stock market is not concerning itself over these things, then neither should we.

Stick with what has been working, which is owning this rebound and following it higher with a trailing stop. While we are vulnerable to a pullback at any time, at this point, it seems like most investors want to keep holding for higher prices. As long as this remains a half-full market, expect any weakness to be fleeting and to bounce back quickly.

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Dec 03

The biggest mistake bears are making

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday was an up and down session for the S&P 500. The index rallied modestly after the open only to retreat back to breakeven later in the afternoon. This lethargic, uninspired trade is not a surprise given how far we’ve come since the election.

The rebound off the early November lows is in its 5th week and the big gains are already behind us. Momentum remains higher, but forward progress has definitely turned into a grind. As much as things have slowed down, it’s been an easy hold to this point with very few give-backs along the way. That said, we shouldn’t expect things to remain this easy for long.

Maybe we glid higher into Christmas. Or maybe the index stalls and churns sideways. Either wouldn’t be a surprise. The one thing that’s off the table (at least for the moment) is a large collapse. There has been an abundance of negative headlines regarding infection rates. If this market was fragile and looking for an excuse to tumble, these bearish stories have been more than enough to trigger a gigantic selloff. Instead, most stock owners read about infection rates and shrug. No matter what we think should happen, when the crowd refuses to sell a headline, that headlines stop mattering.

Sentiment could change once the calendar rolls over to 2021, but so far, I expect December to remain on autopilot. What we have now is what we should expect for the next few weeks. The only question remaining is if this keeps inching higher or stalls at current levels.

No matter what we think should happen, we trade based on what is happening. And right now this market is happy hanging out near the highs. If prices were vulnerable to a collapse, it would have happened by now. Up or sideways means the only two choices available to us are to buy this or sit it out.

Anyone trying to short this strength is getting killed and we definitely don’t want to join those ranks. A short is coming, we just don’t know if it will start next week, next month, or sometime next year. But no matter what, we need to see the weakness develop before we jump on it. Shorting simply because things are “too high” is a very expensive trading strategy, just ask any bear complaining about this “stupid market”.

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Dec 02

What’s coming next for Bitcoin

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

It’s been a while since I wrote about Bitcoin and given the recent record highs, it’s time for an update.

Back in October, I wrote:

As I’ve been telling my premium subscribers this fall, $10k has been the key level for this cryptocurrency. I’m not a big fan of virtual currencies by any stretch of the imagination, but as long as this holds above $10k, it is doing everything it needs to do to earn our respect. It took a few months, but it finally delivered on that promise, surging nearly 30% in a month, most of that happening over the last few days. Not bad.

I followed that up with:

There is nothing wrong with riding this latest wave higher but be sensible and follow this rally with a trailing stop. Remember, we don’t make money until we take profits in our best trades.

And you know what? Everything I said back then is just as applicable today as it was back then.

September’s bounce off of $10k support started this run, but breaking $13k and holding those gains was the first real sign his move was different from all the other fizzles. Exceeding $14k confirmed this was the real deal and this move wasn’t going to stop until it challenged the record highs. Something we finally did this week.

While all of this is obvious in hindsight, it wasn’t such an easy call to make at the time. But just like how we needed to give Bitcoin the benefit doubt above $10k, now that we are challenging the old highs, we smart money is betting on a continuation.

While this thing might roll over at some point, this is not that point. Obviously, we can consolidate for weeks or months near the old highs, but these huge rebounds almost never touch the old high and then simply give up. Even if the bubble eventually bursts, we are going to smash through the old highs before that happens. Maybe the top is $25k or maybe it is $30k. Either way, this latest buying frenzy is far from over.

That said, we could easily dip back to $15k on our way up to $30k and we need to ready for that. Rather than sit through a 25% pullback, it makes sense to lock-in some profits and wait to buy the next breakout above $20k. Sitting through a pullback is a lot easier when we have a pile of profits in our pocket and are riding the storm out with a smaller position. It is easy enough to buy back in when this finally breaks out, whether that is next week, next month, or next year. And if we are really good, we buy the pullback and make even more money.

But no matter what happens over the next few weeks (up, down, or sideways), this thing will go a lot higher before this rally is finished. Be ready for that $20k breakout.

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Dec 01

How low can ZM go?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Zoom reported blowout earnings Monday after the close, but rather than cheer 367% revenue growth, the stock was whacked 15%. Quarterly results were great across the board, unfortunately, investors were looking for outstanding.

Stock pricing is all about expectations. “Less bad than feared” launches powerful rallies in beaten-down names and “not as great as hoped for” triggers massive selloffs in highfliers.

ZM had already run into a wall this fall, retreating more than 30% from the October highs. The stock was attempting a bounce off of the November lows and was making good progress, that is, until today. While ZM remains above recent lows, there isn’t much margin for error.

There are few things more worrying than a stock that falls on good news. That signals unrealistic expectations and once the selling starts, it usually doesn’t stop. The market loves symmetry and rallies that go too high are almost always followed by pullbacks that go too low.

While ZM could bounce off of recent lows and that would be a valid entry point, if this dip undercuts recent lows, look out below. If the bubble is truly bursting, don’t expect the selling to stop until prices fall 80%. For anyone tempted to hold the dip, that means this still has room to fall another $300!!!

Don’t let a huge profit turn into a spectacular loss. If the stock retreats under $375, get out no questions asked. You can always buy back in if this selloff turns out to be a false alarm. But this is definitely one of those times when it is better to be safe than sorry.

And for the most aggressive traders, short a break under November’s lows with a stop just above this level.

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Nov 30

The good and bad of Monday’s price action

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 slipped on the first Monday after the Thanksgiving holiday.

Last week was a good one for the market and prices rallied 2.3%. But as is often the case during holiday weeks, stocks tend to undo whatever happened during the low-volume period when institutional investors were on vacation. Big money managers want to start where they left off and that often means undoing what retail investors did the previous week. In their mind, a move isn’t real until they are the ones making it happen. Hence today’s modest dip that erased a portion of last week’s rally.

I don’t see anything alarming or even concerning about Monday’s give-back. In fact, the early bounce off of 3,600 is far more positive than negative. The day started weakly, but rather than trigger a bigger wave of selling, supply dried up because most owners would rather hold for higher prices. When confident owners refuse to sell, it doesn’t matter what the headlines are telling us.

As bad as the current Coronavirus situation is, investors don’t price stocks based on what is happening today, but what they expect six months from now. While infection rates are dreadful and only getting worse, most stock owners expect the situation to be under control by next summer. No one wants to sell their favorite stocks at a discount today when they know the situation will be a lot better in a few months. Or at least that is the logic bullish owners are using. Only time will tell if their optimism is warranted.

The indexes are trading well, but we are at the upper end of the trading range and a lot of bullish vaccine news has already been priced in. Stocks are expensive and a lot of the near-term upside potential has already been realized.

While momentum will likely continue pushing us higher, the risk/reward is fairly marginal and not at all stacked in our favor. We can own stocks at these evels, but we need to be careful if the market’s mood sours. Modest upside with a lot of air underneath us is not a great place to be adding new money. We can ride this momentum higher, but we need to have a plan ready to go if the tide turns against us.

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Nov 23

The biggest risk facing us this week

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 popped Monday morning after a 3rd vaccine candidate proved 90% effective in preventing Covid-19.

Multiple successful vaccine candidates and the dramatically increased manufacturing capacity that goes along with multiple vaccines is a huge step in getting life back to normal. But as far as the stock market goes, vaccine breakthrough headlines are quickly running up the curve of diminishing returns. We saw a huge pop after the first candidate proved 90% effective. Then a modest pop after the 2nd. And this 3rd bounce struggled to even hold its early gains and briefly turned red in midday trade.

This is the Thanksgiving holiday week and that means less participation and lower volumes. Most years this is a sleepy period where the few professionals still around are itching to getaway. But occasionally, the lower volume can lead to increased volatility.

Which will this year be? That’s hard to say. If we hold current levels, it will be fairly boring. Where things get interesting is if prices retreat under recent lows. While a lot of people might not be trading this market, many have standing stop-loss orders that will execute even if they are not there to do it themselves. At the same time, dip buyers are also gone and unlike the sellers, they don’t have standing orders to buy the dip. This means there won’t be anyone to save us once the selling starts.

But rather than fear stocks if they crash over the holidays, we should recognize the source of the weakness is nothing more than retail investors overreacting to the headlines and subsequent weak price action. When big money returns from vacation, things will go back to normal, which means grinding sideways between 3,500 and 3,650.

Personally, I don’t see anything compelling to trade. The market isn’t breaking out and it isn’t breaking down. Stocks are not undervalued or overpriced. Without a risk/reward skewed in my favor, I’m left watching this one from the sidelines. Which, isn’t a bad way to enjoy a little R&R over the holiday.

If stocks fall under 3,540, I’ll short the weakness but I have low expectations this trade turning into anything worthwhile. The same goes for a breakout above 3,640. I’ll buy it, but without much enthusiasm. But sometimes the next big move starts when we are least expecting it and is why we have to follow our trading plan no matter what we think will happen.

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Nov 20

Weekly Analysis: The biggest problem with this market

By Jani Ziedins | Weekly Analysis

End of Week Analysis:

The S&P 500 finished the week down a modest 0.8% but remain within a stone’s throw of all-time highs.

As expected, the rate of gains slowed as we approached last week’s intraday highs and the market is quickly settling into a 3,500(ish) to 3,650(ish) trading range ahead of the Thanksgiving holiday.

Stocks rallied 10% in early November and anyone predicting that rate of gains to continue clearly doesn’t understand how this game works. I still like this market and am anything but bearish, but two steps forward, one step back. That’s how this works. Always has, always will.

Most of the big headlines are already behind us. Investors who are afraid of this spike in Covid infection rates have already sold. Those that wanted to buy the vaccine breakthroughs have already bought. And now everyone is sitting around waiting for what comes next.

Maybe these infection rates moderate naturally without oppressive government-imposed shutdowns. Or maybe we fall back into another round of punishing stay-at-home orders. At this point, no one knows for sure.

While things turn out less bad than feared most of the time, the biggest challenge for this market is prices are already near the highs. That means there isn’t much margin for error. Stocks are priced for a good outcome and any hiccup will send us lower.

Limited upside if things go right and lots of downside if things go wrong. That makes this a poor place to own stocks. I don’t mind holding long-term investments because that time horizon is measured in years, not months. But for anything shorter-term, we need to be careful because the risk/reward is currently skewed against us.

More interesting trading opportunities will come along soon enough. This just isn’t one of them.

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Nov 19

How to trade ahead of the holiday week

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 slipped at the open, extending yesterday’s weak close. Fortunately, those early lows were as bad as it got and prices bounced into the green in the second half of the day.

Coronavirus headlines continue to be dreadful, but investors don’t price stocks based on where we are today, but where they think we will be six or twelve months from now.

As bad as these headlines are, most investors don’t want to sell their stocks at big discounts when they know things will get better if they hold on a little longer. And it is hard to argue with that logic. Between the expected stimulus, ultra-low low-interest rates, and highly promising vaccine candidates, the light at the tunnel gets brighter every day.

As I wrote last week, it looks like we are settling into a 3,500(ish) to 3,650(ish) trading range. And so far that’s been the case. There isn’t a reason to throw fresh money at stocks near the highs and there isn’t a reason to abandon good positions either.

Swing traders should take profits near the highs and those with cash should wait for something more interesting. Short a break under 3,500(ish) or buy a breakout above 3,650(ish). Until then, there isn’t much to do other than wait for the next trade. (and enjoy the holidays!)

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Nov 18

Don’t get forced into making an impulsive trade

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday afternoon got a little rough for the S&P 500. The day started off well enough with the index posting modest gains. Unfortunately, that was as good as it got. Prices started skidding shortly after lunch and the selling accelerated into the close.

There wasn’t a single headline driving this selling. Instead, it was mostly a counter-action to the latest runup in price. Two steps forward, one step back.

Cognitively, most traders understand this is the way markets work, yet they get caught off guard every time prices take a step back.

As I’ve written over the last few days, it’s been a great run since the start of November. A 10% run over a few weeks is outstanding. (It was even better in a 3x ETF!) But rather than get greedy, savvy traders recognized their good fortune for what it was and were taking profits above 3,600, not chasing prices higher with reckless abandon.

We buy before it is obvious and we take profits when the latecomers are showing up.

I am in no way bearish and am not predicting a crash. But it’s been a good run and stocks need to rest. Maybe that means a near-term pullback to support. Maybe it means trading sideways for an extended period of time. Either way, this is a better place to be taking profits than adding new money.

If you haven’t gotten out yet, make sure you have a thoughtful plan in place so you don’t get pushed into making an impulsive trade if the market continues moving against us.

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Nov 17

What to expect headed into the holidays

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 slipped modestly Tuesday, but this shouldn’t surprise anyone. The index rallied 11% in November alone and we’re barely two weeks into the month! Anyone holding out for more gains is getting a tad greedy.

Two steps forward, one step back. That’s the way this works. Always has, always will.

Without a doubt, momentum is higher and we could coast up to, and even though, last week’s intraday highs (3,646), but we shouldn’t count on stocks going a lot higher. This is definitely a better place to be taking short-term profits than adding new money. Novices chase prices after an 11% runup. Savvy traders are the ones taking their money.

Stocks consolidate gains one of two ways. The far more predicted way is stepping back to support. But far less appreciated is the sideways grind. Stepbacks are quick and great for swing trading. Sideways moves bore us to tears. Unfortunately, we don’t get to choose what the market gives us.

Heading into the year-end holiday season, we should dial back our expectations. Most of the big buying has already happened and institutional money managers are either going skiing or flying south for the holidays. That means little guys are taking control. And while little guys make absurd trading decisions, they don’t have a lot of money and cannot drive the market very far. That means choppy moves that don’t go very far before reversing.

Expect stocks to trade sideways into year-end. Maybe we grind up to 3,650 resistance. Maybe we dip back to 3,500 support. Either way, plan on stocks bouncing back from these support and resistance levels, not extending into a much larger move.

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Nov 16

Is it safe to chase this strength?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Monday was a good day for the S&P 500. It reclaimed the psychologically significant 3,600 level one week after momentarily cresting above this level exactly seven days ago.

In a bit of a groundhog day, today’s pop was also driven by a different vaccine candidate that proved 95% effective in preventing Covid. That makes two separate vaccines that can get us out of this mess and the light at the end of the tunnel keeps getting brighter

Without a doubt, our reality is far less bad than people feared six months ago when we were falling into the Covid abyss. But there is a huge difference between “less bad” and “good”.

Now don’t get me wrong, I’m all for buying stocks during uncertain times because that’s where the best profit opportunities come from. But what makes those periods so profitable is buying stocks at irrationally steep discounts and then waiting for sanity to return.

Unfortunately, that’s not the case here. At this point, the S&P 500 is 6% HIGHER than it was BEFORE Covid! Does anyone actually believe this Covid pandemic has been good for corporate earnings?!?!

There is no way I would ever allow myself to trade against a strong market, but we shouldn’t fall in love with it either. (The AAII Investor Sentiment Survey is near record highs!) Trade this market for what it is: strong momentum with questionable fundamentals. Just be sure to always keep the big picture in view. Long-term gains will be far harder to come by, especially if 2021 falls into a more conventional economic recession due to the growing number of permanent layoffs.

While I’m wary of this strength, I know better than to fight it. There are a lot of shorts getting run over by this strength. In fact, a big chunk of recent buying is coming from bears scrambling to get out of their painful short positions. Remember, savvy traders always trade in the direction of the market, not in the direction of their opinions.

Assume this market is rangebound until we have evidence that it isn’t. That meant buying last week’s dip near 3,500 and selling this week’s bounce near 3,650. While stocks could keep going higher over the next few days, we always need to protect our profits. Often that means selling too early. But that definitely beats holding too long and watching those profits evaporate. If this market breaks out next week or next month, we can always jump back in when it exceeds the prior highs.

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Nov 13

What this week’s price action taught us about what comes next

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis:

It was an eventful week. After five days of counting, Biden was finally declared winner of the election Saturday. Monday morning we got outstanding news one of the vaccine candidates tested 90% effective in preventing Covid infections. And Friday, Covid-19 infections smashed all previous records and topped 150k daily cases for the first time.

Mix all of those gigantic headlines together and the S&P 500 ended the week higher by 2%. Not bad.

The vaccine headline is obviously outstanding news. Biden’s win is good or bad depending on who you were pulling for, but mix those two viewpoints together and it is largely a wash. And 150k daily Covid infections are most definitely dreadful.

From this smorgasbord of hugely bullish and hugely bearish headlines, stocks had free reign to do whatever they wanted. If the market wanted to crash, there were far more than enough excuses to trigger a stampede for the exits. On the other hand, if stocks wanted to explode higher, Monday’s 4% gap higher was more than enough to trigger a wave of breakout buying. And what did we end up with? A modest move higher.

This muted reaction tells us this market is not vulnerable to a collapse lower and it is not ready to explode higher. Sentiment is good enough to keep us near the highs and even drift modestly higher, but that’s about it. If the market was on the verge of a huge move in either direction, it would have happened this week.

As I wrote earlier this week, prices were setting up for a 3,500 to 3,650 trading range and I don’t see anything from week’s price action that changes my mind. It is okay to own this market, but keep a stop near 3,500 support and the adventurous should be ready to short a violation of this level. But as long as the index holds above 3,500 support, things are actually looking pretty good for stocks despite these dreadful Covid headlines.

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Nov 12

The simplest, no-brainer trade to make during opportunities like this

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 lost 1% Thursday. The recent spike in Covid infections unnerved investors and Monday’s bullish vaccine headlines are already old news.

Are we standing on the edge of a precipice or at the lower end of a longer-term trading range? That’s a great question and there are a million different opinions being shared online. And to be honest, both sides have great arguments.

What’s a person to do when the market could break either way? As obvious as this sounds, follow its lead! If stocks are going to breakdown, prices will have to cross 3,500(ish) support first. If we’re staying in a trading range above 3,500, then obviously prices will remain above 3,500.

This isn’t rocket science. Short a break under 3,500(ish) and buy a bounce off it. Put a stop on the other side of 3,500(ish) and wait to collect your profits. If the first move proves to be a false alarm, no big deal, close and trade in the opposite direction.

Emotional markets give us some of the best trades because they are prone to large, one-way moves. No matter which way this goes, grab ahold and collect your profits a few days later. It doesn’t get any easier than that.

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Nov 11

What’s coming up next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

It’s been a crazy few days for the S&P 500.

Stocks exploded higher Monday morning after a vaccine candidate proved 90% effective in preventing COVID-19. Unfortunately, the buying frenzy didn’t last and within a day the index “closed the gap”. So much for that breakout.

But this retreat isn’t a surprise. Stocks were already at record highs and there wasn’t a lot of upside remaining no matter how good the news. But rather than get discouraged after seeing all of those gains evaporate, most owners refused to join the profit-taking and stocks quickly bounced after closing the gap. While investors were not prepared to chase stocks higher with reckless abandon, most didn’t want to sell their favorite stocks either.

And that leaves us where we find ourselves today. Somewhere between Friday’s 3,500ish close and Monday’s 3,650ish open. Support and resistance. Sometimes stocks refresh following a big rally by taking a step back. Other times stocks rest and recuperate by taking time off and grinding sideways for a bit.

As long as the S&P 500 remains between 3,500 and 3,650, expect the sideways grind to persist for a while. Break under support and we can short the market with a stop just above this level. If prices rally above resistance, that is also a buyable move. But as long as we stick between support and resistance, don’t expect much.

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Nov 10

Wednesday’s trading signal

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Tuesday was a bit of a timeout for the S&P 500 as it closed pretty much where it started. Whether this is good or bad depends on which side of the bull/bear debate you fall on.

Bears will point to Monday’s dreadful intraday reversal and today’s pathetic bounce. Bulls are encouraged that yesterday’s one-way selling stopped after we filled the gap and buyers felt more comfortable getting in at these levels.

Who’s right? Well, Tuesday was a tie, making this a best-out-of-three contest. If bulls prop up prices Wednesday, then all is well again. If the profit-taking ramps up tomorrow, we could easily fall another 200-points.

The thing about market collapses is they are breathtakingly quick. If you stop to ask what’s going on, you are already too late. That means if we are standing on the edge of the precipice, we will figure that out real quick, probably within hours of Wednesday’s open. If on the other hand, not much is going on by lunchtime, then Monday’s dreadful reversal was more bark than bite.

Which will it be? To be honest, I couldn’t tell you. This remains an emotional and volatile market and those are the hardest to anticipate. That said, these are also some of the easiest to profit from because prices go in large, one-direction moves and all we need is the courage to grab on early and enjoy the ride.

If Wednesday starts weak and prices keep falling, that is our signal to stay short or get short if we are not already short. If the day ends near the lows, we can hold that short position overnight. But don’t get greedy. This is still a bull market and that means dips bounce hard and quick. Hold a few hours too long and really nice short profits morph into humbling losses.

On the bullish side of the spectrum, it is hard to envision a lot of near-term upside. If recent gains don’t consolidate through a quick step-back to support, they recuperate with a prolonged sideways grind. If that’s the case, we’re going nowhere fast and there is no need to rush in.

Short an extension of Monday’s reversal. If the market doesn’t breakdown, there isn’t a whole lot to do here other than wait for the next trade. That should cover it.

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Nov 09

Today’s breakout: The good, the bad, and the ugly

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 exploded higher at the open after a vaccine candidate tested 90% effective in preventing the COVID infection. That’s the home run we need to end this pandemic and get life back to normal. Investors were justifiably excited by this development and sent stocks sharply higher.

Unfortunately, the enthusiasm didn’t carry over to the close and stocks finished well under their opening highs. As exciting as this vaccine is, there is still a gigantic chasm between today and when a large percentage of the country will be vaccinated.

While almost all recent developments turned out far less bad than initially feared and we are steadily moving to a better place, the biggest hurdle for stocks is their huge runup in valuations. Prices are well above their pre-COVID levels despite this fairly dramatic economic contraction and an earnings recession. Everything is pointed in the right direction, but stocks have already priced that in and then some.

I like this bull market. I like the direction the economy is headed. I truly believe the worst days are long behind us. That said, stocks have a tendency to get ahead of themselves and today’s price-action was absolutely dreadful.

The fact we couldn’t hold this huge breakout to fresh highs on outstanding news is deeply troubling. I still like where the world is headed over the medium and long-term, but we should be ready for a near-term stepback in stock prices. Investors clearly told us today they are not comfortable buying stocks at these levels and the only thing that will cure that is time.

Whether that means a bigger pullback to support or a longer sideways grind near current levels has yet to be decided, but either way, we should temper our expectations for a while. The levels are definitely a better place to be taking profits than adding new money. The bull market is still alive and well, we just need prices to pull back and rest a little bit over the near-term. Two-steps forward, one-step back.

An aggressive trader can short further weakness Tuesday, but this is still a bull market and that means taking short profits quickly and often. On the other side, any dip is a buying opportunity, just be smart about your entries. Start small, wait for the bounce, keep a nearby stop, and only add to a trade that’s working. If the first bounce doesn’t work, get out and try again next time.

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Nov 06

Free Weekly Analysis: What the market thinks of a Biden presidency

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis:

This week’s 7.3% gain was the best five-day performance since late March. Not bad for a market that was (allegedly) on the verge of collapse only a few days ago.

The biggest headline was obviously the presidential election. While stocks initially popped Wednesday morning following Trump’s unexpectedly strong performance, as the week wound down, Trump’s chances of scoring a second underdog victory were slipping away. Of the five battleground states still up for grabs, Biden has a modest lead in four of them.

But rather than retreat on Trump’s dimming prospects, stocks continued holding all of this week’s robust gains. It turns out the market is far more excited about the split government than who is going to occupy the White House. We got confirmation of that sentiment Friday morning when Georgia and Pennsylvania flipped blue and stocks barely budged. If this market feared a Biden presidency, stocks would most definitely not be holding steady near all-time highs.

Now that the election is (mostly) behind us, we get to shift our focus to what comes next. Which at this point is the dramatic surge in COVID infections. The U.S. and Europe are smashing previous daily records for positive tests and local governments are moving back into lockdown.

Will the economic damage from this second, larger COVID wave be as bad as this spring? Given stocks are within a few percent of all-time highs, most investors don’t seem worried about it. But that’s the problem with the stock market, things don’t matter until they do.

Can stocks surge to fresh records while the global economy is weighed down by another round of stay-at-home orders? Probably not. Unless there is a dramatic turnaround in these COVID infection rates, stocks will run into a ceiling near the old highs. Limited upside and lots of downside? It’s hard to justify that risk/reward.

Stocks are trading well and we have to respect that. But keep your trailing stops nearby and be ready to lock-in profits. Wait a few days too long and those gains will morph into losses.

If you find these posts useful, please return the favor by liking and sharing them!

What’s a good trade worth to you?
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