Category Archives for "Free Content"

We’re back near the highs, now what?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 surged another 2% Thursday, bringing the weekly gains to more than 7%. Not bad for a few days of work.

While the early strength Wednesday morning was largely attributed to optimism following Trump’s strong showing, Biden has been eating into those margins and is clawing his way back to frontrunner status. But rather than tumble on Trump’s dimming prospects Thursday, the stock market kept charging higher.

Thursday’s enduring strength confirms the market’s optimism isn’t due to Trump’s prospects, but instead, relief of a split government. As I wrote yesterday evening, the stock market loves ineffective governments. It can always price in good news and bad news, what it can’t handle is constantly changing rules. A slit government greatly increases the odds of legislative gridlock. As far as the stock market is concerned, the less that comes out of Washington, the better.

And while it was nice to see stocks explode higher the last few days, we must acknowledge this strength consumed an awful lot of near-term upside. This move puts us back near all-time highs.

If the only thing we were dealing with was an undecided election, everything is set for a continued march higher. But what is largely hidden behind these vote-counting headlines is today was the first time the U.S. had more than 100k positive Covid tests in a single day.

The election was great and we are well on our way to a completely ineffective and unproductive government. But once that euphoria wears off, the front pages will fill up again with Covid headlines and the news definitely isn’t good.

Two steps forward, one step back. Expect the market to run into some near-term resistance near the old highs. Maybe prices slump after Biden is declared the winner. Maybe stocks fall if Trump refuses to concede and promises to fight the result. Or maybe prices simply climbed a little too far and need some time to cool off.

No matter the reason, this is a better place to be taking profit than adding new money. If a person is sitting on nice profits, at the very least, follow this strength higher with a trailing stop. Remember, we only make money when we sell our winners.

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It’s not Trump and it’s not Biden. The real reason stocks surged Wednesday.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

2020 is a year for the record books and this election is no exception. 24 hours later and we still don’t know who won. And whoever takes it will do so by the slimmest of margins.

As disruptive as this appears, the stock market doesn’t seem to mind. In fact, it cheered the results, surging more than 3% in midday trade.

Some people think investors are excited Trump proved the pollsters wrong and made this an incredibly close contest. And while this might be true for small, retail investors who are big Trump supporters, institutional money is far more excited Democrats didn’t take over the entire government.

The stock market loves split governments. As much a people complain about political gridlock, markets love it because no one is changing the rules on them in the middle of the game. Good news or bad news, the stock market can price anything in and move past it. What the market cannot deal with is constantly moving goalposts.

Dems seem poised to keep the house. Republicans will probably keep the Senate. And that means president Biden/Trump is less important because the opposing party in Congress will keep a lid on their boldest ambitions.

Anymore it seems like “compromise” is a dirty word in our highly partisan society, but the only thing the market loves more than sensible compromise is total gridlock. Here’s to wishing for four years of absolutely nothing.

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The best way to trade the post-election move (no matter who wins)

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

At some point, hopefully soon, we’re going to know who won the election. For the sake of this analysis, it doesn’t really matter who wins, just what the market does next and how we’re going to trade it.

I don’t subscribe to the conventional wisdom that Republicans are better for stocks. I’ve been trading for more than 30 years and some of the market’s best years occurred when Democrats occupied the White House and some of the worst bear markets started on Republican’s watch.

Trading through countless economic and political cycles, the one thing I learned a long time ago is the stock market and the economy are far larger than any one man. The initial knee-jerk might be lower or higher based on deeply ingrained cliches, but within weeks and sometimes even days, the market forgets about the election and start focusing on what’s coming next. In our case, Covid and the next round of economic stimulus. Those things matter far more than the (R) or (D) that follows our president’s name.

Stock futures are all over the place as I write this. One minute we’re up 1%, the next minute we’re down 1%, only to be back up 1% a few minutes later. Four years ago stock futures plunged 5% after Trump won Florida. And you know what happened the next day? Stocks finished in the green. Don’t pay attention to this overnight noise. Only inexperienced, impulsive retail traders are participating in this after-hours nonsense. The only thing that matters is what big money thinks and we won’t know their opinions until tomorrow afternoon.

As a trader, I don’t care who wins the election, only what the market does. Regardless if stocks open up or down, use those early few minutes as a starting point and then trade based on the market’s next move. If it rallies from the open, buy it. If prices retreat from the open, short it. Start small, get in early, and place a stop on the other side of the open.

There is a very good chance the first move will fizzle and reverse within an hour. If the opening dip bounces or the early rally fizzles, close the initial position near breakeven and flip the other way. More often than not, this second move is the real move and given how volatile the market’s been lately, expect this next move to cover multiple percent. If the market continues to trade strongly in that direction through the afternoon, add more and consider holding overnight. Most likely once this freight train starts moving, it will keep moving in the same direction for a few days.

After a couple of days, if the above trade is a short trade, look to lock in profits because short trades tend to be strong and fast. Take profits and get ready to buy the bounce. But if stocks rally over the next few days, these moves take longer to play out and expect near-term strength to stick around for a while, most likely taking up to and past the old highs.

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The best way to position yourself Tuesday afternoon

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Stocks rebounded Monday, reclaiming 1.2% of last week’s 5.6% decline.  There was not any obvious news driving Monday’s strength, in fact, the weekend’s international headlines were quite the opposite with portions of Europe headlined back into Covid driven lockdowns. Luckily, those overseas headlines didn’t bother U.S. investors who are far more focused on Tuesday’s election.

As I wrote last week, Monday’s contrarian strength was largely predictable and a combination of “a little too far” and “less bad than feared”.

Most likely, prices will bounce Monday morning after nothing bad happens this weekend. Buy that bounce and ride it higher through the day. But remember, volatility is off the charts and that means every bit of up is followed by a bit of down. Take profits Monday afternoon and get ready to throw the tripwires out again Tuesday morning.

As for the election, my plan is to keep limited overnight exposure and trade the next couple of days as day-trades. There is a lot of uncertainty ahead of Tuesday night/Wednesday morning’s vote counting. I’m fairly certain things will go smoothly, but this is one of those situations where it is better to be a little late than a lot early.

And to be honest, part of the reason I don’t want to hold anything over election night is because I can easily envision the market going either way Wednesday morning. We could bounce on relief of a clean election. Or we could fall on sour-grapes selling as the losing side takes their toys and goes him. Both factors will be at play Wednesday morning, I just don’t know which one will be more dominant.

But no matter what happens Wednesday morning (rally or fall), I expect stocks to do well over the last few weeks of the year and that means any near-term weakness is a buying opportunity. But as is always the case when buying a bounce, start small, get in early, keep a nearby stop, and only add to a position that is working.

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Are bad weeks contagious or are we more likely to find a bottom?

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

The S&P 500 shed nearly 6% over the last five sessions in the worst weekly loss since this spring’s Coronavirus collapse.

A recent spike in Covid infection rates and the looming presidential election created a risk cocktail many equity owners could no longer tolerate. The selling kicked off Monday with a 2% tumble and it peaked Wednesday following another 3.5% collapse. To put a bow on all of it, we finished near the weekly lows.

Sell first, ask questions later became many people’s trading plan and they were offering steep discounts to get out at any price. But as bad as all of this seems, the selling largely climaxed Wednesday and the last two sessions were testing but not exceeding the weekly lows in a meaningful way.

Nervous owners often place stop-losses under recent lows and crossing those widely followed levels triggers waves of autopilot selling. We saw that phenomenon at work on Monday and Wednesday in those multi-percent tumbles. But Thursday and Friday turned out differently. Both days undercut the prior lows but that violation did not trigger another cascading wave of defensive selling. That absence of auto-pilot selling suggests we are finally running out of nervous owners. At least for the time being.

As is always the case, few things shatter confidence like screens filled with red. While we might have exhausted this week’s supply of nervous sellers, tumbling next week on a hung election or spreading lockdowns could create an entirely new category of nervous sellers. That said, we got rid of a lot of nervous sellers this week and to trigger that next leg lower we need something new. If next week turns out to be more of the same, or even better, “less bad than feared”, the lows are already behind us.

For the more nimble-minded trader, expect this volatility to persist for a while. Remember, volatility means large swings in both directions. Set a tripwire on either side of Monday’s open and ride the next wave higher or lower, take profits in the afternoon and do it again Tuesday, Wednesday, and Thursday.

Most likely, prices will bounce Monday morning after nothing bad happens this weekend. Buy that bounce and ride it higher through the day. But remember, volatility is off the charts and that means every bit of up is followed by a bit of down. Take profits Monday afternoon and get ready to throw the tripwires out again Tuesday morning.

On the other hand, if the Covid situation gets worse this weekend and prices slump Monday morning, short that weakness and ride that wave of selling lower. But just like above, take profits Monday afternoon and be ready to set tripwires again Tuesday morning.

This is a volatile market and no matter which way it goes, expect these intraday moves to be fast and one-way. That makes this the perfect environment for directional day trading. Jump on the early move and take profits later that day. Avoid holding large positions overnight because one day’s up turns into the next day’s down.

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The smartest way to trade this volatility

By Jani Ziedins | Free CMU

Free After-Hours Analysis: 

Stocks bounced back Thursday and recovered a respectable chunk of Wednesday’s losses. In fact, it even got to the point where anyone who shorted Wednesday’s crash was left sitting on a pile of losses. Ouch! So much for chasing an easy short. But that’s not unusual. Anyone that shows up late to the party is often left holding the bag.

Crashes by nature are breathtakingly quick and they usually end with sharp bounces. Hold a few hours too long and nice short profits evaporate before our eyes. That’s exactly what bit everyone who shorted Wednesday’s tumble and didn’t harvest profits.

That’s not to say bulls don’t also commit the same foul. The indexes are down in Thursday’s after-hours session and virtually every bull that bought Thursday’s bounce is now sitting on a pile of losses. How’s that for equal opportunity humiliation!

And so continues the meatgrinder, a.k.a. the stock market. This is an extremely volatile period for equities and that means big swings in both directions. Every day of up is inevitably followed by a day of down.

There is nothing wrong with being aggressive and grabbing ahold of these large intraday swings. But be smart enough to recognize these profits are fleeting and they will be gone within a few hours. Take worthwhile profits and be ready to do it again in the other direction a few hours later.

As for what comes next? Expect more of the same. Wednesday’s 3.5% tumble was far too large to brush off with a single up-day. This volatility will stick around until at least after the election and probably a couple of weeks beyond that too.

That said, there is no reason to fear this volatility as long as we are smart about it. Put tripwires on either side of the open and grab ahold of that early move, whichever direction it happens to be. Place your stop-loss just on the other side of the open and be ready to lock-in a pile of worthwhile profits later that afternoon. Rinse and repeat the next morning.

If the trade doesn’t work and we get stopped out, no big deal, especially if we got in early enough and were able to move our stop to our entry point. That turns this into a free trade. It’s hard to beat that risk/reward.

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The real reason stocks are tumbling and it’s not what you think

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 entered free-fall territory Wednesday, producing the biggest single-day decline since June’s 6% plunge.

Coronavirus infection rate headlines overwhelmed most coverage in the financial press of stimulus and the election. But that’s not a huge surprise.

At this point, a follow-on round of $2 trillion in stimulus appears inevitable, the only question is if happens in a few weeks with Republican support or an even bigger package passes in a few months if Democrats take control.  Either way, the free money is coming!

As for the election, most people believe they already know who is going to win; either they believe the polls or they believe the polls are wrong. Either way, neither side has any doubt about the outcome.

And that leaves us with this runaway surge in Covid infections as the biggest uncertainty in front of us.

That said, I don’t know anyone headed for the hills because of this spike in Covid. In fact, I don’t know anyone that changed their behavior because of this latest surge. National and international infection rates have never been higher, yet most people seem to be going about their lives like they were earlier this summer when infection rates were far lower.

Sure, wash your hands, cover your face, avoid large crowds, and all the other sensible things people did this summer. But even in the face of this surge in infections, most people are still going to work and most people are still shopping. And let’s be honest, those are the only things the stock market cares about.

Even in Europe, where infection rates are far higher and their willingness to aggressively lock down the continent earlier this spring, not much is changing because of this surge in infections. It seems most people are already doing everything they are willing to do for themselves and other people and they are comfortable with the risks.

And that leads us to today’s stock market meltdown. I bet most of the people abandoning stocks today at big discounts are not afraid of Covid either. And I bet they are not even predicting another wave of widespread lockdowns. Instead, these people are selling because they think other investors are afraid of Covid and lockdowns.

This is classic herd psychology. I didn’t see the lion, but everyone around me is freaking out so I’m going to freak out too. After all, the one person who didn’t freak out and run was eaten by the unseen lion. Unfortunately, survival instincts that worked so well in the caveman days compel us to do the exact wrong thing at the exact wrong time in financial markets.

Smart money sells because they don’t like their thoughtful outlook. They don’t sell because other people around them are selling. In fact, if they have a positive outlook, they are the first to line up and buy the discounts.

And we don’t need to look far to see the aftereffects of panic selling. Twice since the Covid lows, the market has been hit by big waves of panic selling. Once in June (-6% in one day) and another time in September (-7% over 3 days). And you know what? Both times the bottom was near and that big collapse was a better time to be buying, not selling.

Will this time be any different? Probably not. Prices could fall a little further and volatility will remain elevated until after the election. But the bottom is not far. Maybe we slip and test 3,200 over the next week or two, but don’t expect prices to fall a lot further than that. That said, don’t be foolish and rush out to buy this dip. Smart money buys the bounce and protects itself with a nearby stop. If prices keep falling, no big deal. Their stop gets them out and they try again during the next bounce.

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When a setup doesn’t work out

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped a modest 0.3% on Tuesday and it finds itself down another 0.5% in after-hours trade. Not what I was hoping for and it seems like this weakness ants to stick around a little longer.

As I wrote Monday evening, retaking 3,425 Tuesday would have been a great entry point. Remember, we don’t buy dips, we buy bounces. Reclaiming 3,425 support would have done two things. First, it would have demonstrated resilience and proved dip-buyers were back in control. Second, it would have given us a clear entry-point with a sensible nearby stop-loss. Buy the bounce with a nearby stop and the risk/reward is skewed heavily in our favor. If the bounce returns to the upper end of the trading range, we make a few bucks. If it fizzles and retreats, we lose a few pennies. I really like that risk/reward.

Alas, it wasn’t to be. Stocks never reclaimed 3,425 and I was left watching this listless grind from the sidelines. While I didn’t get the bullish trade I was hoping for, by having a clearly defined prerequisite for entering the market, I never bought the dip and I avoided this subsequent weakness.

Going forward, if prices fall even further, no big deal. In fact, additional weakness works out even better for me because the lower prices fall now, the more profit opportunity there is buying the next bounce.

Adjusting this trade for the more aggressive trader on Wednesday: If prices undercut Monday’s lows (3,365ish) and continue falling, short that weakness with a stop just above this level. If prices gap under Monday’s lows at the open but quickly bounce back above, buy that bounce with a stop just under this key level.

As volatile and emotional as this market is getting, expect the next directional move to be swift and decisive. That means jumping in early and hanging regardless of which direction it is headed.

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Should we fear Monday’s tumble?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 crashed Monday as investor sentiment soured following record-high Coronavirus infection rates in Europe and the U.S. and the next round of Covid stimulus negotiations are postponed until after the election. At least that’s what the financial media told us.

While both of these headlines are extremely concerning, do they qualify as new and unexpected? Nancy Pelosi’s stimulus deadline came and went nearly a week ago and European infection rates have been spiking since September and the U.S. rates have been trending higher for nearly as long. If a person didn’t see these things coming from a mile away, clearly they were not paying attention. Yet the financial press spins these obvious events as if they caught everyone by surprise. I don’t know about you, but neither of these headlines surprised me. While I might be more cynical than most, I doubt these predictable headlines surprised even optimists among us.

If stocks didn’t tumble today because of a surge in infection rates or the postponement of stimulus negotiations, why did they crash? Simple, stocks move in waves. Always have and always will. Every bit of up is followed by a bit of down. Everyone knows this, yet it is amazing how many people are caught off guard when the next wave comes.

Large institutions already positioned themselves ahead of the election. Bullish or bearish, big money placed their bets weeks ago and that means supply and demand is modest and prices are mostly drifting sideways into the election.

The thing to remember about trading ranges is prices typically rally to the upper bound before stalling falling to the lower end. The S&P 500 challenged 3,500 in early October where it peaked and now it is testing 3,425 support.

If that’s all that’s going on, should people be running around in a panic? No, of course not. But if people didn’t panic and sell, prices wouldn’t fall. Investing 101: Every dip feels real. If it didn’t, no one would sell and prices wouldn’t fall.

As bad as Monday’s selloff felt midday, prices bounced and finished well above the early lows. As is usually the case, how we close is far more important than how we started. The early wave of selling capitulated and prices bounced back near 3,425 support by the end of the day. If stocks reclaim support Tuesday, that’s a buyable bounce with a stop just under this level. Start small, get in early, and keep a nearby stop. If the market trades well tomorrow afternoon, add more. If it doesn’t, no big deal, pull the plug and try again next time.

Previously, I was expecting some weakness after the election. But maybe that weakness came a little early. Until further notice, I will treat this test of support as a buying opportunity, not a reason to abandon ship. If prices tumble under 3,400 Tuesday, all bets are off and I will reevaluate. Until then, this is a great entry point with a well-defined stop.

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Free Weekly Analysis

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

The S&P 500 lost half a percent this week as it consolidates gains near recent highs. While not a great week, such a minor pullback near the highs and in this dubious headline environment is actually a constructive sign. Overbought markets tumble from unsustainable levels quickly and so far that hasn’t happened here, suggesting stocks are neither overbought nor unsustainable.

As much as investors are looking forward to another round of Covid stimulus, it appears that won’t get done before the election. But as I wrote previously, the market isn’t overly concerned about a week here or there as long as it looks like something will get done eventually. If the timing was critical to the market, we would have seen far more dramatic swings as these negotiations dragged on. Instead, most owners shrugged and kept holding their favorite stocks.

With little more than a week to go before the election, we shouldn’t expect a lot from the market between now and then. If the polls, Supreme Court, or even the outcome of the election mattered, we would have seen far more volatility show up in the price action. Instead, most investors seem pretty content with what they see and are comfortable holding for higher prices.

In my opinion, the biggest near-term risk is a wave of sour-grapes selling by supporters of the losing candidate. This could trigger a near-term dip in the hours and days after the election, but this is typically a fleeting phenomenon. Once those sore-losers finish giving away their stocks at a discount, supply will dry up and prices will bounce.

On the other hand, if the election goes off without a hitch and we know the winner Wednesday morning, stocks could actually rally in relief that we avoided a constitutional crisis.

Dip or no dip in the days after the election, expect stocks to trade well for the remainder of the year.

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How the stock market will react to the election

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The final presidential debate came and went and stock futures barely noticed. But that isn’t a surprise. As ridiculous as the first debate was, it didn’t move the market in a meaningful way and this slightly less crazy version was even less likely to matter.

The debates are done. As many as 1/3 of voters have already cast in their ballots and if you believe the polls, only 4% of the electorate remain undecided. (If a person hasn’t made up their mind by now, clearly they are not paying attention!) This election is going to turn out how it is going to turn out and tonight’s debate didn’t change anything.

At this point, Trump needs the polls to be way off if he’s going to win reelection. He pulled off the upset before and he can do it again. I just think it is less likely this time because pollsters recalibrated their formulas after 2016’s miss and are most likely are doing a better job counting Trump supporters, both the outspoken and the shy.

While the stock market loves Republicans’ tax cuts and reduced regulations, chances are good that if elected, Democrats will unleash a stimulus bonanza like we’ve never seen before. Whether all that debt that is good for the economy long-term can (and should) be debated, the stock market will love all the free money and will likely rally over the near-term.

If Trump wins, stocks go up. If Biden wins, stocks go up too. Sounds plausible.

So what’s really going to happen? Stocks will most likely tumble Wednesday morning as supporters of the losing side dump stocks in a giant wave of sour-grapes selling. Whether that lasts a few hours, days or weeks has yet to be decided, but no matter what happens, expect stocks to bounce back and any near-term weakness after the election will be another buying opportunity.

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Is this latest run in bitcoin sustainable?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

It’s been a while since I wrote about bitcoin and it has largely been flying under the radar this summer. Rather than act as a safe haven during the Covid crash, it tumbled alongside everything else. Since then, most pundits gave up on it and it isn’t attracting much coverage in the financial press. Maybe today’s run-up to $13k will change that.

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 held above $10k, it was doing everything it needed 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.

What’s behind this strength? There are a lot of opinions being thrown around between Paypal integration and a mountain of U.S. stimulus coming our way, but if I had to guess, a lot of nervous Republicans and Democrats are hedging their portfolios in case “the other guy” wins the election.

It doesn’t matter who you talk to, but it seems everyone is convinced the apocalypse is coming if their guy loses. While I have opinions about both candidates, I’m pragmatic enough to know the presidency isn’t nearly as important as most people believe. I’ve traded under both Democrats and Republicans alike and markets go up and down regardless of who sits in the oval office and this election cycle won’t be any different.

By the time December and January roll around, most of the reflexive sour-grapes selling will have passed and the market’s attention will long have since shifted to something else. The same goes for Bitcoin. When the world doesn’t collapse after the election, BTC will lose its appeal and will most likely retreat back to $10k support.

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.

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Why the market can rally without a stimulus deal

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Tuesday turned into a decent day for the S&P 500. While the index only gained a modest 0.5%, more important is Monday’s selling didn’t continue. At least for the moment, the market seems to be finding its footing near 3,425 support.

The big talking point continues to be the next round of Covid stimulus. Nancy Pelosi put a Tuesday deadline in order to pass something before the election. While that now seems unlikely, a few days here or there doesn’t matter that much to the market. More important is a deal gets done and so far all things are pointing in that direction, even if it turns out a little delayed.

That said, I don’t think the market is placing a lot of emphasis on these stimulus negotiations anyway. If it was, we would see far larger swings following these deal/no-deal headlines. While a 1% pop or drop feels like a big deal in the moment, this is more meaningless noise than the catalyst for the next big directional breakout or breakdown.

The market is expecting something around $2T in stimulus. If it doesn’t happen today, then it will come shortly after the election. If it gets delayed into next year, that is most likely because Democrats won the election and Republicans are dragging their feet. But even a multi-month delay isn’t that bad for stocks because a Democrat-led stimulus will almost certainly be larger than anything allowed by Republicans today. The stimulus could be late, but the size will more than make up for it.

No matter what happens, there seems to be more upside than downside as everything turns out less bad than feared. The election will go off without a hitch. Our politicians lack the will to lock the country down again. And more stimulus is coming. All of those things are near-term bullish for stocks.

That said, anything could happen over the near-term and that includes a pullback under 3,425 support. But Monday’s dip to could easily be “close enough” to check that box and the market never looks back. If the index trades well Wednesday, all is forgotten and forgiven. If we get another dip under Monday’s lows, prices will most likely undercut 3,400, even if just momentarily. As soon as the index retakes 3,400, that is our signal to jump back. As always, start small, get in early, keep a nearby stop, and only add to something that is working.

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Why we should have seen this pullback coming

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Monday started off well enough after the S&P 500 rallied nearly 20 points shortly after the open. Unfortunately, that was as good as it got. By the end of the session, prices had retreated 75-points from those early highs in the biggest single-day decline in nearly a month.

As ugly as Monday looked, it shouldn’t surprise anyone. Stocks were approaching the old highs and some near-term resistance was inevitable. Cognitively everyone knows markets move in waves, yet people are still surprised every time stocks take a near-term step back.

Hopefully, everyone who bought September’s bounce was following this rebound with a trailing stop and were able to lock-in some really nice profits over the last few days. If a person bought September’s rebound using a 3x ETF, they locked-in a pretty easy 20% gain over the last few weeks. Not bad.

The key to buying dips is starting small, getting in early, keeping a nearby stop, and only adding to what is working. Even if we got shaken out in September’s first couple of failed bounces, our losses were small and easily offset by riding this 300-point wave higher.

As always, the key is being willing to act when everyone else is afraid of making a mistake. Fortune favors the bold.

As for what comes next, we could see some near-term weakness, especially if our politicians fail to agree on a Covid stimulus bill this week. But if we’re in cash, the lower we go now, the better. It means we make even more money buying the next bounce. That said, unfortunately, I’m not expecting prices to fall a lot further. The market will most likely remain rangebound leading up to the election and the next big trade won’t happen until November.

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The mistakes bears made

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

The S&P 500 finished the week higher by nearly 4%, giving us the biggest weekly gain in several months. Not bad for a market that many people had given up for dead little more than two weeks ago.

As I’ve been saying for a while, this is a volatile market and that means big moves in both directions. Markets love symmetry and as quickly as prices fell in early September, we should have expected an equally impressive rebound. An 8% advance from the lows in little more than two weeks is not something we see very often. Hopefully, most readers recognized this strength early and find themselves sitting on a nice pile of profits.

As I often remind people, no matter what we believe, our plan always needs to account for the possibility we are wrong. It was fair to be bearish and think the market was on the verge of collapse a few weeks ago. But more important than up or down was having an exit in mind if a short didn’t go according to plan. There is nothing wrong with trying a trade, but always have a clearly defined point, decided ahead of time, where you will admit defeat and close your positions. No one is right all the time, myself included. This is why I spend far more time planning my exits than my entires.

For those that missed the rebound, unfortunately, one of the characteristics of sharp rebounds is the bulk of the gains arrive early. While there still more upside left in this move, the gains will be slower and take longer. That said, as long as the index remains above 3,400, keep giving this the benefit of doubt. In a few more weeks we should be challenging all-time highs.

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Why you should have profited from this rebound

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Exactly two weeks ago the stock market was “on the verge of collapse”. Today things look far different. Amazing what a 250-points rebound will do for the market’s mood.

I caught grief on social media for claiming September’s dip was buyable. While the crowd insisted the next leg lower was imminent, I kept buying the bounces. The first bounce didn’t stick. But that’s not a big deal. If we start small, get in early, and get out early, the losses are minor. In fact, if we are good at this and move quickly, we can get out at breakeven, making these free trades. It’s hard to beat that risk/reward.

The second bounce didn’t stick and neither did the third. But all of this was expected and part of the plan. Sometimes the market bounces quickly. Other times it takes a few false starts before it gets its mojo back. This time the fourth bounce was the magic number.

No doubt a lot of optimistic dip-buyers gave up after the second or third failed bounce and they ended up missing the real one. That’s the way this goes sometimes. Just because a trade doesn’t work the first time doesn’t mean we should give up. As long as we focus on sensible entries and exits, we have the ability to test all of these rebounds with relatively low risk.

Long-term success in the market is nothing more than sticking to our trading plan and ignoring all the useless opinions surrounding us. Stick to what we know and we will always come out ahead in the end.

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The key level we need to be watching

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 reclaimed nearly all of yesterday afternoon’s tumble after traders realized Trump’s threats to suspend stimulus negotiations were more bark than bite. Within hours, Trump backpedaled and promised to sign any bill that put money into voter’s taxpayer’s pockets.

This reversal alleviated investors’ fears and prices quickly returned to recent highs. And we should have seen this coming. Yesterday evening I wrote, “the dip might even turn out so modest and fleeting it could be hard to take advantage of.” Well, there you go. Blink and you missed it.

Tonight we have the vice presidential debate. If there is anything more inconsequential than the vice presidential debate, I can’t think of it. So yeah, expect investors to forget about this nearly as quickly as bored voters flip the channel.

The market continues trading well and has been above 3,300 support for nearly two weeks. If stocks were fragile and vulnerable, we would have crashed by now. Instead, September’s pullback is just that, a pullback. Nothing unusual or alarming about a step-back and cooling off following a 6 month, nearly non-stop run from the March lows.  Two-steps forward, one-step back.

Expect the sideways chop to continue until the election. But as long as we get more up than down, things are going well. If the index crashes back under 3,300, we will have to reevaluate, but until then, there is nothing to stress about. (This is our last-line-of-defense stop-loss. That said, a savvy and nimble trader will recognize looming weakness and get out long before the market reaches our last-line-of-defense.)

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Is the market on the verge of crashing?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

Tuesday started out well enough. Early sideways trade transitioned into a decent afternoon rally. That is until Trump threw cold water on the market and surprised everyone by announcing all stimulus negotiations are suspended until after the election. That proclamation sent stocks crashing more than 2% from those afternoon highs in a matter of minutes.

If there is a silver lining to this afternoon’s tumble, stocks quickly found support between Monday’s open and Friday’s close and held in this region through the final hour of the day. The index slumped a little further in after-hours trade but not dramatically so. At least to this point, this looks more like concern than panic.

We will learn a lot more about the market’s mood Wednesday. Dramatic corrections like early September and huge crashes like last February get started and they don’t stop going for several days. If prices hold up reasonably well Wednesday afternoon, this latest development is not turning into the next crash.

For a fundamental analysis of the market’s disappointment, this is a delay and not a termination. A stimulus deal will eventually get done, it just won’t happen as quickly as investors were hoping. Delayed gratification leads to dips, not crashes. As long as the market remains above 3,300, stocks are in pretty good shape. And who knows, the dip might even turn out so modest and fleeting it could be hard to take advantage of.

As for how to trade this, the market has been acting well since September’s bottom and smart money was riding this wave higher. This afternoon’s sharp tumble threw a wrench into those plans. Even though stocks didn’t undercut recent lows near 3,320, it still made sense to take some risk off the table and lock-in a portion of our recent profits.

As I often remind readers, it is much better to be out of the market wishing you were in than in the market wishing you were out. There is nothing wrong with taking some risk off the table when we get blindsided by something we don’t fully understand. Our clearest thoughts and analysis comes when the pressure is off and sometimes it only takes selling a small fraction of our position to gain that clarity.

As for Wednesday, wait to see what happens tonight and tomorrow morning. If the market finds its footing, get back in. If we get hit by another round of reflexive selling, get out of the way and wait for the next bounce. My hard stop is near 3,320 and if we fall under that, I’m out no matter what*. (The lone exception is if we gap under that level at the open. I will give the market 15 minutes to find a bottom and bounce before selling.)

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The best time to buy ZM

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Zoom (ZM) is one of this year’s biggest Covid winners, up over 600% since January 1st. You have to be living under a rock if you haven’t heard of this company either because of their ubiquitous video conferencing app or its meteoric stock.

While ZM has been on a jaw-dropping run this year, more recently, prices have stalled under $500. Is this the end of the line for ZM? Or just another pause on our way higher?

A few weeks ago I told subscribers to be careful as the stock gapped up near $500 following blow-out earnings. While it’s great to own a stock on days like that, gaps are dangerous things because they have a tendency of retreating and filling. And that’s exactly what happened over the next several days.

One of the most obvious things about stocks is before they make a big move, they start with a small move. The most obvious signal ZM was in trouble was undercutting the gap’s intraday lows the next day. That was as clear of a signal to get out as they come.

And the thing to remember is just because we sell a stock doesn’t mean we are giving up on it. When the risk/reward moves against us, it makes sense to lock-in some of those heady profits.

A few days later the stock bottomed after filling in most of the gap during September’s larger equity pullback. But this stock was too hot to stay down long and prices quickly pushed back to $500. If a person still liked the stock, there was plenty of time to buy back in at lower prices and ride this one back to $500.

But as soon as the stock broke through $500 and retreated back under the psychological level, that told us it wasn’t quite ready for the next leg higher and it needed to consolidate recent gains. Take profits again at $500 and wait for the next breakout.

I don’t think this stock’s run is over, but I would be hesitant about buying it under $500. I’d rather wait for it to break above $500 first. As I often tell subscribers, it is better to be a little late than a lot early.

Jumping in at a clearly defined level allows me to set a nearby stop and limit my risk. If the entire market continues slumping, this stock could easily retest $400 support before climbing up to $600. There is no need to ride this down and be tempted into a poorly timed sale near the lows. I perfectly happily give up a few dollars if it allows me to get in at a better-defined level where I can manage my risk.

As I said, I still like this stock but I want to see it break $500 first. Start small, get in early, keep a nearby stop, and only add to what is working.

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Should investors be worried about Trump’s Covid-19

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis:

Global markets were rattled Friday morning after Trump revealed he contracted Covid-19 and the S&P 500 crashed 1.5% at the open. That said, stocks quickly found their footing and spent the rest of the day trading above those early lows, closing down a “less bad” 1%. Most significant for traders is the index continued respecting 3,320 support.

While this wasn’t a great way to end the week, the index still added 1.5% over the last five days in its first positive performance since late August. It is about time!

So far, Trump is only exhibiting minor symptoms and even in his age group, severe complications are highly unlikely (only 1 out of 20). But even if he develops a bad case, this is a human development, not an economic event and it will not affect the equities markets in a lasting way. There is a very clear chain of succession and strict protocols will prevent any significant uncertainty or disruption. Without a doubt, this would affect the country’s psyche and be another historic/tragic event for 2020, but it will not affect the economy in a meaningful and lasting way.

That said, the market’s initial reactions isn’t always based on logic and reason, especially in times of extreme uncertainty. This has been a volatile several weeks for stocks and it doesn’t look like that will change anytime soon. But as long as stocks remain above last week’s lows, the market is trading well enough to earn the benefit of doubt. Until we crash under the lows, approach every dip as if it is on the verge of bouncing. (Only after we crash under recent lows should we consider shorting.)

As I wrote Thursday:

Any breakout must cross 3,400 and any retreat will fall under 3,320. Those are our tripwires. Buy the breakout and short the breakdown. Start small, get in early, keep a nearby stop, and only add to what is working. If we stick to that plan, it doesn’t matter which way this goes next. Be prepared for a head-fake or two along the way but as long as we get in early and get out early, the risks are pretty low.

Despite Friday’s dramatic headlines, nothing changed. Short the breakdown and buy the rebound. Start small, get in early, keep a nearby stop, and only add to what is working. If the first trade doesn’t work, pull the plug and try again. When it works, take profits and do it again next time.

Expect this extreme volatility to stick around until after the election and that means every bit of up will be followed by a bit of down. Get in early and take profits quickly. As long as we trade confidently and proactively, this is a target-rich environment.

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