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Sep 02

The only way to trade bubbles

Free After-Hours Analysis:

This market is on fire. The S&P 500 has been up 9 out of the last 10 sessions. Today’s 1.5% pop is the biggest gain in more than two months, meaning the rate of gains is accelerating, not slowing down. But the real star of the show is tech and momentum stocks with double-digit gains becoming the norm.

While a lot of people are nervous because it feels like this market is getting frothy, and I’m one of them, the thing to remember is bubbles last longer and go further than even the most bullish cheerleaders thought possible. I wouldn’t feel comfortable buying stocks at these ridiculously extended levels, but I sure am glad I’m holding positions with huge profits and I continuing to participate in this runup. And for the time being, I have no interest in selling. I’m following this rally higher with a trailing stop. I have no idea how much further it will go, but I definitely want to be apart of it.

The greatest strength we have as independent traders is the nimbleness of our size. We do in seconds what it takes institutions weeks and months to accomplish. This market is getting absurdly expensive, but we are nimble enough to ride this wave higher and be able to get out right after it rolls over. We don’t need to predict the future if we are fast enough (and disciplined enough!) to react to the market in real-time.

The great thing about euphoric accelerations is they tend to be one-way moves, meaning we can easily follow this rally higher with a trailing stop. Keep it 50-100 points behind the market and we should safely navigate any near-term whipsaws. And you know what? If we get stopped out prematurely, there is no rule prohibiting us from getting back in. If a false alarm squeezes us out, no problem, just jump back in when prices recover.

Stick to the above plan and see how much further this frothiness takes us. No doubt the top is still a good distance above us.

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Aug 31

How we should position ourselves in September.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

August was the sixth month since March Covid lows and it certainly feels like the rebound should be running out of momentum. But is it?

Out of the 21 trading days in August, the S&P 500 finished green 16 times. Of those five red days, most were less than a quarter percent loss. Add it all together and August finished a very impressive 7% higher. Trade that with a 3x ETF and August was a 20% month! Not bad, not bad at all.

Sometimes it feels like we are too late. Other times we worry the market is already too high. But as I often write, things that are high tend to get even higher. And that has definitely been the case with this Covid rebound. Last month’s irrational highs got even more irrational this month. Anyone still waiting for the “inevitable” pullback is still waiting.

What does September have in store for us? Most likely more of the same. A trend is far more likely to continue than reverse. While the next step-back is just around the corner (it could start at any moment), we don’t trade that outlook until the stepback is actually upon us. Until then, keep giving this market the benefit of doubt.

At this point, there is nothing to do other than keep following this rally higher with trailing stops near 3,440. While I am concerned about last week’s acceleration, if this is the start of a climax top, these things usually get far more frenzied before the collapse.

I don’t love the market at these elevated levels, but at the moment, it is doing everything it needs to do to keep me in it. As long as this keeps going higher, I will continue holding and following it higher with a trailing stop. But if this fizzles, I will be happy to lock-in 50% profits since the June lows (3x ETF). All good trades eventually come to an end and so will this one.

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Aug 26

Should we be afraid of missing the next rally?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday was a good day for the S&P 500 as it pushed toward 3,500 for the first time in history. As bad as the real world is around us, no one in the stock market seems to care. Investors are far more concerned about missing this latest runup than they are about what could go wrong this fall. And who can blame them? Anyone that bought June’s dip using a 3x ETF is up more than 50% in only two months.

While anyone can point out great trades after they happen, it if far more useful (and profitable) to see these trades coming before they make their big move. Lucky for regular readers of this blog, this is exactly what I told them June 11th when the market collapsed 6% in a single session:

This pullback was long overdue, but this was just a normal and healthy step-back on our way back to all-time highs. This is not the start of some much bigger collapse. Expect this selloff to bounce like every dip that came before it this spring. If the bounce doesn’t occur Friday, then look for it early next week.

Two months later, here we are, standing at those all-time highs. Trading isn’t hard if we know what to look for. While that post helped readers two months ago, it is old news and now everyone wants to know what comes next.

While I loved riding this wave higher, it’s gotten a little too easy and obvious. Buying June’s dip was hard and that’s why it worked. On the other hand, buying this breakout to record highs is far too obvious. In fact, most people are more afraid of missing the next leg higher than they fear the next dip lower. And that’s exactly what makes me so nervous right now.

Everyone cognitively knows stocks go up and stocks go down, but all too often people forget these simplest ideas in the moment. As great as things feel right now, this is not the time to fear being left behind. It is the time to fear holding something that could go down.

I’m not ready to pull the plug on this breakout just yet, but I keep moving my trailing stops up. With profits this big, it would be foolish to let greed wipe all of those away. I don’t mind riding this higher for a few more days or weeks, but I’m definitely itching to lock-in my profits and get ready for the next trade.

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Aug 24

What to do with TSLA at $2k

By Jani Ziedins | End of Day Analysis

Free After Hours Analysis:

TSLA popped at the open and gapped to all-time highs above $2,100. Unfortunatly, that was as good as it got because minutes later, agressive selling slashed nearly 10% off those lofty highs. But rather than devolve into a truly dreadful bloodbath, dip buyers raced in and reclaimed a big portion of those losses. By the end of the day, the stock managed to close back above the psychlogically significant $2k level.

Good day, bad day, or mixed signals? By all rational accounts, it is impossible to classify a 10% intraday crater a good thing. But at the same time, the fact such a shocking move didn’t trigger wider selling tell us many owners are not afraid of a little (or a lot!) of volatility and are confidently waiting for higher prices “no matter what”. That limited the damage and dip buyers were able to pick up the pieces and get the stock to close well above those initial lows.

Some bad, stir in some good and that leaves us with a mixed day. And as is usually the case, we cannot read too much into a single day’s price action. Today was definitely a signal to pay attention to, but unless it is followed up by other cautionary move, the previous trend higher remains fully intact.

As I wrote last week, this stock is extrely frothy and what goes up this fast, comes down even faster. As long as this stock remains above $2k, it is ownable, but anytime it falls under $2k, proceed with extreme caution. Today’s $200 tumble could easily turn into $300 or $500 before we know what hit us.

I love trading bubbles, but that also means knowing when to get out. Way too many people are going to ride this all the way up and then hold it all the way down. It happens every…single…time. Don’t be one of those people. Have a plan to protect your profits and then when everyone else is crying about the next TSLA tumble, you will be there with a pile of cash, ready to buy the next dip. But you have to get out first before you can do to do that.

And you know what, if we get out too soon, we can always jump back in. The nimblenss of our size if the greatest ability of being an independent trader. Remember, we only make money when we sell our winners. Buy TSLA above $2k and sell it under $2k. If we get tossed around in some whipsaws, no big deal. It sure beats holding a huge crash or missing out on the next pop.

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Aug 20

What comes next for TSLA

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

TSLA continues smashing all sensible expectations and closed above $2k for the first time ever.

Stocks that are hight tend to get even higher and that is definitely the case here. Back in June I accused TSLA of being in a bubble and with prices 100% higher today, I stand by that assessment. But unlike most people, I don’t fear bubbles, I chase them. That is exactly what I told readers two and a half months ago when TSLA first broke $1k:

This is a red-hot stock and there is a very good chance this is another bubble. While that scares some people, what should we do when we see a bubble? Why, buy it of course! What a silly question.

I’ve long since lost count of how much more TSLA is worth than all of the other auto manufactures combined. Obviously, this kind of insane valuation isn’t sustainable, but as traders, we don’t concern ourselves with these long-term outlooks. Instead, if the market doesn’t care about sensible valuations, then neither do we.

Now, don’t get me wrong, I’m not saying we should buy this and hold it no matter what. In fact, that is the exact opposite of what a savvy trader does. But we definitely shouldn’t let this insanely high valuation scare us off.

While buying TSLA at $1k would have been great, now that we are at $2k, people want to know what comes next.

First, this is a crazy volatile stock and we should be prepared for anything. While we’ve seen this huge surge higher, don’t forget markets love symmetry and spectacular moves higher are often accompanies by spectacular moves lower. With TSLA, we don’t have to go back very far to see examples of this stock collapsing more than 50%. And even a couple of weeks ago it was down more than 20% from its previous highs.

Because of this insane volatility, it makes a lot of sense to trade smaller sizes to limit our risk and to be ready to take profits proactively if prices violate key support levels. As I often remind readers, most of the people who hold this all the way up will also hold it all the way down. Please don’t be that guy.

$2k is our new highwater mark. The most adventurous speculator can buy this level if we see prices continue racing higher tomorrow, but keep a stop near $2k and be ready to abandon ship at the first signs of weakness. The thing about selling defensively is we can always buy back in if the dip proves to be a false alarm.

For anyone that is sitting on a 100%, 200%, or 300% profit, remember, we don’t make money until we sell our winner. We can continue riding this higher with a tight trailing stop, but given the size of the move over the last few days, it even makes sense to take a portion of your profits off the table proactively. Half of your profits guaranteed and half riding higher with a tight trailing stop is not a bad place to be. If prices continue trading well, we can always buy back in.

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Aug 19

What comes after all-time highs?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 slipped modestly following Tuesday’s record close. There were not any definitive headlines driving today’s weakness, instead, this was nothing more than a little profit-taking and “selling the news” after yesterday’s push to all-time high.

One day up, the next day down. That’s what markets do. But as long as we keep experiencing more up than down, this rebound remains alive and well. For months I’ve been saying markets go where people are looking. That little quirk made this unthinkable rally possible despite the greatest health crisis of our lifetimes. Does it make sense? Of course not. But anyone who’s been doing this for a while knows the market doesn’t always make sense. In fact, more often than not, it does the exact opposite of what most people expect, hence why contrarian investing is such a successful strategy.

Unfortunately, with yesterday’s record close, the crowd is no longer fiated on a singular level and figuring out what comes next is a little less clear. But as is always the case, there are three possibilities; up, down or sideways.

Down is the most widely anticipated outcome given the dreadful economic environment surrounding us. But paradoxically, that’s exactly why down is the least likely outcome over the near-term. Everyone knows the economy is dreadful. (Duh!) But if confident equity owners refused to sell those headlines last quarter, last month, and last week, why would anyone assume their mood changed all of a sudden? Confident owners remain stubbornly confident and that isn’t going to change anytime soon. If they were not fazed by the sharpest economic decline since the Great Depression, I cannot think of anything more spectacular that will finally convince them to abandon ship.

Up, that’s a strong possibility. Momentum is a very real thing in markets because people love joining the herd, especially when that herd is making money. But given how far, consistently, and slowly this rebound has been traveling, everyone’s seen this move coming from a mile away. If a person wanted to buy this rally to all-time highs, they already bought it. While that buying was enough to get us here, I don’t expect there will be enough to keep us going for a whole lot longer.

My best guess is momentum carries us higher for a week or two before prices settle back and consolidate near 3,400 for a month or two. From there, it all depends on how the fight against the virus progresses this fall. A big second wave and stocks will slump. If the situation remains status quo, then stocks will continue edging higher into year-end. (With some obvious and temporary volatility surrounding the election.)

But most people don’t care why the market is doing what it is doing, what they really want to know is how to trade it. Easy, keep doing what has been working. That means holding for higher prices and keep moving our trailing stops up, now spread between 3,320 and 3,360. If prices race higher in an unsustainable way, I’ll consider locking in some profits proactively ahead of a pullback to 3,400 support. But more important than anything is protecting the mountain of profits we collected this summer. Remember, we only make money when we selling our winners.

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Aug 13

CMU: The real life dangers of holding leveraged ETFs

By Jani Ziedins | Free CMU

Cracked.Market University:

Yesterday I wrote about the compelling benefits of buying the Covid bounce using a 3x leveraged ETF. No doubt the impressive 200% gains grabbed people’s attention. But no discussion about leveraged ETFs is complete without also discussing the negatives.

I often have people ask me why they shouldn’t just buy-and-hold leveraged ETFs. If 1x is good, obviously 3x is even better, right? Not so fast. There is a weird quirk in the compounding of leveraged ETFs that makes losses loom larger than gains.

I will dig into the math in a future post, but for now, we don’t have to look any further than the current market swings for a striking example of this damaging quirk in action.

The chart in yesterday’s post was a little deceptive because I truncated the timeframe to include very little of the Covid selloff. If we expand the timeframe to include the previous highs, as I did above, it becomes strikingly obvious what the problem is.

While the S&P 500 recovered all of the Covid selloff this week, the comparable 3x leveraged ETF is still down a shocking 29%!!!

Any patient, long-term investor that held a 3x leveraged ETF through the Covid collapse and subsequent rebound is still down a staggering amount of money. And that’s only if he had the tremendous courage required to sit through a 75% plunge during the Covid lows. I don’t know about you, but I would definitely have second thoughts if I saw my life savings shrivel by 75%.

Leveraged ETFs are wonderful tools when used for short-term swing trading. But holding them for longer time frames is a dangerous and foolish thing to do. If you only remember one thing from all of this, let it be:
Leveraged ETFs are ONLY suitable for short-term swing-trades.

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Aug 12

The best way to trade the Covid rebound

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

It was another good day for the S&P 500, this time finishing just a whisker shy of a record close. Not bad for the worst economy since the Great Depression.

But anyone who reads this blog knew this was coming weeks, if not months ago. As I often say, a market that refuses to go down will eventually go up. As counterintuitive as this rebound has been, riding these gains has been fairly straight forward for anyone that wasn’t overthinking the situation.

And to the victor goes the spoils. Anyone who bought the June dip using a 3x leveraged ETF is up nearly 50%. The more aggressive buyer who jumped aboard this bounce in March is up nearly 200%. Not bad for a lowly index trade.

As much hype as highflying stocks like TSLA or ZM get, there is really good money to be made swing-trading the indexes. In fact, I find the risks to be lower and the rewards greater. I’m planning on writing a series of posts covering how I swing-trade the indexes using leveraged ETFs and showing readers just how profitable this strategy can be, even when compared against the hottest stocks.

Granted, I haven’t been snoozing at the wheel since the March lows and I moved in and out of the market several times since them. But when we can move all-in and all-out in a few mouse clicks, it makes sense to step aside when things appear uncertain. As easy as it is to jump out, it is just as easy to jump back in when the latest dip proves to be a false alarm. In fact, if you do it early and get a little bit lucky, you actually make more money selling the top of these little gyrations and buying the minor dips. It doesn’t always work that well, but even riding through a few minor whipsaws sure beats watching a losing position swell or watching the next breakout leave without you.

Now that we finally reached the old highs, what comes next? That’s a good question. We should expect prices to pause for a little bit as investors gather their bearings. After that, a frenzy of breakout buying could push us sharply higher. Or waves of contagious profit-taking send prices tumbling. Or thirdly, stubborn owners refuse to sell, reluctant buyers refuse to buy, and that stalemate leaves stocks drifting sideways for a while.

My guess is we see a modest breakout push prices higher over the next week or two, but that strength ultimately fizzles and the index retreats back to the old highs where we consolidate for a bit. I will continue holding for higher prices but will move my trailing stop nearby so my profits are protected if I’m wrong.

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Aug 03

How to trade this market as it approaches all-time highs

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 popped Monday morning, establishing a new higher-high for this Covid rebound.

As bad as headlines have been, this market continues grinding higher and the index is within 3% of all-time highs. This relentless strength feels shockingly counterintuitive. But the thing we can never forget we trade the market, not the headlines. No matter what we think “should” happen, successful traders always focus on what “is” happening.

Institutional money managers need to anticipate what is around the next corner. It takes weeks, even months for them to move billions of dollars in and out of the market. But as independent investors, we can do the same in less time than it takes to read this post.

Far and away the greatest strength we have is the nimbleness of our size. That lets us ride these counterintuitive moves higher with little risk. We don’t need to know what is around the corner because we are fast enough that we can trade around it when we get there.

If we finally come across a headline worse than a global lockdown, the fastest economic collapse in modern history, and the highest unemployment since the Great Depression, we can pull all of our money out in hours, if not minutes. I have no idea what is worse than the headlines this market already shrugged off, but if it happens, I’m confident we will be able to trade around it when it does happen.

What comes next? Well, more often than not, the market moves to the level everyone is looking at. I’ve been saying for a while this market will challenge all-time highs near 3,400 and I don’t see anything in today’s price action that changes my mind. As long as we continue experiencing more up than down, the rebound is alive and well. There is nothing for us to do other than sit back, enjoy the ride, and keep moving our trailing stops up. (Around 3,200 seems like a good level)

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Jul 29

The (un)common-sense explanation of why this market refuses to breakdown

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 stumbled into Tuesday’s close, shedding more than 20 points in the final hours of trade. Was this the break bears have been waiting for? As ominous as that late fizzle appeared, the index closed solidly above 3,200 support yesterday. And even more important, the selling didn’t resume today.

Despite all of the “common-sense” reasons stocks should crash, the S&P 500 continues hovering near the rebound’s highs. Oblivious stock owners remain stubbornly confident and are holding for higher prices. From the basic laws of supply and demand, when confident owners refuse to sell the headlines, the headlines stop mattering. It doesn’t get any more straightforward than that.

As is always the case, all of our current headlines can be dissected into half-full and half-empty arguments. The economy is in shambles but corporate earnings are not as bad as feared. Infection rates are spiking but deaths are not seeing the same rise. Governments are reimposing lockdowns but scientists are making good progress on vaccines. The federal government is drowning in debt but the Fed is not even considering raising rates.

Thus far, most owners continue focusing on the half-full side of this situation. That’s because all of the half-empty people abandoned ship during the initial Covid collapse and were replaced by confident dip buyers. Out with the weak and in with the strong. It shouldn’t surprise anyone why this market has been so resilient these last few months.

As long as prices remain above support, there is only one way to trade this. Stick with what has been working and that is holding for higher prices. While the gains have slowed over recent weeks, as long as there is more up than down, expect the S&P 500 to challenge all-time highs this August or September.

That said, few things shatter confidence like tumbling stock prices. Keep updating your trailing stop and be ready to pull the plug if the selling accelerates. As nimble investors, it is far easier to buy back in following a false alarm than it is to watch all of our profits evaporate because we held too long.

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Jul 23

Should we be worried about today’s dip?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 slumped 1.2% after weekly unemployment claims saw their first increase since late March. This triggered the biggest equity decline in nearly a month. Is the market telegraphing worse things to come? Or was this a trivial wobble ahead of the next leg higher?

Clearly the economic rebound stalled. But this isn’t news. We’ve been dealing with surging infection rates since last month and the inevitable return of business restrictions. Today’s employment numbers only confirm what we already knew was coming.

Was today finally the wakeup call the bears have been waiting for? Is the evidence so incontrovertible that even the most oblivious bull can no longer continue living in denial? That’s what the cynics are hoping for anyway. But if the fastest economic collapse in modern history and the highest unemployment rate since the Great Depression didn’t spook these oblivious investors, why would anyone assume a modest uptick in initial unemployment claims would be the thing that finally breaks this market?

While today’s loss felt dramatic because volatility has been nonexistent over the last few weeks, a 1.2% Covid fueled dip hardly qualifies as the start of anything. As long as this market remains above 3,200, the rebound is alive and well. Even a dip under 3,200 isn’t that big of a deal if supply dries up quickly. A nimble trader will start peeling off some profits if we dip under 3,200, but this more of a risk management decision than concern about an impending collapse.

Until further notice, I will continue giving this market the benefit of doubt. But, if the selling feeds on itself and prices dip further, it’s not a big deal. We liquidate at our trailing stops and buy the next bounce. As much as I root for our country, economy, and stock market, the more this market dips, the more money I make so I don’t mind.

As I wrote yesterday, TSLA‘s lackluster reaction in after-hours trade to yesterday’s record-setting fourth consecutive profit was an ominous sign. Prices opened green this morning, but that was as good as it got. While the earnings were fantastic, the stock rallied in anticipation of these headlines and it fell into the “sell the news” trap.

Keep holding for higher prices if we bounce tomorrow, but if prices fall under $1,500 get defensive. Even if the future is bright, there is no reason to ride a near-term dip down $500. Lock-in some profits and get ready to buy the next bounce.

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Jul 22

Good signs for the S&P 500 and a possible warning for TSLA

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Wednesday modestly higher as it continues setting new highs for the Covid rebound.

Infection rates remain elevated but scientists are making progress on a vaccine. Unemployment is off the chart but governments continue handing out free money. For every negative, there is an offsetting positive. While the cynics obsess over the negatives, the market continues focusing on the positives. Stocks are not racing higher like they were in March, April, and May, but they are amazingly resilient. 3k support was rock solid in June and we keep bouncing back to the rebound’s highs. As I often write, a market that refuses to go down will eventually go up.

We make money following the market’s lead, not reacting to headlines. If this market doesn’t want to breakdown, there is no arguing with it. There is no room for “should” in the market. Either it does or it does not. Anyone trading “should” is losing a lot of money right now and we don’t want to join that group.

Keep moving stops up and waiting for higher prices. We are still on track to challenge all-time highs over the next few weeks. If this market was going to breakdown, it would have happened by now. The road won’t be fast or straight, but as long as we keep experiencing more up than down, everything remains on track.

TSLA reported earnings after the close and pleasantly surprised investors by producing the fourth consecutive quarterly profit. The big news is this achievement qualifies the stock for admission into the S&P 500. But more surprising than the profit was the lackluster performance in the after-hours session. While most CEOs would love their stock to pop 4% following earnings, TSLA makes bigger moves on a random Monday. To be honest, 4% is fairly disappointing given the headlines.

If TSLA rallies 10% tomorrow, then I read too much into this. But if TSLA slips into the red tomorrow, it is best to start taking profits before the losses accelerate. While gaining admission into the S&P 500 would be a huge boost for the stock, there is a good chance this event is already priced into the stock and we could easily fall into a “sell the news” letdown.

It is okay to hold for higher prices but keep your trailing stop close.

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Jul 13

Should we be worried about today’s weak close?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 started the day with nice gains as attention shifted toward the start of earnings season. The index even challenged June’s highs just over lunchtime. Unfortunately, that was as good as it got and a late-day selloff slashed 85 points from those midday highs, transforming a great morning into a very disappointing afternoon.

Normally, it is incredibly bearish to see stocks retreat so decisively from a retest of prior highs. Rather than chase prices even higher, most owners took this opportunity to lock-in profits. That’s not unexpected given how far we’ve come since the March lows and the start of earnings season adds a new dimension of risk to the calculus. That said, if nothing else thrown at this market has been able to dent it, do we really believe some disappointing earnings will change the market’s mind?

Everyone knows earnings will be dreadful. We very easily could see some of the worst quarter-on-quarter declines in a generation, if not market history. But that’s the thing, everyone knows earnings will be dreadful and these results won’t catch anyone off guard. The same phenomena happened when we experienced the biggest jump in unemployment claims in modern history and the highest unemployment rate since the Great Depression. Did the market flinch following those appallingly bad reports? Nope. It shrugged them off and continued higher.

As I’ve written previously, we continue giving this market the benefit of doubt until it gives a compelling reason not to. This afternoon’s fizzle was definitely a warning sign. But so far it was also only a single warning sign and this rebound has ignored countless similar signals over the last few months. For those reasons, I need further confirmation of a change in trend before I’m willing to abandon this rally.

For the time being, keep holding but move our stops up. 3k is major support but we should be out long before prices retest this level. Consider locking in some profits if prices open weak tomorrow morning and continue skidding in early trade. The next level to lock in further profits is if prices slip under 3,140. Cut through those and close weak again and we should be all the way out.

But just because a dip squeezes us out doesn’t mean we give up on the rally. If prices recover these support levels, we jump back in. Without a doubt, getting caught in a little whipsaw is annoying, but it sure beats holding a bigger loser or missing the next leg higher.

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Jul 06

Is it too late to buy TSLA? – Part II

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

TSLA is at it again, this time smashing through $1,300 and nearly reaching $1,400. Last month I wrote the post, “Is it too late to buy TSLA?” I even accused the stock of being a bubble. But unlike most critics, I don’t run from bubbles, I chase after them. And that’s exactly what I told readers last month.

This is a red-hot stock and there is a very good chance this is another bubble. While that scares some people, what should we be doing when we see a bubble? Why, buying it, of course! What a silly question.

That said, buying bubbles is risky and I told readers to be careful. I laid out a thoughtful trading plan that protected the late buyer but also left them in the best possible position to profit from the next big move.

[F]or the more adventurous, this is still buyable with a stop just under $1k. That said, late buyers should be prepared to get squeezed out a few times by false alarms and whipsaws. But as long as you are committed to buying back in every time the stock pops back above $1k, you will be in the catbird seat for the next leg higher. A few small losses are no big deal if we are there to catch the next big move. $1,200 here we come!

Obviously, my biggest mistake was being too modest with a $1,200 profit target. Silly me!

Now that we are nearly $1,400, is it too late to buy? Hell yes! We buy sensible levels where we can place an intelligent stop to protect our backside. Last month buying above $1,000 with a stop under this level was a very thoughtful level and a natural fit for this rally. As expected, there were a few whipsaws along the way, but as long as TSLA kept reclaiming $1k, we kept buying back in.

While riding whipsaws is annoying, it sure beats sitting through a 60% correction like stubborn owners did this spring. Even better, when stubborn owners were patiently waiting for prices to bounce back, the savvy trader is squeezing even more profit out of this trade. Why profit from a rally only once when we can profit from it twice?

Which brings us to the present. $1,400 is a stupid high level and we should be making a plan to take profits, not adding new money. Consider locking-in a portion of your profits practively and following the rest higher with a trailing stop. When this rally inevitably pauses and/or retreats, it will give us another sensible entry point and we buy back in for the next leg higher.

As for all of the other fanbois drunk on the Koolaid, remember, those that hold all the way up also hold all the way down. We only make money when we sell our favorite stocks. Just because we take sensible profits doesn’t mean we cannot buy back in when the time is right.

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Jun 30

What to make of this stubbornly resilient market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 bounced off 3k support Monday morning and it continued that resilience today. The index now finds itself with a 100-points profit cushion as it continues defying all predictions of an imminent collapse.

The most prominent headlines scream “second wave”. This initially spooked the market into a 6% tumble a few weeks ago. But that single, fearful session was as far as this got and prices have remained “surprisingly” resilient ever since.

To those of us that have been paying attention, this resilience isn’t surprising. We know panicked sellers abandoned the market in droves two moths ago. But just as important as chasing off the weak, for every panicked seller, there was an opportunistic buyer who confidently ran into the fire to snap up those steep discounts.

Fast forward a few months and most of those confident dip buyers are still confidently holding for higher prices. If they bought during the “first wave”, doesn’t it make sense to assume they would continue holding through “second wave” too?

No matter what the critics claim, when confident owners don’t sell, scary headlines don’t matter. As long as prices remain above 3k support, the Covid rebound is alive and well. Savvy traders are buying this bounce off of support, not selling it. If prices tumble under 3k, we will be forced to reevaluate our outlook. But until then, continue giving this market the benefit of doubt.

Buy the dip and keep adding to what is working. If prices undercut 3,030, start peeling off longs and use 3k as a hard stop. If prices retest 3k over the next few days, buy the bounce and short the breakdown. It really is as easy as that.

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Jun 26

CMU: Three Traders on a Mountain Road

By Jani Ziedins | Free CMU

Cracked.Market University

Three traders find themselves standing on a road at the top of a mountain. All three are looking over a blind crest, wondering what is on the other side.

The first trader announces to the other two, “Look at how the camber of the road leans a little to the left. Obviously that means the road turns left on the other side of this crest.”

Confidently, the first trader jumps in his car, turns the wheel to the left, reves the engine, closes his eyes, and guns it.

A few seconds later, the other two traders flinch as they hear crashing sounds coming from the other side of the blind crest.

The second trader responds with, “Can you believe that idiot, what was he thinking? If you look at the terrain a little further down the valley, obviously the road turns to the right on the other side of this crest.”

Confidently, the second trader jumps in his car, turns the wheel to the right, reves the engine, closes his eyes, and guns it.

By now, the third trader is not at all surprised when he hears the sound of crunching metal coming from the other side of the blind crest.

Hopefully by now, everyone realizes the point of this story. Successful traders react to what the market gives them. They don’t just guess at what is ahead and blindly trade it. And as such, the third trader calmly gets in his car and with his eyes wide open, carefully navigates all the twists and turns on his way safely back down the mountain.

If you want to survive in this business, you must react to the market as it comes to you. There is nothing wrong with making educated guesses about what lies on the other side of a blind crest. But by no means commit to that position regardless of what you find when you get to the other side.

In our current environment, there is nothing wrong with having a bullish or bearish opinion about these Coronavirus shutdowns and the unlimited resources governments are throwing at the problem. It’s human nature to anticipate what’s coming. But when we get to the other side of the crest, we must follow the road, not our biases.

Three weeks ago that meant buying a relentless rebound no matter how far we were above the March lows. This week, that meant locking-in profits as prices slumped back to support.

What is coming next week? I’m not sure. But I do know that if we go up, I will be buying and if we go down, I will be selling. What will you be doing?

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Jun 25

Jani’s Trading Diary: June 25th, 2020

By Jani Ziedins | End of Day Analysis

My Trading Diary

The S&P 500 started the day in the red, but rather than accelerate lower like yesterday, prices quickly found support and are trying to get back to breakeven.

This is one of those half-full, half-empty situations. I like this market and I’m not worried about this dip. But at the same time, it keeps hitting some of my stops. At this point, I’m half in and half out and that is probably a good place to be given the uncertainty.

Will this emotional selloff accelerate or dry up? I have no idea and I’m currently playing both sides of the fence. If prices firm up this afternoon, then I’ll start adding back in. If we retreat under this morning’s lows, I’ll continue peeling off. No big deal. As long as I am in the right place at the right time, that’s all that matters.

My Trading Plan

Most Likely Next Move: This is a buyable dip and prices will return to the highs. The only question is how low we go first.

My Trading Plan: I’m half in and half out. If prices slump this afternoon, I’ll continue peeling off. If the market trades well, I’ll start adding back in.

If I’m Wrong: At this point, I’m ready for this market to go in either direction and I don’t really care which way it goes. Higher means profit. Lower means even more profit. I’m okay no matter what happens.

Jun 23

Is the market losing its mind?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Did someone forget to tell the Nasdaq we’re in the middle of the worst economic contraction since the Great Depression???

Talk about a major divergence from reality. While the cynics cannot help but argue with this market, never forget, we trade stocks, not headlines or the economy. If stocks want to go up, there is only one way to trade this. If you don’t agree, your only choice is to get out of way because if you don’t, you are going to get run over.

Without a doubt, this rebound will end at some point because they always do, but this is definitely not that point. This month’s 6% collapse was the perfect setup to trigger a much larger collapse. If this rally was overbought and vulnerable, that was more than enough to trigger a much larger avalanche of follow-on selling. Instead, confident owners shrugged and bought the dip. When stubborn owners refused to sell, headlines don’t matter. End of story.

At this point, keep an eye on Monday’s lows. If we fall to this level, start locking-in some profits. If we retreat back to the previous Monday’s close, peel off some more profits. And if we return to this June’s lows, get all the way out. Anything other than that and lookout above. I fully expect the S&P 500 to match the Nasdaq and reach new highs over the next few weeks. We buy higher-highs, we don’t sell them.

If everyone knows the Fed rigged this market to keep going up, quit complaining about it and enjoy the ride!

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Jun 19

Weekly analysis: Bad day, good week, and what it means

By Jani Ziedins | Weekly Analysis

Free Weekly Review and Lookahead:

Friday’s price action was disappointing as a 40-point opening gain dissolved into a 20-point loss. But if you zoomed out to the weekly view, it was actually a good week and the market reclaimed 60-points that were lost the previous week.

Headlines continue obsessing over a “second wave” and Friday’s tumble was exacerbated Apple re-closing 11 of its stores in four states.

Hopes of a quick recovery could be thwarted by another government-imposed shutdown, but so far most states continue reopening despite the recent uptick in infections. At this point, there might not be the political will to force people to stay indoors indefinitely.

But even if the government doesn’t force us to stay indoors, people might be reluctant to resume their normal lives if every news broadcast starts with a body count. Fear-mongering and human nature are just as important to this recovery as government policy.

But when it comes to stock prices, investor sentiment is far more important than reality. As long as investors remain optimistic about the future and refuse to sell their favorite stocks at a discount, expect stock prices to remain stubbornly firm despite what the headlines keep shouting at us.

It has been a scary few months and stock owners who fear the Coronavirus and subsequent shutdowns have been given plenty of time to bail out. And not only that, these nervous sellers were replaced by confident dip-buyers who were buying despite the dire headlines. If these confident owners didn’t sell the “first wave”, what are the chances they will sell this “second wave”? When confident owners refuse to sell, headlines stop mattering.

As long as this market remains above 3k support, the larger Covid rebound remains alive and well. Even a dip and test of this level isn’t a reason to abandon ship. But if prices fall under this level and the selling accelerates, as nimble traders, it is our responsibility to get out and reassess. Until then, continue giving this rebound the benefit of doubt.

Next week is an important make-or-break week for the market. If the breakdown doesn’t happen next week, it isn’t going to happen. Keep your stops near 3k and let the market tell us what it wants to do next. Until the price action tells us otherwise, ignore all the cynicism and second-guessing.

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Jun 18

Why this market is ignoring “Second Wave” headlines

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday was the fifth trading session since the S&P 500 collapsed 6% in a single day. As dire as the situation felt last week, the market is doing a remarkable job of holding it together.

In the five sessions since last week’s collapse, the index already reclaimed 2/3s of those losses. If there is one thing we know about larger selloffs, they are breathtakingly fast. Compare this week’s reaction to the five sessions that followed February’s original Coronavirus breakdown. There, indexes fell another 12% during those next five trading sessions.

Without a doubt, we need to stand up and pay attention any time the market sheds 6% in a single day. But what happened last week was definitely different from what started back in February. That means we need to be careful drawing connections between the two events.

Even more important than the initial loss is how traders respond to it over the next few days. February’s first drop telegraphed the impending collapse that would eventually shave 35% off the index. The last few days has seen traders respond by buying the dip, not adding to the weakness.

As paradoxical as this dip buying seems given the widespread headlines proclaiming “a second wave”, it actually makes a lot of sense when you breakdown the supply and demand occurring under the surface.

The last few months have seen a tremendous amount of selling. Anyone scared of the Coronavirus and the ensuing shutdowns abandoned ship a long time ago. And not only that, when these panicked owners were selling, confident dip buyers were snapping up those discounts despite the headlines.

If confident dip buyers didn’t care about the “first wave”, do we really expect them to be scared by a “second wave”? No, of course not. That stubborn confidence is why stocks have been so steady despite predictions of a bigger selloff.

As long as the market remains above 3k support, everything is going according to plan and all-time highs are still in our near-term future. What happens after we get there is still undecided, but for the time being, enjoy this rebound, don’t fight it. Keep your stops near 3k and quit worrying about it.

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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