May 12

Why Bulls should be cheering this weakness, plus what will signal the bottom

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Selling begets selling, that’s been the overriding theme for the S&P 500 this week. After closing at record highs last Friday, it’s been all downhill since then.

But as I reminded subscribers earlier today:

Before we panic and head for our bomb shelters, a dip back to 4k only amounts to a 5% pullback, something that happens once or twice a year during normal bull markets. While this feels awful and it could get even worse, this is still fairly routine behavior for a bull market.

The problem with impulsive selling is there is no way to predict how far is too far until it is over. What could have bounced off of 4,120 didn’t. How much lower we go before capitulating is anyone’s guess, but at this point, 4k is very much on the table.

As bad as things look, I remain optimistic. Bull markets dip and bounce countless times, but they die only once. From a statistical standpoint, this is almost certainly nothing more than another wobble on our way higher. But just because the odds are on our side doesn’t mean we blindly hold this dip.

As I’ve been saying all along, in addition to holding for higher prices, we also need to be following this rally by raising our trailing stops. If a person stuck to this plan, they locked in profits nearly 100-points higher and are in a great position to take advantage of this dip.

Just because we remain optimistic doesn’t prevent us from taking advantage of trading opportunities like this. This is almost certainly a buyable dip, but remember, we cannot buy the dip if we don’t have cash.

The Achille’s Heel for this market continues to be weakness in the FAANG stocks and today was no different. After a promising bounce Tuesday, these best-of-the-best stocks resumed letting us down today. While these stocks are leading us lower, most likely they will also be the ones to pull us out of this nosedive. Look for a bounce in these stocks to be the signal that the worst has passed us by. The first bounce in these stocks failed. And maybe the second one will too. But don’t give up, often the third time is the charm.

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May 11

Why there is still hope for the bull market. Plus, what’s up with the FAANG stocks?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

It’s been a rough week for the S&P 500 as it shed more than 80 points over the first two days.

The index closed at record highs on Friday but by Tuesday it was already retesting 4,120 support. And so goes the swinging pendulum of sentiment.

There are only two ways this plays out. Either this is the start of the end. Or this is just another routine wobble on our way higher.

So far we haven’t seen any meaningful technical damage telling us “this time is different”. The index gapped near 4,120 support at open and traded mostly sideways for the remainder of the day.

While Tuesday finished deep in the red, more important is the selling didn’t accelerate following the opening gap. That tells us most owners chose not to pile on the weakness and instead, shrugged and kept holding their favorite stocks. This rally has been built on the unshakable confidence of owners and Tuesday’s dip didn’t change that. Most owners would prefer to keep holding for higher prices and as long as we avoid the waterfall selloff, expect them to keep holding.

And this gives us the tipping point for this market. Remain above 4,120 and most owners will continue shrugging off these inflation headlines and will keep holding for higher prices. But fall under 4,120 and the real second-guessing will start.

At this point, we still have to give the edge to the bulls. A trend is far more likely to continue than reverse. And let’s not forget, we are only two sessions removed from yet another record high. Weak markets do many things, but setting record highs is not one of them.

Monday was a dreadful day for the FAANG stocks as they went into freefall. Fortunately, Tuesday turned out much better, even going as far as being good for these best-of-the-best stocks.

As I wrote previously, these critical stocks have been underperforming the indexes and that persistent weakness threatened the entire bull market. Yet Tuesday was a stark turning point with most of these stocks producing nice gains or at least finishing well off their early lows on an otherwise dreadful day for the indexes.

If these tech highfliers lead us lower, it makes sense to reason that they could also be the spark that pulls us out of this funk. If these stocks have another good day Wednesday, the worst could already be over for both these stocks and the entire market.

That said, there are no guarantees and if these leading stocks retreat under recent lows, expect them to continue pressuring the entire market.

Tuesday was a really good day, but we need these stocks to confirm this reversal in fortune on Wednesday or Thursday.

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May 10

How to trade the S&P 500’s latest wobble, plus what the FAANG stocks are telling us

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Monday started off well enough for the S&P 500 with the index opening near Friday’s record close. Unfortunately, second thoughts overcame traders later in the afternoon and those pushed the index under 4,200 by the close.

Is the top already in? Bears certainly think so. Of course, they’ve been saying the same thing for the last several hundred points so we take everything they say with a huge pile of salt. But like a broken clock, eventually, they will be right. Could this be that time? Without a doubt yes…but in reality, probably not.

The key levels for this market are 4,200 on the upside and 4,120 on the downside. Get back above 4,200 Tuesday and all is forgiven and forgotten. Fall under 4,120 and last week’s bounce is dead and the bears might be on to something.

How do we trade this? Easy, keep holding until our stops get hit. And even if our stops haven’t been hit, there is nothing wrong with lightening up a little until this gets back above 4,200. It is always easier to think more clearly with a partial position and the reduced threat of loss.

While it is tempting to hold through a small dip, the inconvenience of trading around a whipsaw definitely beats the discomfort of holding a through “small dip” that turns out a lot bigger than expected.

But as has been the case all year long, if we get out, always be ready to get back in if/when this wobble proves to be yet another false alarm. Just ask all the people that failed to get back in following the dips at 3,300, 3,500, and 3,700.

This market is buyable above 4,200 and shortable under 4,120. Plan your next trade accordingly.

While the S&P 500’s 1% loss felt uncomfortable, that was quaint compared to the bloodbath taking place in the FAANG stocks. The best FAANG stocks, AAPL and GOOG, “only” lost 2.6%. The rest shed between 3% and 4%. Ouch!

While I’m not overly concerned with the S&P 500’s price action (yet!), the FAANG stocks are a different story. And unfortunately for the broad market, losing the best-of-the-best stocks is enough to take everything else down.

I’m giving the S&P 500 the benefit of the doubt but if this FAANG underperformance continues this week, it is time to get defensive and all bets are off.

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May 07

Why this bull market just won’t quit, plus what Cryptocurrency history tells us is coming next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

After a few weeks of flirting with 4,200, the S&P 500 finally smashed through this psychological barrier Friday.

The monthly employment report missed expectations by a country mile Friday morning, but not only did the shockingly poor employment fail to spook the investors, it caused them to flood in and start bidding up prices.

As paradoxical as this seems, this remains a stimulus-fueled bull market and lethargic employment promises to keep the government spigots flowing at full speed.

No doubt there will be consequences for all of this money printing, but that is a problem for another day. Today, let the good times roll.

Stick with what has been working and that is holding for higher prices. As I wrote Monday following a modest bounce :

[T]his mixed day still favors the bulls. If this rally was truly overvalued and fragile, Friday’s selling would have accelerated, not stalled and bounced. Until we see a more compelling warning, keep holding for higher prices and lifting our trailing stops.

More than 100 points later and this is still as true now as it was then.

There is an interesting divergence developing in the Crypto markets. Until recently, Bitcoin was the only place to be. Bitcoin surged from under $10k late last year to more than $60k earlier this year, leaving all of the altcoins for dead. But then a switch flipped as Bitcoin stalled near $60k and all of the copycats started popping, including the most famous meme coin, Dogecoin.

This resurgence of the altcoins has set off a treasure hunt as speculators chase the next Dogecoin.

The problem for Bitcoin (and all the other cryptos) is this rapidly widening net is diluting the money available to drive any individual crypto higher.

Those of us that have been doing this for more than a few months remember Bitcoin’s last peak back in 2017. Coincidentally enough, that top coincided with a similar explosion of altcoins. Fewer dollars chasing more coins means less demand for each individual coin. Less demand = lower prices.

Will this flood of altcoins end any differently? Only time will tell, but only a fool believes “this time is different”.

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May 06

Why bulls control this market, plus what’s next for $NFLX

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday was a good session for the S&P 500 with the index reclaiming 4,200 resistance.

Two days ago it looked like the market was breaking down, today it looks like everything is under control. And so goes the swinging pendulum of sentiment.

But this shouldn’t surprise readers of this blog. As I wrote Tuesday:

As bad as this felt midday [Tuesday], the close was robust and showed most institutional investors are not taking profits and still holding for higher prices. How we finish always matters more than how we start and despite [Tuesday’s] red close, this qualifies as a good finish.

Two days later and the index is back near the highs. Blink during these dips and you’ll miss it!

The trend is higher and that gives the advantage to the bulls. Bears are the ones who have to prove something changed and they definitely didn’t get the job done this week.

Bouncing off of support and returning to the highs shows bulls are still in control. Keep doing what has been working, which is holding for higher prices and lifting our trailing stops.

This bull market will die like all of the others that came before it, but this is not that day.

As well as the index has been trading, TSLA appears to be stuck in the mud.

The stock slipped under $700 support on Monday and it has been unable to reclaim this key support level ever since.

TSLA has been underperforming the index all year and that trend continued Thursday as the stock finished in the red on a good day for the rest of the market.

At this point, it looks like the stock is headed back to $600 support. And if that doesn’t hold, then there is a lot of clear air down to $400.

Traders with with profits should be looking to protect them and aggressive traders can short this stock with a stop just above $700.

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May 05

What a half-full/half-empty day means for the indexes, plus the next $NFLX trade

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

Wednesday morning the S&P 500 continued Tuesday’s bounce off of 4,120 support, at least initially. Unfortunately, after erasing nearly all of the previous day’s decline in midday trade, the index retreated back to breakeven by the close.

This was definitely one of those half-full, half-empty kinds of days. Bulls are pointing to the stalled selloff and bears are gloating over the weak close.

In situations like this, the tie-breaker always goes with the trend. This is still very much a bull market and that means when everything is equal, the next move typically resolves to the upside.

Tuesday’s dip and bounce gave us a clear line in the sand. Remain above 4,120 support and the bounce is alive and well. Retreat back to support so soon after bouncing off of it and lower prices are ahead. Plan your next trade accordingly.

As expected, NFLX violated $500 support, giving us a nice short entry.

Stocks bounce from oversold levels quickly. Unfortunately, NFLX has been hovering near $500 for a few weeks now. That tells us this pullback following disappointing subscriber growth hasn’t reached oversold levels yet. Something that holds next to support for too long will inevitably violate that support. And that’s exactly what NFLX did today.

NFLX is now a short with a stop just above $500.

That said, trading against the trend is one of the most difficult ways to make money because it requires impeccable timing. This is a good short entry, but we need to remain nimble. Keep a nearby stop and be prepared to take profits quickly. NFLX is still a great company and this dip will bounce hard and fast once it reaches capitulation. Don’t get caught on the wrong side of that bounce.

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May 04

Why Tuesday’s dip isn’t what bears think, plus the safest way to approach Dogecoin

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Tuesday was a rocky session for the S&P 500 with the index shedding 60-points intraday. But by the time it was all said and done, the index recovered half of those losses before the close.

As calm as things have been, a return of volatility definitely got people’s attention. But as dramatic as Tuesday felt, it really wasn’t that big of a deal. The index briefly tested the lows from three weeks ago before bouncing. If the bears were are looking to break this bull, they need to do a lot better than a modest test of lows so recent, if they were milk, they’d still be drinkable.

As bad as this felt midday, the close was robust and showed most institutional investors are not taking profits and still holding for higher prices. How we finish always matters more than how we start and despite the red close, this qualifies as a good finish.

These midday lows gave us our new stop levels and the index is ownable as long as it remains above 4,120.

If this dip crossed your stops (like it did mine), we have no choice but to get out. But just because the market dumped us out doesn’t mean we have to give up on this trade.

Most dips are false alarms and that means we always need to be looking for an opportunity to get back in. Sometimes we are lucky and the dip carries on for a bit, allowing us to get in at much lower levels.

Other times we are not as lucky and the bounce is quick, leaving us chasing our tails. But at the end of the day, I always prefer an annoying whipsaw over stubbornly holding through a far more damaging correction.

Savvy traders are willing to take small losses when it allows them to avoid larger ones.

Edit: Corrected to reference Tuesday

Three weeks ago I wrote the following about Dogecoin:

While I don’t have a problem buying something that is going up (meaning Dogecoin is a legitimate trade), but that is only as long as people are trading this and not investing in it. As long as a person is agile and willing to take profits, they can ignore all Dogecoin critics. But if a person believes the hype, good luck with that.

Dogecoin has doubled since then, yet nothing has changed about how I’m approaching this. This trade is a ton of fun.  But if a person doesn’t have a plan to take profits, they will end up giving all of this back and then some. Don’t be the fool left holding the bag.

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