Category Archives for "Scorecard"

Apr 06

Weekly Scorecard: A dramatic, but profitable week

By Jani Ziedins | Scorecard

Weekly Analysis and Scorecard: 

It was one hell of a week for the S&P500. Trump’s escalating trade war and the Chinese retaliations dominated headlines. At last count we ran through three rounds of tit-for-tat tariffs and subsequent retaliations. Combined both sides are looking at $300 billion in products being taxed at up to 25%. If the two largest economies battling a trade war doesn’t send a shiver through global growth, I don’t know what will.

Early in the week there was optimism this was little more than posturing ahead of far more sensible negations and compromises. By midweek the markets surged higher in relief and left Monday’s lows in the dust. But any feelings of relief were short-lived because Thursday night Trump lashed out at China’s “unfair retaliations” and tripled the size of his proposed tariffs. That sent markets into a tailspin Friday and we finished the week near the lows.

Trump promised us he didn’t want a trade war, but his actions say otherwise. What started as a complaint about Chinese policies is now threatening hundreds of thousands of American jobs and higher prices will plunder middle America’s discretionary income. If that is how Trump looks out for hard working Americans, they would probably be better off if he stopped trying to help them.

I wrote a fairly critical post Thursday evening. If Trump is your guy, then you probably won’t like it. But if you want to understand what is going on and how it affects the stock market, it is a worthwhile read.

As for next week’s outlook, expect the volatility to persist. The market was willing to give Trump the benefit of doubt and is why prices rebounded nicely in the middle of the week. But Thursday night’s betrayal will stick with traders for a while and they will be far less willing to give him a pass next time. Even though this trade war will most likely cool down over the next few weeks, don’t expect traders to chase stock prices higher anytime soon.

Weekly Scorecard

Even though it was a challenging week for the market, my analysis proved to be quite insightful and profitable.

Last week I warned subscribers:

While the market’s resilience is impressive, we could still see a little more near-term weakness before this is over. Rebounds from oversold levels are shockingly fast. Instead of rebounding higher, we seem to be drifting sideways. The market rarely gives us this long to buy the bottom and that means we might not be at the bottom yet. This is still an attractive level to buy the discounts, but any dip-buyers need to be patient and be prepared for a little more weakness.

This was the Friday before Monday’s dramatic, 2.3% plunge.

But rather than run for the hills, on Monday I told subscribers:

Most likely this [trade war] won’t amount to much over the near-term and prices will rebound once the headlines cool off. But until then, expect volatility to persist. Thing will get ugly if Trump and China turn this into a major trade war, but that is the worst case scenario and is weighing on the market today. Anything short of that will be a relief and prices will rebound. We could see further near-term weakness, but most likely this is the time to be buying, not selling.

Two days later the market was 100-points.

Tuesday’s analysis proved to be prophetic in both directions:

Trump is the biggest wild card in this. If he says the wrong thing, that could lead to another 3% down-day. If he says nothing, then prices rebound and dip-buyers make a lot of money. Without a doubt that makes this a challenging time to own stocks, but the only way to make money is by taking risks. By the time things are safe, the discounts will be gone.

That afternoon stocks exploded higher when Trump held his tongue following China’s second retaliation. For a brief moment in time traders thought the worst of the trade war headlines were behind us. And Wednesday the surge higher continued. But Thursday night Trump proved everyone wrong by tripling down on his trade war. Thursday Night I told free blog readers:

Are today’s threats simply more political posturing ahead of negotiations? I wish I knew. But the one thing I do know is the market hates uncertainty and I don’t think the stock market is going to forgive Trump as easily this time. Fool me once, shame on you. Fool me twice, shame on me. It will be interesting to see how this turns out, but this is one of those things that is better watched from the safety of the sidelines…

…I was one of those confident dip buyers and everything looked awesome this afternoon as my profits were piling up. But all of a sudden I’m not as confident anymore. I have a reasonable profit cushion, but I’m definitely less confident than I was this afternoon and I will seriously think about locking in profits tomorrow. If too many people feel the same way, Friday could be an ugly day. The only thing we can do is wait for China’s response and hope that confident owners stay that way.

On Friday the stock market actually recovered a big chunk of those overnight losses. But that was as good as it got because not long after the stocks rolled over and we didn’t stop until we fell more than 2%, erasing nearly all of the week’s prior gains. I was lucky the market opened fairly strong and I was able to lock-in profits before things got a lot worse.

Now I will be the first to admit I was a bit lucky in calling this week’s moves so well and it often isn’t this easy. But the better we understand the market, the more lucky we tend to be.

Looking ahead, even though I locked-in profits this week, Friday’s volatility is setting up another buyable dip and I will be looking to jump back in soon. The best profit opportunities come from the scariest markets. Not all that long ago people were begging for a pullback. Now that the market has answered our wishes, don’t lose your nerve.

Jani

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Nov 18

Weekly Scorecard: This flat market was obvious

By Jani Ziedins | Scorecard

Welcome to Cracked.Market’s weekly scorecard:

This post includes a summary of the week’s market developments, links to the free posts I published, and analysis on how accurate each post was since I wrote it. 

Weekly Analysis

This was another do-nothing week for the S&P500. It was the fourth weekly move of less than a quarter percent and the cumulative gain over the last 28-days totaled a measly 0.14%.

A month ago I warned readers the rate of gains could not continue and that is exactly what happened. Everyone knows the market moves in waves, unfortunately most forget this in the heat of battle. Four weeks ago shorts were desperate to get out of the market and those in cash felt pressured to chase. Since then we’ve done a lot of nothing.

Even though the market held up reasonably well, too often traders focus on what happened instead of what could have been. Holding 28-days of risk netted owners less than four S&P500 points. No matter what a person’s risk tolerance, this is an absolutely appalling reward for nearly a month of risk. I only want to own stocks when I’m getting paid and by that measure this was a lousy time to own stocks.

And it’s not just the risk of the unknown we have to worry about. Even though the market was flat, there have been several gyrations along the way. Traders that failed to realize we were in a flat market were tricked into ill-timed trades as they bought strength and sold the subsequent weakness. Flat markets are notorious for seducing reactive traders into buying high and selling low. The market was flat over the last several weeks, unfortunately quite a few traders were fooled into giving money away.

Markets move in waves and the rebound from the August lows has finally paused and started consolidating. This is a normal and healthy part of moving higher. Sometimes we pullback to support, other times we refresh by trading sideways for an extended period of time. If this market was fragile and vulnerable, we would have crashed by now. Confident owners are keeping a floor under prices by refusing to sell every bearish headline and any negative price-action. Holding near the highs is encouraging, but sideways consolidations refresh by boring traders out of the market and is a long, drawn-out process. If we don’t dip, then we are only halfway through a flat basing pattern and we should expect to remain range bound over the near-term. Don’t forget range bound includes dipping and surging to the edges of the trading range. Rather than be fooled into buying the breakout or selling the breakdown, trade against these moves by selling strength a buying weakness.

In the big picture the market continues to hinge on the outcome of Tax Reform. We will be lucky if Congress agrees to something by yearend. Until then expect the market to trade flat. Confident owners refuse to sell and those with cash have no interest in chasing prices higher. Until something changes, expect more of the same.

November 16th: Don’t let this market trick you into poorly timed trades

Unfortunately demand near the highs continues to be a problem. While confident owners don’t care about the headlines, prospective buyers with cash do. Valuations are stretched and most would-be buyers want more clarity before they are willing to chase prices even higher. Little selling and little buying means we will remain range bound over the near-term.

Score 10/10: Thursday’s surge of buying was met with Friday’s dip. There is zero reason to chase this market higher and only reactive traders are scrambling to buy these temporary moves. This is a flat market and we need to treat it as such.

November 14th: What to expect over the near-term

If this market was going to pullback to 2,500 support, it would have happened by now. There have been more than enough reasons for owners to dump stocks. But their stubborn confidence is keeping supply tight and putting a floor under prices. This means the most likely outcome is an extended trading range as the Tax debate drags on.

Score 10/10: The market tried to breakdown in the first half of the week, but only reactive traders sold the weakness. Everyone else held their stocks and prices rebounded on tight supply. In flat markets we trade against the market’s moves to the edges of the range. The best trade was buying this weakness, not selling it.

November 9th: What Thursday’s choppy trade tells us

Previously I was wary of a dip back to support, but the market has held near the highs amazingly well. If we were vulnerable to a pullback, it would have happened by now. That said, this is still a challenging place to own stocks. Volatility will continue to haunt us over the near-term as traders reconcile the flurry of encouraging and disappointing Tax Reform headlines. The rate of gains is definitely slowing down and traders trying to sit through this sideways stretch better buckle in.

Score 10/10: November 9th’s dip was dramatic and no doubt convinced a lot of reactive traders to sell, but like every other recent gyration, prices reversed within hours. This is a flat market and every trader reacting to these moves is getting humiliated.

November 7th: Finding the right risk/reward

Everyone knows the market moves in waves. Unfortunately most forget that just as the latest wave is cresting. While I’m not calling a top here, I know we’ve done a lot of up without much down. The last meaningful dip was nearly three months ago. The next one is coming, the only thing we don’t know is if it will happen this week, next week, or next month. But with each passing day, it is closer than it has ever been.

 

Anyone can get lucky and make money on a single trade. But success over the long-term depends on buying when the risks and rewards are in our favor. Given how small the near-term upside is and how much air there is underneath us, it is hard to claim buying at these levels presents a trader with a good risk/reward. Long-term investors should ignore the noise and stick with their favorite stocks, but short-term traders should wait for a better risk/reward.

Score 10/10: I don’t call tops, but this analysis came within 24-hours of the latest top. Over the next two-weeks we tumbled to the lower end of the trading range. Predicting the market isn’t hard because it keeps doing the same thing over and over.

October 26th: It won’t be pretty and it won’t be fast

Expect the hope of Tax Reform to give way to despair over political infighting. There is a good chance Republicans will pass something…..eventually. But it definitely won’t be as grand as many are hoping for. In the meantime, expect the stock market to give back a chunk of recent gains as it consolidates and allows the 50dma to catch up. This is definitely a better place to be taking profits than adding new money.

Score 10/10: A month ago I said the upside was limited and that is exactly what happened. A trader who took profits last month could have relaxed and enjoyed life from comfort from the sidelines instead of having to worry if every breakdown was the start of something bigger. It is almost always better to sell when we don’t want to than wait for the market scares us out. Trade proactively, not reactively.

Cracked.Market University

Excerpts from my educational series. Click the title to read the full post. Sign-up for Free Email Alerts to be notified when news posts are published.

CMU: Either you sell too early, or you hold too long.

All of us come to the market with unique insights and experiences. These allow us to see opportunities others miss and is the basis for our best trades. But all too often we fail to capitalize on our best ideas because we botch the second half of the trade, taking profits. There are few things more frustrating than selling a large move too early, or holding too long and allowing those hard-earned profits to evaporate.

CMU: Why experienced traders don’t brag

Spend any time on trading social media and a person is bound to come across braggarts. Traders who are so supremely confident in their prowess they feel compelled to harass everyone who disagrees with them. While their partisan views are obnoxious, the thing to keep in mind is almost all of these braggarts are novices. Veteran traders have been humbled by the market far too many times to be so bold about their winning positions.

CMU: Timing is everything

In trading, timeframe is the only thing that matters. Your profit and loss is determined entirely by when you buy and when you sell. End of story. Good timing on a bad idea results in a profitable trade. Bad timing on a great idea ends in tears. If the bull is a swing trader, he could be totally right that the stock is poised for another breakout, but the bear could also be right that the longer-term demand for a company’s products is deteriorating and it will only be time before it shows up in the earnings. In this example the Bull hauls in a nice profit this week and the Bear’s trade reaps big profits next quarter.

Knowing what the market is going to do is the easy part. Getting the timing right is where all the money is made. Have insightful analysis like this delivered to your inbox every day during market hours while there is still time to act on it. Sign up for a free two-week trial.

Have a great weekend and I hope to see you again next week.

Jani

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Oct 22

Weekly Scorecard: History is not on the Bull’s side

By Jani Ziedins | Scorecard

Welcome to Cracked.Market’s weekly scorecard:

This post includes a summary of the week’s market developments, links to the free posts I published, and analysis on how accurate each post was since I wrote it. 

Weekly Analysis

It was another strong week for the S&P500. This was the sixth consecutive weekly gain and the eighth out of the last nine. For historical perspective, only one other stretch since Trump’s election strung together six up-weeks. Unfortunately the next week started a 70-point pullback. The question on everyone’s mind is, “How many more weeks can this keep going?”

The attached chart shows the market’s waves over the last 12-months. Five periods of up followed by sideways and/or down. When prices dipped to the 50dma, the consolidation tended to be brief. The times we didn’t dip, the market traded sideways until the moving average caught up before staging the next leg higher.

Currently we are approximately 80-points above the 50dma. Early in the rally we found ourselves as high as 100-points above the 50dma before peaking. Other times we stalled 40-points above the 50dma.  80-points is definitely on the higher end of the range, but not the most extreme and it is possible we could go a little higher. But it would break precedent if we went a lot higher.

Bulls are definitely getting cocky and my last few posts generated a fair bit of criticism when I suggested this was a better place to be taking profits than adding new positions. But this is actually a good thing and I find their criticism reassuring because I get nervous when too many people agree with me. Without a doubt momentum can keep this rally going for a few more days or weeks, but history tells us we are definitely close to the end of this ride. Famous last words often start with, “This time is different.”

And to be clear, I’m not bearish nor am I predicting a crash. The 50dma is a little too far away and we either need to pause and let it catch up, or we dip back down to it. Nothing more, nothing less.

October 19th: Why smart money will sell the Senate’s budget

If anyone believes our leaders will have constructive dialogues, quickly arrive at consensus, and pass a great Tax Reform Bill clearly isn’t paying attention. Politics is messy and I have no doubt Tax Reform will stumble countless times before it has a chance of passing.

 

There are two key rules every politician learns when they get to Washington:
A) Throw a fit until you get what you want.
B) If you don’t get what you want, blow everything up.

 

That is how Healthcare Reform went down and if anyone thinks Tax Reform will be any different, there is a medical term for that, it’s called insanity.

 

There are several opposing forces in the Republican party that will make any compromise difficult. First are the pro-business Republicans who want aggressive business tax cuts to stimulate growth. Second are the fiscal conservatives who bristle at the thought of adding to the deficit. And third are the moderates who want to see most of the tax cuts benefit the middle class. Three very different factions whose ideas are in direct conflict with each other. Without a doubt we will see someone throw a fit and refuse to support the first draft of the bill. Get three of those someones and the whole thing goes down in flames.

 

There is a good chance a compromise will eventually be reached, but politics is ugly and most likely this process will teeter on the verge of collapse moments before it is salvaged at the last possible second. Expect a lot of bad news between now and then.

Score To Be Determined: We won’t know how accurate this analysis is for several weeks, but I haven’t seen Congress pass meaningful legislation without relentless bickering and infighting. And that is a normal Congress. This group of Republicans is even more fractured and divided than normal. I would be shocked if Tax Reform progresses smoothly and we should be prepared for the volatility this heated debate will trigger.

October 17th: Why bulls need to be careful

For those of us that are paying attention, this looks a lot like a lethargic wedge higher and suggests this market is running out of gas, not on the verge of exploding higher. Explosive moves are by definition explosive. A tiny trigger blossoms into in a much larger move. Sometimes it is an unexpected headline, other times a technical breakout. But something triggers a surge of buying and away we go.

 

Unfortunately this wedge higher is the opposite of explosive. We keep getting good news. Today the Trump administration said they wouldn’t put conditions on repatriated profits and companies could use their newly liberated cash for dividends and buybacks. More cash in shareholders’ pockets is always a good thing. Then there was the technical the breakout as we moved into record territory. The cumulative result of both of these bullish developments, a measly 0.07% gain. Something so small it doesn’t even qualify as a rounding error.

 

Every day bulls are trying to push us higher, but the gains are getting smaller and smaller. That reeks of exhaustion, not unbridled potential. Without a doubt it is encouraging we managed to hold recent gains. Typically markets tumble from unsustainable levels quickly. This strength comes from owners who are confidently holding for higher prices and few are taking profits. Their conviction keeps supply tight and props up prices. Unfortunately propping appears to be the best bulls can manage. We need new buyers to keep this rally going and right now those with cash are reluctant to chase prices any higher.

Score 7/10: The market popped 0.5% Friday following the Senate passing a budget. By itself this event doesn’t mean a lot, but it brings us one step closer to Tax Reform. I still believe this will be a bumpy road, but any progress is good. The market is up 15-points from when I wrote this post so I docked myself a few points, but I still think the analysis is valid. The true test will come next week when we either extend Friday’s gains, or that breakout fizzles and we slip back to 2,550. Most likely prices fizzle, but there is a chance a frenzy of buying sends us dramatically higher. But the higher we go without consolidating gains, the harder we fall when it finally happens.

Cracked.Market University

Excerpts from my educational series. Click the title to read the full post. Signup for Free Email Alerts to be notified when news posts are published.

CMU: Why most traders screw up counter-trend trades

Counter-trend trades are one of the hardest ways to make money.That’s because traders fight an uphill battle and their timing needs to be flawless, otherwise they get run over. Despite these overwhelming odds, all too often traders cannot resist the temptation to argue with the market. In this post I will help you understand why counter-trend trading is so difficult, when it is okay to go against the trend, and the risks you face when doing it. Knowledge is power and the more you know going in, the better chances you have of coming out the other side alive, and maybe even with a little extra money in your pocket.

CMU: Are You a Victim of Beginner’s Luck?

Unfortunately beginner’s luck is not sustainable and all too often trader’s mistakenly believe their early good fortune was due to skill, not luck. Rather than dig in and learn from more experienced traders, they assume they have this game figured out and don’t need any help. Their early success convinced them they already know everything they need to know. Only after they lose their first stake do they start looking for outside guidance.

 

If you are reading this, most likely you experienced some early success and that encouraged you to keep at it. But now things have gotten harder and losses are more common than profits. While it hurts, realizing trading is not easy is actually a good thing. And if you figured this out early, count yourself lucky. Traders who experiences too much early success keep upping the size of their trades until inevitable fall goes from emotionally demoralizing, to financially ruinous.

Knowing what the market is going to do is the easy part. Getting the timing right is where all the money is made. Have insightful analysis like this delivered to your inbox every day during market hours while there is still time to act on it. Sign up for a free two-week trial.

Have a great weekend and I hope to see you again next week.

Jani

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Oct 06

Weekly Scorecard: Tread lightly

By Jani Ziedins | Scorecard

Welcome to Cracked.Market’s weekly scorecard:

This post includes a summary of the week’s market developments, links to the free posts I published, and analysis on how accurate each post was since I wrote it. 

Weekly Analysis

The S&P500 surged to record highs this week, breaking through 2,550 in Thursday’s trade. But the first employment losses in seven-years dampened the mood on Friday, giving us the first down day in nearly two-weeks.

As good as things feel, we must remember markets cannot go up every day. Thursday’s gains were the eighth in a row and sixteenth out of the last nineteen. A down day was inevitable, the question is if Friday’s 0.1% dip is enough to refresh the market and set the stage for a continuation higher.

A big chunk of this week’s enthusiasm stemmed from Republicans making progress toward tax reform. That was enough to put people in a buying mood and the early strength triggered a wave of reactive breakout buying and short-covering.

The thing we have to be careful of is Republicans are still in the brainstorming phase of crafting this bill. Next they need to figure out what compromises are required to make this thing work. That is where things get difficult. Healthcare reform went well….until it didn’t. There is a good chance the same will happen here and this week’s optimism could easily turn into next week’s pessimism.

At this point I don’t think there is a lot of upside left in this move. The only question is if we pullback to support, or we consolidate recent gains by trading sideways. There is no reason to sell long-term positions to avoid a near-term dip. Shorter-term traders should be thinking about taking profits. And those with cash should resist the temptation to chase prices higher. That said, the path of least resistance is still higher and every dip is buyable.

October 3rd: Is it finally safe to buy?

Without a doubt the path of least resistance is higher, but we know markets don’t move in straight lines. We need to mix in a few down days to keep this market healthy and sustainable. When a red-day happens, don’t freak out and start calling a top. If this market was going to crash, it would have happened weeks ago when headlines and sentiment were far more dire. Instead, expect the rate of gains to slow and for the market to spend a few weeks consolidating recent gains. We can keep going up for a few more days, but the higher we go, the harder we fall during the normal and healthy down wave. But either way, this is definitely a better place to be taking profits than adding new positions. Buy-and-hold investors can keep holding, but traders with profits should start thinking about locking them in, and those with cash should resist the temptation to chase.

Score 8/10: I knew momentum could carry us higher over the next few days and that is what happened. But this is still a better place to be taking profits than buying new positions. I docked myself a couple of points because we still don’t know how this trade will turn out. If the surge higher fizzles next week, then I can boost my score. If we keep surging higher, then I will take off a few points. The important thing to keep in mind is I am not calling a top, just saying the risk/reward has shifted against us. The upside remaining above us is far less than the downside below us.

October 5th: What smart money is doing here

To be brutally honest, only and idiot would buy the eighth consecutive up-day and seventeenth out of the last twenty. As I wrote in yesterday’s free educational piece, everyone knows markets move in waves, unfortunately most forget that fact when planning their next trade. Just as I knew August’s selloff was unsustainable, I also know this surge higher is not sustainable.

Over the last two-weeks the market has been wedging higher. This is the least sustainable price pattern. The shape is formed by desperate breakout buying and short-covering. Two of the most powerful, but least sustainable forces in the market. Once these smaller groups run out of money, most of the time there is no one left to fill the void. Big money hates chasing prices higher and almost always waits for a dip. In a self-fulfilling prophecy, big money’s reluctance to chase prices creates the lack of demand that causes prices to dip.

Without a doubt we can coast higher for a few more days, but dips are a normal and healthy part of every move higher. Without periodic pullbacks, foundations are weak and prone to failure. The higher we go over the near term, the harder we fall. I am in no way predicting a market crash and I still believe in this bull market, but I know what sustainable rallies look like and this is not it. At best we trade sideways for several weeks and consolidate recent gains. Worst case is we test 2,500 support and even dip a little under it. While not a big deal for most of us, that will be a painful ride or anyone who bought these record highs.

Score 8/10: Friday was technically a down day, but 0.1% really doesn’t count following such a large rally. The lack of profit-taking tells us most owners are confidently holding for higher prices. That keeps supply tight, but supply is only half the equation. Big money tends to fear heights and their lack of buying could cause us to drift lower. But don’t expect us to fall too far. There are a lot of managers desperate to get in this market and they buy any and all dips. It is still a little early to score this week’s analysis and next week’s trade will be a lot more insightful.

Cracked.Market University

Excerpts from my new educational series. Click the title to read the full post. Signup for Free Email Alerts to be notified when news posts are published.

CMU: The obvious trade everyone screws up

The problem is most traders convince themselves every move higher or lower will continue indefinitely. When the move goes the direction of their bias, their confidence swells as the market’s price-action confirms their ideas. This confidence causes them to rush headfirst into a big position before they miss the trade they have been waiting for. Unfortunately most of the time their confidence doesn’t come until the market has already made a sizable move in the direction of their bias. In the bull’s case, when the market is making a higher-high. The problem is confidence is highest just as the last of the buyers are rushing into the market and prices are about to slip back into the trading range.

When a new trade falls into the red so quickly, confidence is shattered and replaced by uncertainty and fear. Traders initially convince themselves they can hold through a brief pullback because they are still believe they are right. When that doesn’t happen, doubt grows until vulnerable traders bail out because the pain of regret grows too strong. This selling pressures prices further, causing more nervous owners to sell, further pressuring prices. The downward spiral continues until we exhaust the supply of nervous sellers. Unfortunately for these reactive sellers, prices rebound not long after they bailout.

Knowing what the market is going to do is the easy part. Getting the timing right is where all the money is made. Have insightful analysis like this delivered to your inbox every day during market hours while there is still time to act on it. Sign up for a free two-week trial.

Have a great weekend and I hope to see you again next week.

Jani

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If you want to be notified when new posts are published, sign up for Free Email Alerts. 

Oct 01

Monthly Scorecard: Cracked.Market blog hits a grandslam in September

By Jani Ziedins | Scorecard

Welcome to Cracked.Market’s Monthly Scorecard:

This post includes a summary of last month’s market developments, links to several key blog posts, and critical analysis of the accuracy of each post. 

Part 1: Monthly Analysis

September is historically the second worst month for stocks, just barely beating October’s abysmal performance. Unfortunately anyone who used that historical track record as an excuse to skip September missed an impressive surge to all-time highs. Who would have guessed using the rearview mirror to figure out where the market is headed is a bad idea?

All too often traders fall for these statistical anomalies, a bad habit often perpetuated by the financial medial that loves repeating these nearly useless facts. “Sell in May and go away”, “October is the worst month for stocks”, “This is the longest we’ve gone without a 3% pullback since 1928”, etcetera, etcetera, etcetera. These facts are little more than trivia and just as useless as knowing how many movies one actor was in with another actor. You can impress your friends with these facts, but they are of little practical value when it comes to timing trades.

No doubt there are quirks to the calendar that makes some of these statistical anomalies pop up, such as options expiration, end of quarters, and calendar years. But the thing to remember about these patterns is they are far weaker than current events and price-action.

This September’s price-action was dominated by a decisive rebound from August’s North Korean pullback. This relief rally was far more powerful than September’s traditional seasonal weakness. What happened yesterday, last week, and last month is always far more significant than what happened last year, last decade, and last century.

Looking ahead to October, the recent dip and churn in ownership created a strong foundation to build on. Volume returned in September as big money came back from vacation. Rather than lock-in profits, big money is more inclined to buy these highs. If this market was fragile and vulnerable, we would have plummeted weeks ago. This is a strong market and I expect it to only get stronger as underweight money managers give up waiting for a dip and start chasing prices higher into year-end.

In the next section I analyze all eight of my free blog posts from September.
How do you think I did? Tell me in the comments.

Click the title to read the full post.

Part 2: Scorecard

Tuesday September 5th: 
Why this selloff is no different

[Is] the rebound really dead? Three things tell us not to be so hasty.

 

First the late-day rebound put us back above key support. The 50 day moving average was a ceiling for most of the last few weeks. But overhead resistance often turns into support after we break through. Today’s late recovery suggests that is the case here. Rather than spiral out of control, supply dried up when we tested this key support level.

 

Second, volume was one of the highest days we’ve seen in recent weeks. All the other sharp down-days also included elevated volume. But rather than portend of worse things to come, these high-volume days were capitulation and we rebounded within a day or two.

 

Third, all of these headlines are recycled. There is nothing new here. If one of these stories was going to take us down, it would have happened already. Selloffs are breathtakingly fast. Hesitate for a moment and it is too late. Sell first and ask questions later is the first rule of surviving a crash. But this North Korea selloff is going into its fourth week. The market never gives us this much time to think rationally and act calmly before a punishing selloff.

Score 10/10: September 5th’s weakness was the lowest point in all of September and we rebounded decisively for the remainder of the month. The 5th’s dip was nothing more than one last head fake before humiliating every reactive seller during its surge to record highs.

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Scorecard

Thursday September 7th:
A warning for Bears

For nearly a month this market has withstood one bearish headline after another. We slipped under the 50dma for a brief period. All of this selling cleared out most owners who could be convinced to sell. Now all that is left is people who don’t care about these headlines. No matter what people think “should” happen, when there is no one left to sell a headline, it stops mattering.

 

This is an important thing for bears and most especially shorts to understand. You have been given a golden gift in this relentless barrage of negative headlines. There has been more than enough to cripple a vulnerable market. But the thing to keep in mind is selloffs are breathtakingly quick. Sell first and ask questions later is the only way to survive a market crash. Yet here we stand nearly a month into this “selloff”. If we were going to crash, it would have happened by now. If this relentless barrage of headlines couldn’t scare owners into selling, I don’t know what it will take.

 

Anyone who is still short this market is probably only a little in the red. Rather than hope and pray for the selloff that isn’t happening, a smart trader admits defeat and takes his losses while they are small. This bearish trade has been given every opportunity to work, but this simply isn’t the right environment to be short. Be proactive and close a trade that isn’t working when the losses are small, rather than wait until the pain of losing money gets so strong it forces you out.

Score 10/10: What else is there to say? I told bears to close their shorts for a small loss before things got worse. I doubt many listened, but they had every opportunity to save themselves a big chunk of money. The key to surviving the market over the long haul is recognizing when you are wrong long before the pain of loss forces you out. Once you get good at this, some of my bad trades were actually closed for a profit because I recognized my mistake before prices turned against me.

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Scorecard

Tuesday September 12th:
Why bears got it wrong


There is no magic to this. Basic market psychology and supply and demand told us the path of least resistance was still higher. In early August we tumbled when Trump and North Korea fell into a war of words that quickly escalated into North Korean missile and nuclear bomb tests. Then the Trump administration endured a rash of turnover in its senior ranks and at the same time exchanged barbs with senior Republican leaders. And finally two hurricanes did their best to pummel the Gulf Coast. Any one of those things would have crushed a vulnerable market. Put them all together and it creates a storm only the strongest market could endure. Yet that is exactly what we did.

Score 10/10: A market that refuses to go down will eventually go up. The writing was on the wall all month long. I hope you saw it.

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Scorecard

Thursday September 14th:
North Korea still doesn’t matter


But just as things were starting to look good, North Korea launched another missile over Japan after Thursday’s close. Fortunately the stock market is reacting less and less to each successive provocation. In after-hours trade the S&P500 only dipped 0.2%. That’s because stock owners who fear this story sold weeks ago. These nervous owners were replaced by confident dip-buyers who demonstrated a willingness to hold these headlines. If there is no one left to sell the news, it stops mattering.

 

Once we traverse this latest North Korean speed bump, expect the slow drift higher to continue. Confident owners don’t want to sell no matter what the headlines say and their conviction is keeping supply tight. Conventional wisdom warns us about complacent markets, but what it often forgets to mention is these periods of complacency last far longer than anyone expects.

 

Few things calm nerves like a rising market. Expect these steady gains to shift the focus from fear of a crash to being afraid of being left behind. Recent sellers and underweight money managers will start realizing the dip they predicted isn’t going to happen and they will be forced to start chasing prices higher. Last week’s seller will be next week’s buyer. And that’s how the slow grind higher will continue.

Score 10/10: Hopefully you are starting to see a trend develop here. Hindsight is 20/20 and this analysis seems obvious now. Luckily for those who were paying attention and knew what to look for, it was painfully obvious as it was happening too.

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Scorecard

Tuesday September 19th:
Stick with this Bull


As we saw today, the North Korean rhetoric no longer matters to the market and we can safely ignore it. Next item coming up is the Fed’s policy statement on Wednesday. Consensus is the Fed will start winding down its balance sheet. This is an anti-stimulus move, but the market is largely ready for it. Yellen and the Fed have done a great job telegraphing their moves to minimize disrupting financial markets. While we should expect a brief bout of volatility, it’s been years since a Fed decision affected the market in a significant and lasting way. I don’t expect tomorrow to be any different.

Score 10/10: North Korea and the Fed couldn’t dent this rally, but readers of this blog already knew that.

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Scorecard

Thursday September 21th:
Don’t fear a routine and healthy dip


On Thursday the S&P500 experienced the largest drop in over two-weeks. As dramatic as that sounds, we only lost 0.3% in a relatively benign pullback to support. This was the lowest volume day this month and the first time trade has been below average since August.

 

As far as pullbacks go, this one was as mild as they get. There are two ways to interpret this. Either this dip was the best bears could manage in such a resilient and strong bull market. Or these are the first cracks in what is about to become a larger selloff.

 

If a person thinks a bull market needs to go up every single day, they should be worried about this price-action. For the rest of us, we know markets moves in waves and down days are a normal and healthy part of moving higher. Prior to today the S&P500 was up seven out of the last eight days and a routine down day was long overdue.

Score 10/10: A little dip after a long string of up-days was nothing more than catching our breath on our way higher.

Scorecard

Tuesday September 26th:
Why smart traders ignore today’s price-action

Tuesday September 26th: Why smart traders ignore today’s price-action

In a directional market, a late fizzle like this would be a big red flag. It warns us there is no follow through and support is crumbling. But this isn’t a directional market and traditional trading signals don’t apply.

 

We have been stuck in a predominantly sideways market most of this year and every breakout and breakdown has been a false alarm. Anyone who failed to realize this has been making the exact wrong trade at the exact wrong moment. Buying the breakout just before it fizzles and selling the breakdown just before it rebounds.

 

…ignore today’s late fizzle because it is meaningless. Just like last week’s breakout didn’t mean anything, and the fizzle before that. We are stuck in a market that refuses to go down nearly as much as it refuses to go up. Don’t fall for these tricks by reading too much into this meaningless price-action.

 

While we are in a mostly sideways market, the path of least resistance is definitely higher. Headlines have been resoundingly bearish over the last several weeks and the market has flatly refused to breakdown. If this market was fragile and vulnerable to a crash, it would have happened weeks ago. The fact we withstood wave after wave of bearish headlines means this market is far more resilient than most people realize. A market that refuses to go down will eventually go up.

Score 10/10: September’s bearish looking fizzle turned out to be nothing, exactly as I expected. One of the most important things about trading is knowing what rules to use when, and when to ignore those rules.

Scorecard

Thursday September 28th:
The bull that refuses to die


Earlier in the week we dipped under support, but rather than sell this technical violation, many traders rushed in to buy the dip. Ignore what the bears are saying, this market is healthy and poised to continue higher. August’s basing pattern refreshed the market by chasing off weak owners and replacing them with confident dip buyers. Given how long we have been holding near the highs tells us few owners are taking profits and most are confidently waiting for higher prices. As long as confident owners keep supply tight, expect the drift higher to continue.

 

August’s 2% pullback was quick and shallow. The market likes symmetry and as a result the subsequent rebound has also been equally unspectacular. There is nothing wrong with that, but it also isn’t a surprise or a concern how slow the breakout has been. Recent sellers are still nervous and it will take a little longer before they conceded selling last month was a mistake and buy back in. But few things calm nerves like rising prices and soon the fear of losses will be replaced by fear of being left behind.

Score 10/10: The next day we surged to record highs and September ended on a strong note. If big money was going to take profits, we would have seen that selling show up in the price-action. Expect October to be another good month for stocks and keep buying the dips.

Knowing what the market is going to do is the easy part. Getting the timing right is where all the money is made. Have insightful analysis like this delivered to your inbox every day during market hours while there is still time to act on it. Sign up for a free two-week trial.

Have a great weekend and I hope to see you again next week.

Jani

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Sep 29

Weekly Scorecard: Why this breakout was inevitable

By Jani Ziedins | Scorecard

Welcome to Cracked.Market’s weekly scorecard:

This post includes a summary of the week’s market developments, links to the free posts I published, and analysis on how accurate each post was since I wrote it. 

Weekly Analysis

This week’s theme was “no news is good news”. After several weeks of dire headlines, this week produced very little on the news front. That reprieve from bad news was all this market needed to surge to record highs. As I’ve been saying since early August, a market that refuses to go down will eventually go up. This proved to be the week we’ve been patiently waiting for.

This is a mild breakout as far as breakouts go, but there is nothing wrong with that. The market likes symmetry and last month’s 2% pullback was modest. As a result we should expect an equally modest rebound. This is a healthy market and there is nothing wrong or unusual with these slow and methodical gains.

Few things calm nerves like rising prices. Many of last month’s sellers are quickly going from fear of a crash to fear of being left behind. Underweight money managers are who were waiting for a bigger pullback are starting face the possibility it isn’t going to happen. If this market was vulnerable and fragile, last month’s headlines would have sent us tumbling. Standing strong through both the figurative and two literal storms tells us the path of least resistance remains higher. Gains will continue to be slow and choppy over the near-term, but expect the pace of gains to pick up later in the year as big money starts chasing performance into year-end.

Tuesday September 26th: Why smart traders ignore today’s price-action

In a directional market, a late fizzle like this would be a big red flag. It warns us there is no follow through and support is crumbling. But this isn’t a directional market and traditional trading signals don’t apply.

We have been stuck in a predominantly sideways market most of this year and every breakout and breakdown has been a false alarm. Anyone who failed to realize this has been making the exact wrong trade at the exact wrong moment. Buying the breakout just before it fizzles and selling the breakdown just before it rebounds.

Unfortunately the market fools traders with these tricks far more often than people are willing to admit. That’s because it is nearly impossible to come to the market without a bullish or bearish bias. Many traders cognitively know the market trades sideways 60% of the time, but in the moment they always think prices are either about to take off, or on the verge of collapse.

Score 10/10: In a more typical market, Tuesday’s weak close would have been big red flag and an attractive entry for a short trade. But this isn’t a typical market and we must ignore traditional trading signals. Just as I suspected, Tuesday’s weak close was nothing more than a false alarm and the next four trading sessions saw us charge to record highs.

Thursday September 28th: The bull that refuses to die

Volumes have been average or above since Labor Day. Big money finally returned from vacation and is getting back to work. It is encouraging to see they are more inclined to buy this strength than sell it. Fragile and vulnerable markets tumble quickly. Sticking near the psychologically significant 2,500 level for nearly three-weeks tells us the foundation under our feet is solid.

Earlier in the week we dipped under support, but rather than sell this technical violation, many traders rushed in to buy the dip. Ignore what the bears are saying, this market is healthy and poised to continue higher. August’s basing pattern refreshed the market by chasing off weak owners and replacing them with confident dip buyers. Given how long we have been holding near the highs tells us few owners are taking profits and most are confidently waiting for higher prices. As long as confident owners keep supply tight, expect the drift higher to continue.

Score 10/10: Big money is buying this market, not taking profits. The path of least resistance remains higher and Friday’s surge into record territory confirms it. Without a doubt this market wants to go higher and it is running over anyone who doubts it.

Cracked.Market University:

I started a new educational series and will publish new articles each Monday and Wednesday. Sign up for Free Email Alerts to be notified when new articles are published.

I included a brief quote from each educational piece below. Click on the headline to read the entire article. And don’t forget to come back for next week’s new educational pieces.

The most powerful technique for analyzing the market

Traders often predict the outcome of a market moving event correctly, unfortunately they are not as good at figuring out the market’s reaction. This leads to the popular misconception the market is “fixed” and “rigged”. This couldn’t be further from the truth and I will cover this fallacy in another blog post. In the meantime just take my word for it the market is an equal opportunity humiliator and does a fair and equitable job screwing over both retail and institutional investors. When you lose money, it isn’t because some cunning market villain stole your money, it’s because your analysis is missing key ingredients.

In my two decades of trading, far and away the most effective tool I use in identifying market’s next move is studying what it is NOT doing. Almost everyone obsesses over what the market is doing and tries to to fit these moves into their narratives, whether that is fundamental, technical, or a hybrid of the two.

Why popular investing strategies don’t work

Every popular investing strategy stops working once too many people start using it because the crowd quickly distorts the price-action that made it work in the first place. They sucks up all the profit potential and it is hardly worth the effort. Or the crowd triggers fake breakouts that suck everyone in and then spit them out with less money than they started with.

Knowing what the market is going to do is the easy part. Getting the timing right is where all the money is made. Have insightful analysis like this delivered to your inbox every day during market hours while there is still time to act on it. Sign up for a free two-week trial.

Have a great weekend and I hope to see you again next week.

Jani

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Sep 22

Weekly Scorecard: North Korea still doesn’t matter

By Jani Ziedins | Scorecard

Welcome to Cracked.Market’s weekly scorecard:

This post includes a summary of the week’s market developments, links to the free posts I published, and analysis on how accurate each post was since I wrote it. 

Weekly Analysis:

Tensions with North Korea flared up again as Trump threatened to “Totally Destroy” North Korea in a speech to the U.N. and North Korea retaliated by threatening to test a nuclear bomb in the Pacific Ocean. Last month headlines like these sent the market tumbling 1.5%. This month the market barely flinches.

News gets priced in over time. That’s because owners who are afraid of these headlines sold weeks ago and were replaced by confident dip-buyers who demonstrated a willingness to hold these risks. Since everyone who is afraid of North Korea already bailed out, there is no one left to sell this latest round of headlines. When no one sells the news, it stops mattering and that is exactly what happened here.

The other significant development was the Fed announced it would start winding down its bond portfolio and they left the door open to a third rate-hike later this year. While both of these developments are potentially bearish, the market expected these policy decisions and they didn’t move the market. It’s been years since a Fed decision moved prices in a meaningful and sustainable way and this time was no different.

The market’s price-action has been incredibly resilient given the headline uncertainty. A market that refuses to go down will eventually go up. Keep doing what has been working and that is sticking with this bull market.

Read my daily posts for deeper insights and analysis on these topics and more.

Tuesday Sept 19th: Stick with this Bull

“As we saw today, the North Korean rhetoric no longer matters to the market and we can safely ignore it. Next item coming up is the Fed’s policy statement on Wednesday. Consensus is the Fed will start winding down its balance sheet. This is an anti-stimulus move, but the market is largely ready for it. Yellen and the Fed have done a great job telegraphing their moves to minimize disrupting financial markets. While we should expect a brief bout of volatility, it’s been years since a Fed decision affecting the market in a significant and lasting way. I don’t expect tomorrow to be any different.”

Score 10/10: This analysis was spot on. North Korean headlines failed to ignite a selloff and the market barely moved after the Fed announced exactly what everyone thought they would. Read the entire post for more insights into why the market reacted to these events the way it did.

Thursday Sept 21st: Don’t fear a routine and healthy dip

“If we are expecting the market to collapse on bad news, Thursday’s “news-less” day definitely won’t cut it. This market withstood a nearly constant barrage of negative headlines over the last month and barely sold off two-percent. If those headlines couldn’t break us, there is definitely nothing in the current news cycle that tops ballistic missile launches, nuclear bomb tests, and back-to-back hurricanes. That resilience means we can safely cross news-fueled selloff from the list of vulnerabilities. If this market was going to crash on bad news, it would have happened weeks ago.”

“As I write this, overnight futures slipped on Asian weakness. But as I said above, testing support is a normal and healthy part of moving higher. There is nothing to worry about if we dip under 2,500 support. A wave of selling might hit us as recent buyers’ stop-losses are triggered. But that selling will quickly dry up like it has every other time this year. Confident owners didn’t sell far more dire headlines last month and there is no reason to think they will start bailing out now. Confident owners keep supply tight and prop up prices. That has been happening all year-long and there is no reason to think something has changed here.”

Score 10/10: This analysis from Thursday night perfectly described Friday’s price-action. Predicting what the market will do isn’t hard if you take your time to thoughtfully think about what is happening and resist the temptation to join the crowd’s overreactions.

Cracked.Market University: Contrarian Investing: Why most people screw it up

I started a new educational series and will publish new articles each Monday and Wednesday. Sign up for Free Email Alerts to be notified when new articles are published.

“All too often people mistakenly think they are contrarian investors when all they are doing is arguing with the market. If a price is going up, they sell it. If the market is going down, they buy it. At this point many of you are scratching your head because that sounds exactly like what I described in Part 1. Isn’t it?

“Nope, not even close. Don’t feel bad, this is an easy to mistake to make and it costs a lot of smart people a lot of money every day. Contrarian investing is not going against the price or the trend. Never forget price and trend have nothing to do with contrarian investing! The only thing that matters to the contrarian is what the crowd thinks.

“More often than not the contrarian trade is actual follows the market trend and buys something that has gone “too far”. Or sells something that has gone “too low”.”

This post generated quite a bit of enthusiasm and was enjoyed by many of my followers. Click the link above to read the full post.

Knowing what the market is going to do is the easy part. Getting the timing right is where all the money is made. Have insightful analysis like this delivered to your inbox every day during market hours while there is still time to act on it. Sign up for a free two-week trial.

Have a great weekend and I hope to see you again next week.

Jani

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