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Jan 07

CMU: When to take profits

Cracked.Market University:

The only way to make money in the stock market is by taking profits in our favorite trades. This blog post covers how I lock-in profits. This is a particularly timely post, not because I think this is the time to take profits, but because of what taking profits allows me to do.

First, I don’t know how to consistently pick tops and I bet most of you don’t either. If we cannot pick the top, then by rule, we are either selling too early or we are selling too late. Both strategies are perfectly acceptable and they come with their own unique set of advantages and disadvantages.

The first and easiest to understand is selling too late. This happens when we hold a stock past the peak and sell it on the way down. We’re in this to make money and that means we naturally want to squeeze every last dime of profit out of a trade. Who wants to sell for a 10% profit only to watch the stock rally another 200%?

The most conventional way of selling late is following the stock higher with a trailing stop. When the stock rallies from $50 to $60, we move our $40 stop up to $50. If the stock moves up to $70, we lift our stop to $60. We repeat this process until the stock finally peaks and dips under our trailing stop. This seems easy enough.

(Of course, a lot of traders are not sensible and rather than employ a thoughtful system like a trailing stop, they react impulsively to every bump in the road and only sell after they become convinced their favorite stock is crashing. And as most of us know from personal experience, this happens moments before prices rebound!)

But there is another way to take profits and is the approach I prefer, selling winners on the way up. The most obvious disadvantage of selling early is once we get out, we give up on any further upside. Unfortunately, most people believe this and it is absolutely not true. Just because we sold last week, yesterday, or even this morning doesn’t mean we cannot jump back in if the conditions warrant it. But most people have the mindset that once they sell, they are out of the trade and this just isn’t true. Selling simply means the risk/reward is no longer stacked in our favor. But like everything in the market, the situation can change quickly.

There are two reasons I like selling early. First, taking profits early frees my mind to look for the next trading opportunity. Selling early leaves me hungry and forces me to start looking for something to do with my cash. Sometimes that means buying back in after a short period out of the market. Other times it allows me to be the hungry dip buyer during the next dip. Second, I don’t like holding stocks moving sideways. I’m not getting paid when a stock is consolidating, yet when I own a stock, I continue holding all of the risks of the unknown. I only want to hold risk when I’m getting paid and that means avoiding stocks moving sideways.

The reason this applies to our current market is because I took profits proactively before the holidays. The S&P 500 rallied above 3,200 in mid-December and that was good enough for me. Every other time the market hit a round level over the last few months, it traded sideways for a bit. Now, I will freely admit I missed the move a few days later to 3,250, but I wasn’t worried about it. Not long after later prices tumbled and when the crowd was fearfully debating whether they should bailout before the market crashes, I was eagerly looking at this dip as a buying opportunity. While people were abandoning ship yesterday, I was buying the dip.

Selling early gives me more flexibility and it keeps me out of the market when I don’t need to be in. I had a nice holiday out of the market and taking profits early left me in a great position to jump back in once the market presented the next opportunity.

That said, this is what works for me and it doesn’t necessarily apply to you. Find the strategy that works for you and stick to it. The only way to do this wrong is making it an emotional decision.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $STUDY

Jan 06

Why January’s start is so bullish

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Quarters and years often adopt personalities. Some go up, others go down, maybe they are volatile, maybe they are calm. While this is obvious to everyone after it is all said and done, to trade successfully, we need to recognize these changes in personality earlier than everyone else. This means being hyper-aware of inflection points that signal this quarter is going to be different than last quarter.

The calendar rolled over to 2020 last week and we changed both quarters and years. This means we need to be especially sensitive to the market’s mood. That said, in the first few trading session of the year, it doesn’t look like anything changed. We got some potentially bearish news late last week, markets fell on the new and unexpected uncertainty, but like we saw all of last year, rather than trigger waves of additional selling, buyers quickly jumped on the discounts and propped up prices.

There are few things more bullish than a market that refuses to go down on bad news and that is exactly what we are seeing here. If this market was fragile and vulnerable, there have been more than enough negative headlines to send nervous owners scrambling for cover. Instead, we are getting the exact opposite. Not only are confident owners holding through this headline noise, they are jumping on every discount no matter how small. I wasn’t sure how January would start, but so far, it doesn’t look like anything changed. That means we stick with what worked so well last year.

This morning’s dip was an excellent buying opportunity after prices found a bottom minutes after the open. The nice thing about opens like this is they give us an excellent stop-loss level extremely close to our entry point. If prices bounce like they did, we let the profits roll in. If the early bounce fizzles and prices tumble lower, we get stopped out for a tiny loss and we wait for the next entry point.

If a person missed this morning’s buying opportunity, don’t fret, there is still a chance to get in, it just involves a little more risk since we are further above this morning’s stop-loss point. To account for the increased risk, we manage that by starting with a smaller position and then only adding more after the trade starts working.

I’m not totally convinced the rest of this quarter will be as strong as last quarter yet, but it is starting off well and that means there is only one way to trade it right now.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Dec 27

CMU: When the calendar matters and when it doesn’t

By Jani Ziedins | Free CMU

Cracked Market University:

With 2020 only a few days away, I want to discuss the “calendar effect”. I alluded to this phenomenon in recent posts, but this is an important concept and worthy of the entire spotlight today.

In a lot of ways, the calendar doesn’t matter. For example, Year-to-Date gains/losses are a meaningless statistic, especially early in the yar. The same can be said for annual gains. 2019 will go down in history as the second-best performance of the last two decades and everyone is cheering these nearly 30% gains!

Unfortunately, 2019’s headline number isn’t so much about how good 2019 has been, but how bad 2018’s fourth quarter was. If we adjust the rolling 12-month period from October 1st, 2018 to October 1st, 2019, these impressive 12-months gains tumble all the way to a measly 0.5% annual return! That’s right, just half-of-a-percent in 12 whole months! If our calendar went from October to October instead of January to January, the second-best year in two decades turns into a very forgettable performance. Ouch.

While we need to question these somewhat arbitrary rolling periods when making performance comparisons, there are times when the calendar actually matters to the market. It isn’t so much about the calendar itself or even the seasonality of the business cycle, but how institutional investors’ performance is measured and how their managers are paid.

Most institutional funds are judged by their annual performance and that means the managers running these funds live and die by where they stand at the end of every calendar year. There is nothing more important in their world. Next in importance comes the quarterly statements that get mailed to investors. If you want to keep people’s money, then you better show respectable gains at the end of every third month. And lastly, monthly gains, but they don’t matter as much because only the nerdiest of the nerds keep track of those.

Institutional money managers’ entire mindset revolves around March 31st, June 30th, September 30th, and December 31st. All of their decision are driven by how they will look on those four critical days. And since most market moves are propelled by institutional buying and selling, those four days matter to us too.

Currently, there is a lot of pressure on large money managers who are trailing this very impressive year. If they cannot match the market’s gains, at the very least they need to be able to tell their investors that they are in all the right stocks and that the results will come. This chasing of performance is what gives us strong moves in the final months of good quarters and years.

But here’s the important thing, once the calendar rolls over to the next quarter or year, these institutions are starting with a clean slate. Those that were compelled to buy in the final weeks of the year no longer need to chase prices higher because they have just been given three months of breathing room.

This herd buying and selling ahead of the end of quarters and years is what gives quarters and years consistent personalities. Quarters and years are most often up, down, or flat. But once those quarters/years end, we move into a new quarter/year, one that most likely will have a much different personality than the one that preceded it. 2019 was a good year for stocks. Chances are, 2020 will look a lot different. Be ready for it.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $STUDY

Dec 26

When it makes sense to buy AMZN

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

Two weeks ago I wrote a cautious post about AMZN. I explained how I was leery of this stock’s latest rebound because the prior dip lacked a compelling capitulation point. And while this remains the case, that didn’t deter traders from piling into the stock today. The company reported record holiday sales and that sent the stock surging nearly 5%.

Clearly I missed today’s move and I have no problem admitting that. That’s the way this goes sometimes. Successful trading does not come from being right about everything all the time, it is based on finding the best setups and profiting from those exemplary opportunities. This often means passing on something that ends up working simply because the odds of success were lower than what we typically look for. I wasn’t bearish on AMZN, I just didn’t see the latest dip as compelling enough to be worth buying.

While today’s performance was impressive, I wouldn’t chase AMZN at these levels. Today’s gains could easily fizzle over the next few weeks if this demand proves fleeting. It takes more than one day to reverse a downtrend and as impressive as today looked, it was just a single day. I would like to see the stock hold this level for several weeks before concluding this rebound is the real deal.

There are a few reasons to be wary of today’s strength. First, it came during a holiday affected period. That means most institutional investors are on vacation and not participating in today’s buying. Second, if big money wasn’t buying, then demand was coming from retail investors and bears covering their shorts. This more impulsive based buying was evident in today’s one-way price action that started with smaller gains and rallied strongly all day long. That told us people were desperately chasing prices higher, not making intelligent and informed investment decisions.

Why this matters is because retail investors have shallow pockets and short-covering is a fleeting phenomenon. Until we see institutional investors support these prices by buying at these levels when they return in January, I would be leery of chasing today’s gains. That said, I could be wrong about AMZN again and prices could continue surging higher. But if I miss another move in AMZN, I don’t mind because trading opportunities with higher odds come along all the time.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AMZN

Dec 23

How to approach the market around the holidays

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

As expected, the S&P 500 continues drifting higher into year-end. All of the nasty headlines are behind us and for the most part, things turned out far less bad than feared. This return of optimism allowed stocks to rally to record highs. That said, this post is less about the market and more about what we should be doing this time of the year.

All too often it is easy to obsess over the market, and many times that distracts us from the things that really matter. Borrowing a well-used cliche, we should trade to live, not live to trade. If all you can think about is how well your positions are doing, or sometimes how poorly, you are missing out on all of the things going on around you.

As we approach the Christmas holiday, it often makes a lot of sense to unplug for a few days. For some people, that means liquidating everything and being fully present with their friends and family. For other people, this simply means lightening up on some of your biggest winners to the point you no longer feel the need to watch the market’s every move. For longer viewed investors, skip a few days of financial headlines and don’t open your stock app. Don’t worry, everything will still be there next week.

The above recommendations are doubly important if things are not going well. Sometimes we get stuck and have a hard time letting go of a losing trade. Forcing yourself to sell that bad trade for a few days might just be the thing you need to clear your head and come back with a fresh set of eyes. If you still like that trade next week, you can always get back in. But more often than not, we would rather avoid putting ourselves in that situation again. If that’s the case, chalk it up to “experience” and start looking for another opportunity.

No matter what happens over the next two weeks, don’t worry about it. There will be plenty of new trading opportunities next month, and the month after that, and the month after that…

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Dec 20

What to do after breaking through 3,200

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

As expected, the S&P 500 finally pushed up to and then broke through 3,200 resistance. Today’s gains mark the seventh positive finish out of the last eight trading sessions. While the crowd is busy congratulating themselves for holding through this easy run, those of us that have been doing this a while are starting to get nervous.

Everyone knows the market move in waves, unfortunately, most people forget this simple idea when we are experiencing one. It doesn’t matter if it is on the way up or the way down, people naturally take the recent past and extrapolate that trend from now to forever. After the year we’ve had, why would anyone worry about stocks? Making money in this market is so easy! Or so the popular consensus goes.

Now don’t get me wrong. I am not a bear or anything even close. The market is acting well and I will continue trading with the bullish trend until given a compelling reason to change my outlook. But I also know that if we are in this to make money, the only way we do that is by selling our favorite winners.

It’s been a nice run, but that also tells us it is time to start locking in some profits. A person can do that by either selling proactively into this strength or by following the market higher with a trailing stop. Both strategies work well and it is largely up to personal preference. Pick one and stick to it. Or better yet, do a little of both.

But the other thing to remember is as soon as we get out, we need to start looking for that next trade. Maybe this rally stalls at current levels and drifts sideways into next year. If that’s the case, we stay out and wait for a trade in January. Maybe stocks pause for a few days before continuing higher. Just because we got out doesn’t mean we cannot get back in when conditions warrant it. And maybe the bubble bursts in January and that turns out to be a great time to short the market. No matter what happens, by taking profits now, we will have the cash ready to jump on the next opportunity.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Dec 19

TSLA: Up or Down, or does it not matter?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

TSLA has been rangebound, stuck between $200 and $400 since 2017. But this week the stock staged a breakout and is challenging the upper end of the trading range for the first time in a year. Model 3 sales are robust and the company is venturing into pickups, far and away the largest vehicle category in the United State. Of course the stock pushed to the upper end of the trading range, duh! But for those of us that are not drunk on the Koolaid, the real question is whether recent gains are sustainable, or if the stock will be rejected by $400 for the umpteenth time.

No doubt both bulls and bears have compelling arguments supporting their case. But as traders, do we really need to choose sides? Not if we are nimble enough. The upper and lower end of trading ranges give us clear lines in the sand, allowing us to more clearly define our risk. Above this line we are bulls, underneath it, we are bears. It doesn’t get any simpler than that. We don’t care who wins this battle as long as there is a clear victor.

Prior highs near $390 are our trigger point. Above this level we are buyers. Below it, we are sellers. While this seems easy enough, nothing in the market is ever easy and that includes trading breakouts. Most likely, prices will flirt with the prior highs for a while, breaking above and below this level several times before the stock shows its true intention. But as nimble traders, this isn’t a problem for us. We can dart all-in and all-out with a single click. While this will inevitably lead to some whipsaws, that is a small price to pay for both downside protection and profit potential. The big guys only wish they could move as quickly as we do.

Smarter than jumping all-in and all-out, start with a smaller stake and only add more when the trade starts working. That way any losses from the inevitable whipsaws are minor and we will still be in a great position to jump aboard when the true move finally reveals itself.

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Tags: $TSLA S&P 500 $SPY $SPX

Dec 18

What to expect in 2020

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

This is the time of the year when pundits stand on their soapboxes and tell the world what will happen next year. That said, I will be the first to admit I don’t have a crystal ball and won’t even pretend to guess what economic calamities will or won’t happen next year. But even with that limitation, there are still reliable clues we can use to estimate what 2020 will be like.

2019 was the year of a generous and gentle rally. The market climbed nearly 30% and most pullbacks were benign and prices recovered quickly. This strength was definitely aided by a snapback from 2018’s grossly oversold 4th quarter, but regardless of the source, this was the market’s second strongest annual performance since the dot-com bubble. Unfortunately for us, 2020 will look nothing like 2019. The market almost never repeats a performance and next year won’t be any different. If we cross strong rally off the list of possibilities, that leaves us with modest rally, modest dip, and stock market crash.

While stock market crashes are scary and forever seared into the memory of anyone who lives through one, they are exceedingly rare. Most active traders will only see one or two in their careers. Will next year be one of those years? Probably not. Especially since the market is not grossly overbought or overleveraged like it was during the dot-com and housing bubbles. Stocks are definitely not cheap, but they are not “bubblelicious” either.

Crossing both extremes off the list leaves us with a little up or a little down. At this point, I could see either happening. The labor market is stretched and labor shortages will keep a lid on economic growth going forward. If a business cannot find new staff, it cannot expand no matter how strong demand is. On the other side, modest stock market gains could easily be wiped out if an unpopular Republican president is replaced by a Democrat. Fear of looming regulations and taxes will send stocks retreating in the final months of 2020. And so, that is my prediction, fairly modest gains between 5% and 10% if Trump wins. If he loses, expect a flat year.

But where we end is only one piece of the puzzle. How we get there is even more important to active traders. Everyone knows stocks cannot sit still and like a sugared-up 5-year-old, they always have to be moving. Sometimes they move up for extended periods like 2019. Other times they decline relentlessly like 2008. But most of the time, they move up and down for no other reason than they cannot sit still. 2020 will be a year of moving just because. That means lots of moderate dips and bounces along the way. While it won’t show up in a long-term portfolio, 2020 will be a great year for the opportunistic swing-trader.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Dec 17

Bitcoin: a tardy update

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

I contemplated writing about Bitcoin last week and given this latest dive, I really should have done it sooner. But hey, better late than never.

Bitcoin was hovering just above $7k support for a few weeks after retreating from this fall’s impressive $10k surge. Bulls have been trying to break the brutal bear market that started back in early 2018 and this latest run to $10k was the noblest attempt thus far. Unfortunately for the Bulls, the wider public failed to embrace the rebound and prices retreated from a lack of demand.

In 2018 Bitcoin went from the thing everyone wanted to the butt of every joke. Many late-to-the-party buyers were burned and they were not about to lose their hard-earned money a second time. And not only was the wider public not interested, but most of the Bitcoin bulls bought everything they could afford on the way down and they didn’t have any money left to add either. Mix those two factors together and you had the recipe for a failed rebound.

I’ve been warning Premium Analysis subscribers to be careful of Bitcoin’s latest rebound and while it seems a little late now that prices are down 35%, that warning is just as applicable. Buyers are still missing and if they didn’t save us at $7k, there is little reason to think anyone will come to our rescue at $6k.

If there is one saving grace, it is that Bitcoin bulls are a stubborn bunch. Anyone who hasn’t sold yet is a “Hodler” and plans on taking their coins to their grave. That undying confidence keeps supply tight every time prices dip under key support levels. Unfortunately, tight supply is only half of the equation and the best it can do is slow the descent. At this point, I see no reason to own Bitcoin because the bear market is alive and well. Expect prices to fall even further over the near and medium-term.

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Tags: Bitcoin $BTC.X

Dec 16

The Bull Market No One Saw Coming

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

This weekend Bloomberg published an article titled “The Bull Market Almost No One Saw Coming“. While I don’t want to delve into the content of the article, the title triggered me a little bit. I saw this bull market coming from a mile away and you should have seen it too.

I’m not psychic or anything of the sort, but to me, this decade long bull market was fairly obvious to anyone who spent time looking at long-term historical charts. Over the last 100 years, there have been multiple “Lost Decades”. These were extremely discouraging periods triggered stock market crashes and the indexes spent the better part of 10 years trying to get back to the old highs. The most recent “Lost Decade” being 2000 to 2013.

While everyone was giving up hope 10 years ago after the Financial crisis, I saw tons of opportunituy. Sure, stocks obviously got too far ahead of themselves during the dot-com bubble and again during the housing bubble. But after a decade of trading sideways, a lot was happening in the real world that wasn’t being reflected in stock prices. In real terms, stocks were actually getting cheaper as the economy grew and equities failed to keep up.

Looking back in history, similar events transpired in the 1910s, 1930s, 1940s, and 1970s. Huge, brutal bear markets devastated stocks and turned an entire generation into cynics. But just when the masses had given up all hope, the market stunned us with the 1920s, 1950/60s, and the 1990s. Four times the market lost a decade and four times the market came roaring back. Was the 2000’s “Lost Decade” going to be any different? No, of course not.

Some of the best investment opportunities in the history of the stock market came in the 10 years following a “Lost Decade”. This time was no different. The only people who didn’t see this bull market coming were the ones who don’t know their history.

As for what comes next, is this bull market tired? Is a crash long overdue? Not if you look at history. Stocks rallied for nearly 20 years between the early 1980s and the late 1990s. By that measure, we could easily see another decade of strong gains before the next “Big One”. Of course, the worst day in stock market history happened during that 20-year bull market in 1987, so we cannot be complacent. But the prognosis for the next 10 years is still good even if we run into a few 20% corrections along the way.

(I’ve written well over 2,000 articles over the last decade, but it would be interesting to sort through some of the old ones from 10 years ago now that everyone knows how it turned out. Sign up for FREE Email Alerts if you want to read those posts when I write them.)

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Dec 13

Is AMZN buyable here?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 is racing to record levels, yet AMZN is stuck in reverse and down 13% from July’s highs. What gives?

I’m not a fundamental investor and will leave the financial report crunching to someone else, but this dramatic price divergence tells us something is definitely not right with this stock and it lost its darling status.

If there was one thing that could have saved AMZN, it would have been a blowout holiday shopping season. But rather than cheer Black Friday’s sales numbers, investors sent the stock down 3% since Black Friday. That pretty much dashed any hope of this stock rebounding before the end of the year.

The biggest challenge facing AMZN is it is struggling to find its footing just above $1,700 support. This is a key technical level stretching back a couple of years, but more importantly, it provided critical support during the June and October dips. Unfortunately for the stock, double-bottoms are a thing, triple-bottoms, not so much. And right now the stock is threatening to challenge $1,700 support for the third time in six months.

The very fact we returned to this level for the third time is a huge red flag and should make investors nervous. But more than that is these feeble rebound attempts since the October bounce. There just isn’t any life left in this stock. If people were going to buy this rebound, they would have done it already. Slipping back to these levels again tells me the worst is still ahead of us.

But not to give up all hope, a sharp crash under $1700 could actually be a good thing for the stock. That could be the capitulation the stock needs to recover its mojo. While I wouldn’t touch AMZN right now, if it slices through $1700 support in a fantastically ugly way, but then bounces back days or weeks later, that would be a compelling signal the stock is finally buyable again.

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Tags: S&P 500 Nasdaq $SPY $AMZN

Dec 12

The Trade War is over, now what?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The trade war is over and the S&P 500 surged nearly one whole percent!

Well, not exactly. The trade war is nowhere near over but Trump tweeted, “Getting VERY close to a BIG DEAL with China.” That kicked off this morning’s explosive rally. Well, calling it explosive might be overstating the situation a tad, but it was a good day and the index closed at all-time highs.

Anyone hoping for more is sadly disappointed by this somewhat muted reaction. But this shouldn’t surprise those of us that have been paying attention. Yesterday I wrote that the stock market was growing tired of trade war headlines and deal or no deal, we shouldn’t expect a move greater than 1% in either direction. Today we got the strongest indication yet of a deal and the index surged a measly 0.86%.

More important than deal or no deal is how well the market has been performing this quarter. Despite the relentless barrage of negative headlines, stocks continue pushing into record highs. While some people claim the market is complacent and that complacency precedes the fall, the thing most people fail to mention is complacency can last for a really, really long time. When confident owners refuse to sell, supply stays tight and prices remain firm. This will end badly at some point because it always does, but this is not that point. In the meantime enjoy the ride.

As for what happens in January, I have thoughts on 2020 but will save those for another post. Sign up for FREE Email Alerts so you don’t miss those thoughts.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Dec 11

Does the Trade War matter anymore?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Despite what the naysayers claim, the S&P 500 continues defying gravity and is hovering near all-time highs. This is even more impressive since the next round of tariff hikes are scheduled to take effect this Sunday. The list of reasons this market should be down is a mile long, yet here we stand.

Bears claim it is only time before the crowd realizes how bad the situation really is. But here is the thing, none of these bearish claims are secret. Everyone knows about the slowing global economy. The trade war between the world’s two largest economies has been raging for nearly two years. Impeachment, does anyone actually care? Everything is out there and the crowd already knows about it. There is no waiting for the other shoe to drop, the shoe already dropped. And most importantly, no one cared.

We trade what the market does, not what we think it should do. If this market doesn’t want to go down, we only have two choices, jump aboard, or get out of the way. Fighting it is only going to get yourself killed.

As for this weekend’s trade war escalation, the market has been growing bored of these headlines and every escalation and resolution has been received with a smaller and smaller reaction. Deal or no deal, it really doesn’t matter. We pop 1% if we get a deal, we dip 1% if we don’t. The days of five and ten percent moves are long behind us. The people who fear the trade war sold a long time ago and confident dip buyers took their place. If these dip buyers were not bothered by Trade War 1.0, 2.0, 3.0, or 4.0, chances are 5.0 won’t bother them either.

What’s a good trade worth to you?
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Sep 10

Jani’s Trading Diary: September 10th, 2019

By Jani Ziedins | End of Day Analysis

My Trading Diary

The S&P 500 tumbled for a second day, but the losses were relatively mild as compared to recent volatility. Nothing wrong with a little give back following a strong move over the last few weeks. That said, I was feeling defensive and yesterday’s mediocre close convinced me to take profits in 1/3 of my position. No doubt this was premature, but I had profits and I didn’t want to let them get away. Plus I still have 1/3 left and will benefit if prices rebound. And as I often write, I can always get back in.

I still feel good about the medium-term prospects, but we could test the 50dma and 2,950 over the next few days. That would be a normal and healthy thing to do. Or maybe this morning’s dip is as far as we go. Either way, this market wants to go higher, not lower and every dip is a buying opportunity.

My Trading Plan

Most Likely Next Move: A little cool down that will bounce soon. If the bottom isn’t already in, look for a bounce near 2,950ish.

My Trading Plan: Took some profits yesterday, but already looking to get back in if we close well.

If I’m Wrong: Prices undercut 2,950 and that triggers a tidal wave of defensive selling. But as long as we stick to our stops, then all that dip is is another profit opportunity.

Aug 29

Free Premium Analysis Excerpt: August 29th, 2019

By Jani Ziedins | End of Day Analysis

A free excerpt from today’s Premium Analysis:

Market Mentor

Tuesday morning’s gains launched us above the psychologically significant 2,900 level and prices are within 100-points of all-time highs. People who sold last week’s headlines are now having second thoughts, and that’s the way this game goes. Traders who make the most money are the ones that trade proactively, not react reflexively to what everyone else is doing.

There is a very important difference between selling because your preplanned stop was hit and selling because you are scared things will get worse. Just like there is a difference between holding because that is what your trading plan said you would do and holding because you are hoping that the market will bounce at any moment. Pros trade their plans, amateurs trade their gut.

While there is no guarantee a trading plan will produce a profit in any single trade, following a solid trading plan definitely guarantees better odds for success over the long run. Always plan your trades. That includes when to buy, when to sell defensively, and when to take profits. Just as important, anytime we get flushed out for a loss, don’t get discouraged because the next buying opportunity could be hours away.

At the moment, the market is buyable as long as we hold 2,900 support. The opening gap made it a little more risky to buy because a sensible stop under 2,900 is a little further away. But we can manage that larger risk by trading smaller. Start small and add more after the position starts working.

In addition to the Market Mentor, premium subscribers receive Premium Analysis, Trading Plan, Highfliers, and Trade Ideas every day during market hours.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Aug 26

How to profit sensibly from this volatility

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Monday, the S&P 500 recovered a chunk of Friday’s trade war tumble. Last week Trump “ordered” U.S. companies to stop doing business in China and that sent traders scrambling for the exits. But as bad as a 2.6% loss seems, it wasn’t the biggest loss this month. Heck, it wasn’t even the second-biggest loss of in Agust. While three 2.5%+ losses in as many weeks is terrifying, the market is actually holding up remarkably well and is still within 150-points of all-time highs.

Is this a stubbornly bullish market that refuses to breakdown, or a market teetering on the edge of collapse? That’s what we want to know.

Today’s strength was a good sign. The trade war didn’t get worse over the weekend and rather than continue selling the fear, traders were more inclined to buy last week’s discounts. Major selloffs are dominated by “sell first, ask questions later”. Any break in the selling gives people time to analyze the situation and almost always the calm allows people to realize things are not as bad as feared. The trade war has been brewing for a year and a half and it hasn’t killed this bull. That’s doesn’t count as proof these escalations cannot break this market, but odds are a trend is more likely to continue than reverse. Until further notice, expect the market to keep withstanding these trade war headwinds.

Currently, the market finds itself in between two psychologically significant levels, 2,800 and 2,900. While this is a stubbornly resilient market, it is also extremely volatile and that means we should resist the urge to rush in. Wait for the market to prove itself before buying the dip. If prices recover 2,900, that is the signal to jump in. If prices tumble and under 2,800, wait to buy until prices bounce back above this support level.

A big part of the reason to wait until prices recover a key support level is that lets us place a stop close by. The tighter our stop, the less money we have at risk. Another important strategy in volatile markets is reducing our position size so that a big opening gap doesn’t leave us with an uncomfortable loss. While making money is great, long-term success comes from limiting our losses. This volatility is giving us a lot of great trading opportunities, just make sure you keep your risks in check.

What’s a good trade worth to you?
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Aug 22

What doesn’t kill us makes us stronger

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 started Thursday with nice gains, but a midmorning selloff pushed prices into the red. But rather than trigger a waterfall selloff and crash through 2,900 support, supply dried up, and prices rebounded nicely of the early lows.

Volatility is elevated, and that means abrupt moves in both directions as traders overreact to every bump in the road. And while volatility can be unsettling, the market is actually trading well, all things considered.

Headlines have been quite bearish between Trump’s never-ending trade war escalations with China, the Fed sending out conflicting signals about interest rate policy, and technical indicators telling us the US economy could be headed into a recession. Common sense tells us the market should be down 15%, not the fairly trivial 3% we find ourselves from all-time highs.

There are two ways to interpret this reluctance for the stock market to crash. Either confident owners are incredibly nieve and the crash is coming. Or confident owners are indifferent to these headlines and their lack of selling means these headlines no longer matter (i.e., are priced in).

No doubt you picked the scenario that fits the best with your bearish or bullish disposition. But the thing to remember about stock market crashes is they are brutally quick and happen before most people even know what hit them. There is no time to debate the fundamentals and make a sensible trading decision to sell before things get worse. There is the freefall, and if you stop to think twice, it is already too late.

To put this in context of current market conditions, the big “oh shit” moment happened 21 days ago when Trump announced he was adding tariffs to the last $300 billion in Chinese imports not already taxed. The stock market imploded over the next four days. But after that initial kneejerk of reactive selling, prices have recovered a big chunk of those losses.

If a person believes stock market crashes move in slow motion and we have plenty of time to make thoughtful trading decisions, then they should be nervous. For the rest of us, a market that refuses to go down on bad news will eventually go up.

If prices dip under 2,900 on Friday after the Fed chairman speaks, bouncing back above support is our signal to buy. On the other hand, if prices don’t even slip to 2,900 support, that is our signal this market is stubbornly resilient and higher prices, not lower prices, are ahead of us.

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Tags: S&P 500 Nasdaq $SPY $QQQ

Aug 21

CMU: How to trade the news in our current environment

By Jani Ziedins | Free CMU

Cracked.Market University

How the news affects the stock market is one of the biggest enigmas in trading. Intuitively, bad news should make stock prices go down and good news makes them go up. Unfortunately, it is rarely that simple. This often contradictory puzzle of news and the stock market is the number one reason people claim “the market is rigged”.

While news is important to the stock market, the thing most people forget is news by itself doesn’t move prices, only traders buying and selling can do that. If we take this concept to the next level, it isn’t news driving market moves, but traders’ reaction to the news that matters.

Why this distinction is so important is because all traders come to the market with expectations. Expectations and beliefs about what will happen next. That means it isn’t whether the news is good or bad, but if the news is better or worse than the crowd expects. This is where the confusing paradox of “good news is bad” and “bad news is good” comes from.

Traders often correctly anticipate a piece of news and they trade the market ahead of it. And when their intuition proves right, rather than make money, the trader gets hit with a stinging loss when the market moves in the opposite direction of what it “should do”. When traders get the news right but lose money is when they start claiming “the market is rigged”. Sound familiar?

The mistake is thinking the market should react to the news. What we really should be focused on is the market’s reaction to the news, not the news itself. This is concept is extremely important in the current environment. Trade wars, Fed interest rates, and hints of a looming recession have may traders running scared. But paradoxically, the stock market remains stubbornly stuck near all-time highs.

If a person was only looking at the headlines, it would be easy to assume the market is well on its way into a bear market. But if we look at the market’s reaction to these headlines, we actually see the opposite. A market that is frustratingly indifferent.

If our goal is to make money, then we should be trading the market, not the news. No matter what we think of these headlines, the only thing that matters is what the market thinks. Keep that in mind when you place your next trade.

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Tags: CMU S&P 500 Nasdaq $SPY $QQQ $study

Aug 20

Putting today’s selloff in perspective

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 stumbled Tuesday, shedding 0.8%, but this selling shouldn’t come as a surprise. August has been a volatile month for stocks, and the previous two days of substantial gains left us vulnerable to a normal and routine step back. While this 0.8% loss would be significant in calmer times, it is quite a bit smaller than the gains and losses over the last few weeks, and it should be taken in that context. Noteworthy, but not alarming.

More importantly, the S&P500 finds itself near 2,900 support. This is after multiple dips under this psychologically significant level over the last few weeks. Trade tensions flared and recession fears spread over the previous few weeks, causing many investors to shift to a defensive posture. But rather than devolve into a downward spiral of selling, supply dried up under 2,900 and prices bounced. That’s because confident owners remain stubbornly confident. It is hard to trigger a waterfall selloff when so few owners are interested in selling their beloved stocks. When traders stop selling the headlines, they stop mattering. And there is a good chance that is what happened here.

This afternoon’s close pushed prices back to 2,900 support. And while this development is noteworthy and worth our attention, the longer we resist selling off, the less likely it is we will selloff. That’s because market crashes are breathtakingly quick and unravel before most people realize what happened. This “crash” is entering its third week. If this market was fragile and vulnerable, it would have crumbled weeks ago.

If the S&P 500 tumbles under 2,900 support over the next few days, we have to adopt a defensive posture, but if prices bounce back above this key level, that is our buy signal. We trade the market, not the headlines. No matter what we think is going on around us, the only opinion that matters is the market’s.

What’s a good trade worth to you?
How about avoiding a loss?
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Tags: S&P 500 Nasdaq $SPY $QQQ

Jul 10

Fear the highs or embrace them?

By Jani Ziedins | End of Day Analysis

Free After Hours-Analysis:

Find my Trading Plan at the end of this post.

Federal Reserve Chairman Jerome Powell testified in front of congress Wednesday, suggesting the Fed is ready to cut interest rates later this month in order to protect the U.S. economy against the risks of slower global growth and trade-policy uncertainty. His dovish testimony put traders in a buying mood and the S&P500 briefly poked its head above the psychologically significant 3,000 milestone. While that was great for the record books, as I’ve written previously, we are still stuck in the slower summer months and that means we don’t have the firepower necessary to fuel an explosive move higher. Instead, expect prices to move more methodically. But as long as there is more up than down, all is good.

All of the negativity that hung over the market last year has disappeared. But this is no surprise, in early June I wrote the following when traders were scrambling for cover after the S&P 500 challenged 2,800 support:

“We trade the market we are giving and so far this one keeps acting like it wants to go higher. As long as we hold 2,800 support, then we should continue giving it the benefit of doubt. Follow the market’s lead. If it doesn’t want to be bothered by the trade war, then neither should we. If prices continue recovering next week and remain above 2,800 support, Monday’s dip to 2,750 was just another buyable dip on our way higher.”

And here we are, nearly 7% higher since I wrote that.

The Fed stopped raising rates. We got a truce in the trade war. The Fed is even contemplating rate cuts. And most importantly, despite all the worry, the economy is still holding up remarkably well. Of all of the things that could have gone wrong, we avoided the worst. In fact, things actually turned out pretty well. As usual, the traders overreacted to “what ifs” and that triggered to last fall’s stock crash. But for those of us that recognize the buying opportunity, those repressed stock prices gave the opportunity to profit from the inevitable “less bad than feared”. Avoiding the worst is all it took to get us back to the highs.

Now that we’re making new highs, there isn’t any reason to stop. At least over the near-term. The headline storms are parting and this market rallied every time tensions cooled off. There is no reason to think it won’t happen this time too. That said, temper your expectations. Big money is still on vacation and that means a bigger directional move won’t happen until their deep pockets return in the fall. Until then, enjoy this gentile glide higher.

Market Mentor

It feels like I’ve said this a million times this year, but the best plan is always sticking with what is working. If this market wants to go higher, there is no reason to argue with it. The previous three days of early weakness was met with indifference. In fact, most traders were more inclined to buy the opening dip than jump aboard the selling.

Conventional wisdom tells us complacent markets are dangerous, but the thing conventional wisdom always forgets to mention is how long markets can remain complacent before they fail. This bull market will die like all of the others that came before it. But this is not that time. Until further notice, keep doing what has been working.

Trading Plan

Most Likely Next Move: The slow glide higher continues. Down days are inevitable, but as long as there is more up than down, all is good.

Trading Plan: Stick with what is working and that is buying any dip and every breakout.

If I’m Wrong: Headline fear-mongering comes roaring back. The most likely culprits are either a return of trade war escalations or the Fed disappointing by not cutting rates at their next meeting. Either of these events are still weeks away, so we don’t need to worry too much about them right now.

Highfliers

FB and AMZN are breaking above their recent highs and look great technically. NFLX is close behind but hasn’t exceeded recent highs yet. But if the broad market keeps trading well, expect NFLX to follow suit. AAPL is a little further back, but it is still performing well given the trade risks the company is faced with. GOOGL is the biggest laggard of the bunch, but that also means it has the most room to improve. It is well off its lows and seems like traders are growing immune to the anti-trust issues facing the company.

Bitcoin flirted with $13k again this morning. We’ve come a long way from the $3k lows of only a few months ago. While anything is possible with something as volatile and speculative as BTC, a little cooling off and consolidation above $10k would go a long way to refreshing the market and building a solid platform for the next move higher. $10k continues to be the line in the sand. As long as we stay above it, everything looks good. But it could be a while before we see the next explosive move higher. There is nothing to prevent a buying frenzy from pushing us through $15k tomorrow, but it is prudent to prepare for a longer wait before the next big move higher.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have profitable analysis like this delivered to your inbox every day during market hours

Follow Jani on Twitter @crackedmarket

Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AAPL $AMZN $AAPL $NFLX $GOOGL $BTC.X

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