Category Archives for "Weekly Analysis"

Apr 09

Why it doesn’t matter if this bull market is built on a house of cards

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

The S&P 500 added 2.7% last week with all of those gains pushing the index even deeper into record territory.

As I’ve been saying for a while, this is a strong market and by nature, strong markets go up more than they go down. And in this case, a lot more up than down.

A little over a year ago the index bottomed at 2,190 as fear of a global lock-down climaxed. But as is usually the case, reality turned out less bad than feared. Stock prices recovered from those oversold levels and the index now finds itself 90% above those Covid lows. And not only did we bounce back, but the index is actually 22% above those pre-Covid highs!

As crazy as this sounds, Covid has been very bullish for stocks. Chalk it up to government stimulus and ridiculously low-interest rates. But as far as the economy goes, the Covid lockdowns were little more than a bump in the road, and in fact, many consumers are sitting on such large piles of money they are bidding up the prices of houses and draining auto dealer inventories. Most businesses are struggling to keep up with demand and their biggest problem is keeping inventory in stock!

Is this economy build on a house of cards? Will inflation come along and knock everything down? Maybe. But here’s the thing, as independent investors, we don’t need to predict the future. The greatest strength we have is the nimbleness of our size. We can jump in and out of the market with a few mouse clicks. What happens next week, next quarter, or even next year isn’t material to us. As soon as this bull market runs out of gas, we get out.

There will be the inevitable false alarms and we will get shaken out by a few whipsaws that undercut our stops. But as long as we are willing to get back in, no harm no foul.

I don’t need to predict what the market will do next because I am nimble enough to react to it in real-time. At this point, I’m holding for higher prices and lifting my stops to the lower 4k’s. If prices dip, I get out. If they keep going up, I continue hanging on. It really is that easy.

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Mar 26

Dissecting a stubborn index and $TSLA’s magical level

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

The slow grind higher continues and the S&P 500 notched another record closing high on Friday.

The index exceeded the old highs by an almost imperceptible 0.42 points (0.01%), but a beat is a beat. Especially given the headline environment we have been enduring. If this bull can keep making higher-highs despite these headwinds, just imagine what will happen when things get less bad!

The critical difference between stalling and resting is what the market “should” be doing. If the news flow is good and the index struggles to rally on positive headlines, that is stalling and something we should definitely be worried about. (Running out of buyers.) On the other hand, if the news is mostly negative and the market refuses to go down, that is definitely a bullish indication and tells us the market wants to go higher. (Tight supply.)

As every cynic can attest to, there are far more reasons for stock prices to tumble than go up. In fact, most pundits are confused by the market’s stubborn resilience. This contrarian behavior confirms there is more energy left in this rally and we shouldn’t give up on it just yet. As obvious as this sounds, something that refuses to go down will eventually go up.


TSLA slumped 5% last week and is on the verge of falling under $600. Violate support and this becomes a great shorting opportunity. On the other hand, bounce off of support and this becomes a great buy. While it sounds like I’m trying to play both sides of the fence, that’s the way these momo stocks work. Either they are racing higher or they are crashing lower.

$600 is our line in the sand. Above support and TSLA is buyable. Under support and it becomes shortable. It doesn’t get any more straightforward than that.

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Mar 05

Was Friday capitulation or another false bottom?

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

Friday was another choppy session for the S&P 500 with the index traversing more than 150-points throughout the day.

The morning started off well enough with a nice opening gap that pushed the index back to 3,800 support. Unfortunately, those gains evaporated and turned red within a couple of hours. 10-year Treasury yields flared up again that that unleashed another wave of selling in the equity markets. But not long after the index challenged Thursday’s lows, the selling capitulated and stocks bounced hard, rallying 100-points from the intraday lows and closing up nearly 2%.

When it was all said and done, this choppy week crashed through 3,800 support and it still managed to close 0.8% in the green. As hopeless as things felt Thursday afternoon, we actually finished the week in pretty good shape.

As I wrote previously, equity investors are not afraid of 1.5% Treasury yields. It wasn’t all that long ago when 1.5% was a record low. And in fact, most equity investors would be thrilled if 1.5% rates were our new reality. But that’s not what investors are afraid of. They worry this jump to 1.5% will continue to 3%, which is a much different proposition when it comes to interest rates and stock valuations.

While I was cautious following Thursday’s collapse under 3,800 support, I also warned readers the bounce could be just around the corner:

I have no idea how much further this selloff will go, but chances are it will only last a few days and that means shorts need to be ready to lock-in profits quickly. Fight the urge to get greedy. Remember, this is still a bull market and these things bounce hard and fast. Hold a little too long and all of your short profits will evaporate.

It turns out my estimation of “a few days” was overly generous and in reality, we could have measured this violation of 3,800 support in hours.

I’m impressed with Friday afternoon’s bounce. Thursday’s violation undercut recent lows and could easily turn into this pullback’s capitulation point. In more normal times, I’d be embracing Friday’s bounce with open arms.

The problem is this time equity investors are not trading stocks, they are reacting to the bond market. Was Friday afternoon’s stabilization in Treasury yields the real deal? If so, all the lights around us are green. But if the bond market continues to struggle, the index will tumble even lower next week.

While I love the way stocks responded Friday afternoon, I have a lot less confidence in the bond market. But that’s the way this usually goes. Most of our best trades have very questionable beginnings.

At this point, as long as the S&P 500 remains above 3,800, stocks are ownable. If yields flare up again next week and the index retreats back under 3,800 support, lower prices are ahead.

Given how volatile things have been lately, we should have our answer pretty quickly on Monday. If prices retreat, sell. If the bond market calms down over the weekend and stocks rally Monday, buy. 3,800 is the tipping point and we should follow the market whichever way it goes next week.


While I’m cautiously optimistic about the indexes, it is a lot harder to find nice things to say about TSLA. At the depths of Friday’s collapse, the stock was down 40% from the highs of only a few weeks ago. Easy come easy go. If $600 doesn’t hold, unfortunately, $400 is the next logical support level.

TSLA’s bounce is buyable as long as the stock remains above $600. But all bets are off if prices violate $600 support again. At that point, it’s best to step aside and wait for the dust to clear.

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Feb 27

A simple trade for next week

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

It’s been a rocky couple of weeks for the S&P 500. Rather than bounce back from last week’s string of down days, we added to them. This week’s 2.4% loss was the largest since the final week of January and the second-biggest since November’s election.

As bad as that sounds, these periodic pullbacks keep turning into bullish higher-lows. At this point, the index remains above a trendline stretching back to just after the Covid lows. This pullback needs to keep going if it is going to do any meaningful technical damage.

That said, everything could change next week if the selling resumes. But until that happens, this isn’t anything more than a routine and healthy step-back on our way higher. Two-steps forward, one-step back. Rinse and repeat.

This leaves the market at a key tipping point. If this dip is truly like every other step-back over the last several quarters, the bounce is just around the corner.  Rebound back to the highs and nothing has changed. Extend the selloff and we are entering uncharted territory.

Investors have become fixated on rising 10-year Treasury yields. Is this finally the start of something new and we should be concerned? Maybe. But this bull market ignored a once-in-a-hundred-year global health pandemic, it shouldn’t surprise anyone if it shrugs off a jump in interest rates from 0.5% to the still absurdly low 1.5%.

Is the bull market dying? No, probably not. But we will learn a lot about the market’s intention next week when either the index bounces or it continues lower.

As for a trading strategy, it is pretty straightforward. The market is buyable above 3,800 and sellable under this level. It doesn’t get any more complicated than that.

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Feb 19

Why this rally still has room to run

By Jani Ziedins | Weekly Analysis

Free Weekly-Analysis:

It was a disappointing, holiday-shortened week for the S&P 500 with the indexes closing in the red every single day. That said, all four losses only added up to a measly -0.7% decline and the index remains within 1% of all-time highs.

If this is the best bears can manage, our near-term prospects look pretty good. As I’ve been saying for a while, if this market was grossly overbought and vulnerable, the collapse would have happened by now.

Remember, market crashes are breathtakingly quick and if you hesitate, even for a moment, you get run over. Four down days that don’t even add up to 1% are many things, but breathtaking is not one of them.

Everyone loves to warn of complacent markets, but the important thing cynics fail to mention is just how long complacency lasts before the fall.

By definition, weak markets do not keep setting record highs, and by that measure, this is most definitely not a weak market.

Everything will come crashing down at some point because it always does. But lucky for us, this is not that point.

There is nothing to do here other than keep holding for higher prices and continue raising our trailing stops.

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Feb 05

Weekly Analysis: What does next week have in store for us?

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis:

Last week was the S&P 500’s worst week since right before the election (-3.3%). This week was the index’s best week since the election (+4.7%). Funny how that works.

Every week has economic news, but last week nothing rose to the level of, “the worst economic developments in three months.” Just like nothing this week was, “the best economic news in three months.”

Instead, last week’s and this week’s volatility was driven by swings in investor sentiment, primarily affected by a spectacular bubble in a few fringe stocks.

Last week this out-of-control fire threatened to spread to the rest of the market. While investors were willing to accept stretched valuations in the best-of-the-best stocks, they were not willing to tolerate it in nearly bankrupt video game retailers and movie theater chains.

But over the weekend, those bubbles burst without taking anything else down with them and the indexes have been rallying in relief ever since, finishing this week with five consecutive gains.

What does next week hold? More of the same. While we won’t be able to match “the best week in three months”, the index will continue grinding away at record highs.

As much as the cynics love to hate this Teflon market, the one thing we know about fragile and vulnerable markets is they don’t keep making record highs. What is high tends to get even higher and that is definitely the case here.

Stick with what has been working and that is riding this relentless rally higher.

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Jan 22

Weekly Analysis: Can this bull market really keep going?

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

This was another record-breaking week for the S&P 500. The index rallied 1.9% and all-time highs continue getting even higher.

Biden assumed the presidency on Wednesday with far less drama and rancor than we’ve seen in recent weeks, which was a welcome sight. That said, investors were not really concerned and the market rallied modestly on the news of a peaceful transition. But this makes sense. Stocks were not selling at a discount because of this political uncertainty and that meant there wasn’t much room to bounce when reality turned out less-bad than feared.

If we step back and look at the big picture, this was one of the most contentious elections in recent memory and Covid infection and fatality rates are off the charts. How does the stock market react to all of this bad news? By carving out fresh highs.

If this bull market really was as overbought and fragile as the cynics claim, there have been more than enough bearish headlines to send this crashing. Yet here we stand.

As ugly as the headlines have been, these things are old news and already priced in. Investors are always looking six months ahead and no matter how bad things look today, between a highly effective vaccine, warmer summer months, and an endless supply of free money, investors are actually in a pretty good mood.

While it feels like this market has gone too far, it always feels that way at the highs.

Stick with what has been working and that is holding for higher prices. Keep our stops in the mid to upper 3,700s and see how far this goes.

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Jan 15

Is this the start of the end?

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis:

The S&P 500 lost 1.5% this week. Not great, but had it not been for the previous week’s strong gains, Friday’s close would have been a record high.

Everyone knows stocks cannot go up every…single…day (or week). Markets move in waves and every two steps forward are followed by one step back.

This week’s step-back was triggered by Biden’s extremely generous Covid relief package. The size caught some investors off guard and rather than cheer the extra free money, some people started fretting over the inevitable tax increases. Giveth with one hand, taketh with the other.

But should we really be worried about a 1.5% giveback? Say what you want about this market, but weak and vulnerable markets don’t keep setting new record highs. This bull market will die like all of the others that came before it, but this is not that time. Keep giving this rally the benefit of doubt until it gives a clear and compelling reason not to. Until then, enjoy the ride.

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Dec 18

Weekly Analysis: How to respond if volatility picks up next week

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis:

It was another decent week for the S&P 500. The index finished 1.3% higher and it continues grinding its way into record territory.

Stocks are trading well despite the political bickering going on in Washington. Our “leadership” is struggling to agree on a stimulus bill and just as important, a funding bill to avoid a very unhelpful government shutdown. That said, this gamesmanship is S.O.P. for how things get done in D.C. and every agreement looks like it is going down in flames moments before it gets passed.

At this point, the market is trading really well. That said, we are quickly approaching the lull between Christmas and New Year’s. Don’t expect much meaningful to happen over the next two weeks because most big money managers have already left for Florida or Aspen. If these institutional investors wanted to make any portfolio adjustments before year-end, they already did it and we should expect stocks to coast into 2021.

While the gap between Christmas and New Year’s should be quiet, things can get a little choppy when retail investors take control. But even if we see volatility pick up next week, ignore it. These impulsive little traders run out of money quickly and any move they trigger stalls and reverses not long after.

Trading opportunities will definitely get more interesting after the calendar rolls over to 2021. Until then, relax and take a moment to stop and enjoy the holidays. It’s been a great year for trading and we should be very thankful to be as fortunate as we are!

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Dec 11

Weekly Analysis: Is this the best bears can do?

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

It was a relatively quiet week for the S&P 500 as the index slipped a modest 1% over the last five trading sessions. What’s even more noteworthy is the minuscule size of the decline when you consider four of the last five sessions finished in the red.

These almost inconsequential down-days tells us there is very little selling pressure in the market. Given the size of the run from the November lows, quite predictably, we exhausted a huge chunk of demand. But on the flip side, very few owners are interested in locking in profits at these all-time highs.

This continues to be a very complacent market. Most equity owners are holding for higher prices and that keeps supply tight. While we always hear warnings about complacent markets, the thing the critics fail to mention is complacency can last a very, very long time before the fall.

No doubt this rally will end like all of the other rallies that came before it. But given how weak the selling pressure has been lately, this is clearly not that time.

The index very easily could slip and test 3,600 support or even 3,500. But until something dramatic changes investor sentiment, expect any dip to be modest and bounce quickly.

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Dec 04

Weekly Analysis: Why this market is doing so well

By Jani Ziedins | Weekly Analysis

Weekly Analysis: 

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

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

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

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

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

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

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

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

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Nov 20

Weekly Analysis: The biggest problem with this market

By Jani Ziedins | Weekly Analysis

End of Week Analysis:

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

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

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

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

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

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

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

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

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Nov 13

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

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

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

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

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

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

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

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

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Nov 06

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

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

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

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

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

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

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

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

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

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Oct 30

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

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

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

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

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

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

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

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

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

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

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

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Oct 23

Free Weekly Analysis

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

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

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

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

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

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

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

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Oct 09

The mistakes bears made

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

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

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

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

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

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Oct 02

Should investors be worried about Trump’s Covid-19

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis:

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

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

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

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

As I wrote Thursday:

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

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

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

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Sep 25

What we learned this week

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

It was a dramatic week for the S&P 500 with large swings in both directions. But when the dust settled, the index lost a modest 0.6%. Not bad considering it was down more than 2% percent on multiple occasions this week.

This ended up being the fourth consecutive weekly loss and as discouraging as that sounds, the index actually finished near the weekly highs, largely thanks to Friday’s impressive rebound.

Was it a good week? A bad week? Or a bit of both?

Bears cheered Monday’s violation of 3,300 support and subsequent tumble. But just when the situation looked like it was spiraling out of control, Tuesday’s bounce recovered all of those losses and Bulls were breathing a sigh of relief.

Unfortunately, their relief was short-lived and Wednesday’s one-way selloff sent prices racing back to the lows. Thursday was the least eventful day and ended mostly where it started. And Friday surprised everyone when prices surged, salvaging the week almost entirely by itself.

If that sounds like a lot, that’s because it was.

Before this week, I was giving this market the benefit of doubt. Bull markets rebound countless times but they die only once. On a purely statistical basis, it is always smarter to bet on the rebound. And that is the way I was treading September’s bounce until this week. I was even willing to give Monday’s tumble a pass since we recovered a big chunk of those early losses by the close. As most experienced traders know, it isn’t how you start the day but how you finish that matters most.

Wednesday’s tumble was the one I couldn’t forgive. If the market was truly oversold, prices should have sprung back decisively, not retreated back to the lows. Wednesday told us two things. First, this market is not grossly oversold and ripe for a snapback. And second, there are still a lot of nervous owners barely hanging on.

I’m not bearish by any stretch, but I’m no longer holding out for a big bounce. Markets can only do one of three things, up, down, or sideways. At this point, it looks like this market wants to grind sideways and that means we should expect a lot more choppy trade like this week. There will be big pops and dramatic drops, but expect these moves to fizzle and reverse within days, if not hours.

The best way to trade this chop is to get in early, keep a nearby stop, and just when it feels like things are finally going your way, lock-in profits because the wind is about to change directions. We will see violations of the lows and pops back above support, but rather than chase these directional moves, we should be taking profits and getting ready for the reversal.

And if that sounds like too much work. Don’t worry about it. Sometimes the best trade is to not trade. Better opportunities will be along soon enough. We just have to be disciplined and patient enough to wait for them.

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