Feb 09

Why this TSLA / bitcoin marriage will not live up to the hype

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Yesterday, I wrote about TSLA buying $1.5 billion worth of bitcoin from TSLA’s perspective. (TL;DR I’m not a fan.) Tonight, I’m looking at this transaction from bitcoin’s point of view.

For the millennial, Robinhood vigilante, this marriage between two of their favorite momentum darlings is a match made in heaven. The only way this could get any better is if it turns into a three-way with GME getting invited to the party. (Maybe Elon will surprise us with this announcement next week!)

Anyway, Elon Musk putting his money (actually, his shareholders’ money) where his mouth is was a huge boost in bitcoin’s credibility. This is far and away the largest and most mainstream embrace of bitcoin by corporate America yet. It’s no surprise the cryptocurrency surged 20% on the news.

As I wrote previously, Bitcoin was consolidating in the $30k’s after last year’s breakout above $10k resistance. I expected this consolidation would last a little longer than a few weeks, but that’s why we trade the price action, not what we think. Bitcoin broke above $40k and that immediately made it buyable.

And as long a bitcoin remains above $40k it is ownable. Keep holding for higher prices and lifting our trailing stops.

As for what this deal means for bitcoin long-term, don’t expect many corporations to follow TSLA’s lead. Most CEOs are not as brash as Elon and there is no way they would put their reputation or their job on the line for something as volatile as BTC. All it takes is a very normal dip in BTC prices and TSLA will be forced to report hundreds of millions of dollars in quarterly losses during their next earnings report. (Mark-to-market reporting required by the SEC.) Once that happens, any potential interest in BTC will vanish along with TSLA’s profits.

What this means for bitcion is it is still up to individual speculators to keep pushing prices higher. Are there enough people willing to buy bitcoin above $40k? We will find out soon enough.

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Feb 08

A rant against TSLA and a reason to own the stock anyway

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Bitcoin surged 20% and hit $47k after Elon Musk announced TSLA bought $1.5 billion worth of the cryptocurrency.

While this is great news for bitcoin owners, it is borderline negligent for TSLA shareholders. TSLA is a car/battery/solar panel company. It is most definitely not a hedge fund. It doesn’t have the mandate from shareholders or the skillset necessary to speculate in cryptocurrencies.

If the highest and best use of TSLA’s cash is to buy cryptocurrency, then it should sell its car division and invest the proceeds into Bitcoin. Or even better, give that money to back shareholders and let them decide the best way to invest it.

But no, Elon is gambling shareholders’ money and chances are good this will end in a giant writedown at some point. And given TSLA’s modest 1.3% gain today, shareholders were not overly enthused about this idea either.

Decisions like this show a lack of fiscal discipline and while Elon has gotten away with big risks in the past, the problem with luck is it always runs out. While this $1.5 billion is largely immaterial to the company’s long-term prospects, it demonstrates a carelessness with shareholder money and no doubt that will come back to haunt the company when Elon’s luck runs out.

But this is a problem for another day. Until then, the Cult of Elon is strong and as much as I disagree with this move on principle, most shareholders put Elon on a pedestal and he can do no wrong. Momentum is higher and there is no reason to think today’s announcement changes the upward trajectory of this stock.

The near-term outlook is for higher prices but never get far from the exits because there is a frightening amount of air underneath us. The question isn’t if this stock falls, but when. If you have a solid plan for protecting your profits, you will be fine.

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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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Feb 04

What the Reddit “millionaires” should be doing now

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Well, that didn’t take long.

As usual, the market loves symmetry. Something that races up like a rocket will come crashing down like a rocket. And that’s exactly what happened to GME this week.

As my dad always reminded me every time I screwed up, “Easy come easy go.” (Thanks, dad.)

The fact GME crashed isn’t a surprise. To me, the only surprise was just how absurdly high this got before it crashed. I know the market loves taking things to extremes and I have seen a lot of crazy things in my time, but this 10,000% move over several weeks creates an entirely new category of insane.

That said, this ending was inevitable.

Seven days ago in my free blog post, I wrote the following to all of the new Reddit millionaires out there:

The problem is when these people are sitting on a mountain of profits, rather than thank their lucky stars and locking-in these once-in-a-lifetime profits, they are too busy gloating and taunting the other side. Instead of being satisfied with nearly $500, bulls insist on waiting until this goes all the way to $1,000 or even $5,000. 

Well, with GME down nearly 90% since last week’s intraday highs, most of those Reddit millionaires are now Reddit thousandaires. At least the lucky ones are still thousandaires. Others have a whole lot of explaining to do when their wives discover the down payment for a house has gone missing.

For those that still have money left in the market, there is no reason to ride this all the way into the dirt. Cash in what you have left, learn from this lesson, and come back to the market better prepared next time.

Experience is the name we give our mistakes. Everyone who traded GME over the last two weeks got several years’ worth of experience in just a handful of days. Take these lessons and grow from them.

As for what comes next, GME will be insanely volatile for weeks and even months. That means 50% and 100% moves in both directions. But at this point, a 50% bounce only gets us back to $75. Maybe we get back to $100 or even $125, but waiting for anything higher is just wishful thinking.

For everyone that was introduced to the stock market because of GME, while it didn’t turn out the way people had hoped, use this opportunity to learn more about the stock market. For many of us, this has turned into a lifelong adventure.

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Feb 03

Should we trust this bounce?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 was more flat than anything Wednesday. But by finishing 0.1% in the green, that was good enough for the third up-day this week, leaving the index 1% shy of all-time highs. Not bad given the fear and anxiety that washed over the market during last week’s 3% pullback.

Stocks go up and stocks go down. That’s what they do. Just because the index goes down, don’t automatically assume something is wrong. And the same applies to the subsequent bounce. Unfortunately, most investors cannot resist the impulse to overreact to every dip and bounce in the road.

Humans love trends and we turn every two dots into a line that extends forever into the future. But that’s not the way markets work. Most daily gyrations amount to nothing more than meaningless noise.

What we do know is every dip over the last several months bounced within days, if not hours. That trend is built on dozens of data points and actually means something. And you know what? That longer-term trend endured despite all of the fear and uncertainty that consumed the herd last week.

The most important development was last week’s selling stalled and bounced. That reconfirms most investors are still in this for the long-haul and remain reluctant to sell bearish headlines or negative price-action.

Right or wrong, when owners refuse to sell, stocks remain stubbornly resilient. While this cannot last forever, it will continue for at least a bit longer.

As long as we keep getting more up than down, everything is going according to plan. Don’t fight what is working.

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Feb 02

Why GME is down and the indexes are up

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Tuesday sharply higher as air continues coming out of Reddit’s GME, AMC, and SLV trades.

AMC tumbled 62% in just a few days. GME is down 82% from last week’s intraday highs. And even silver took it on the chin, falling 12% from yesterday’s early levels.

Easy come easy go. But everyone with even a rudimentary understanding of market mechanics knew this outcome was inevitable. It didn’t take a “Wall Street conspiracy” to kill this frenzied buying. Instead, these small millennial buyers simply ran out of cash and there was no greater fool left to buy a struggling retailer up nearly 10,000%.

The broad market is clearly relieved the old rules still apply. Every day GME rallied last week, the indexes fell. And this week, every day GME fell, the indexes rallied.  This is Reddit thin is quickly turning into nothing more than a flash in the pan. Rather than upend the entire market and send it into chaos, this is turning out to be little more than a novelty that is fading as quickly as it came.

That said, these ripples will be felt for a while. GME already bounce 100% off of this morning’s lows. Between another wave of gullible buyers rushing in to “buy the dip” and shorts closing positions with spectacular profits, there will be a good amount of buying in these names for a while and they will continue trading at elevated levels. (Far off the silly highs, but well above where they started.)

But from the index’s point of view, this was a minor sideshow and the bull market is ready to proceed after last week’s brief dip and reset.

Remember, bull markets bounce countless times, but they reverse only once. So far this looks like nothing more than another one of those momentary stepbacks on our way higher.

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Feb 01

Is the rally back on?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 bounced back Monday, recovering a respectable chunk of last week’s 3.3% tumble.

There were not any clear or obvious economic headlines driving last week’s selling and the same applied to today’s bounce. This was little more than a fleeting swing in sentiment as investors digested last week’s frenzied buying of a handful of beaten-down stocks.

Up to this point, investors have been ignoring any and all bad news and chances are good this latest wobble won’t turn out any different. But last week’s buying frenzy of a handful of garbage stocks gave mainstream investors pause. While they were previously okay with moderately stretched valuations in respectable names, they were not ready for the absurd silliness that was occurring in nearly bankrupt companies.

Most likely, this index pullback won’t end any differently than all of the other pullbacks that came before it. This dip went a little further than most of the others, but this bull market is far from broken. If prices continue firming up this week, last week’s dip will actually turn out to be a healthy development. Every sustained move higher needs a few step-backs along the way.

As for trading this chop, sometimes indexes bounce within hours. Other times the selling stretches across several days. When accounting for the market’s mood, it is hard to know exactly how much it will over or underreact to each situation. That is why our trading plan must account for all possibilities.

Sometimes markets are easy to trade and the indexes drift higher without ever seriously threatening our stops. Other times it shakes us out several times before making its next move.

I still believe this market is headed higher over the medium term, but it might squeeze me out at my stops one or two more times before it finally happens. Or maybe we shoot back to the highs without looking back. Either way, my trading plan is ready.

If this keeps going up, I buy. If the pullback resumes, I get out at my stops and prepare to buy the next bounce. It doesn’t get any more complicated than that.

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