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 18

Do three losses in a row change anything?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Thursday, the S&P 500 experienced its biggest drop in three weeks. As worrying as that sounds, this modest, 0.4% decline highlights just how calm the market has been lately.

January’s late stumble was fueled by the truly shocking behavior in a handful of “meme stocks”. But just a few weeks later and that already feels like ancient history as GME, AMC, and BB have already returned to more pedestrian levels. As expected, their rise and subsequent collapse didn’t affect the wider market and all of the old rules still apply.

Even with the index falling all three trading days this week, prices remain within 1% of all-time highs.

As I wrote yesterday:

We’ve had plenty of bearish headlines over the last several weeks and months. If bad news was going to take this market down, it would have happened by now. As I often say, a market that refuses to go down will eventually go up.

And despite today’s third loss, nothing changes. This remains a resilient market and even the strongest ones cannot go up every single day.

But just because this week’s losses have been modest doesn’t mean the index cannot slip even further. Everyone knows stocks take a step back for every two-step forward.

Maybe this latest bout of selling continues Friday and into Monday. But even if it does, no big deal. As prudent traders, we have predetermined stop-loss levels and we will get out if they get hit.

And if this dip proves to be yet another false alarm, no big deal, it is easy enough to get back in when the index bounces.

While I believe this market will continue higher over the near-term, this isn’t a hill I’m willing to die on. If I’m wrong, I get out and then try again next time. But until my stops get hit, I’m holding for higher prices.

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Feb 17

If you cannot beat them, join them

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished in the red for the second day in a row and finds itself down four out of the last six trading sessions.

As awful as that sounds, the index remains within 0.1% of its all-time closing high. Funny how that works.

If bears are going to kill this bull market, they need to do a lot better than -0.03% and -0.06%. If that’s all they got, then bulls have nothing to worry about.

We’ve had plenty of bearish headlines over the last several weeks and months. If bad news was going to take this market down, it would have happened by now. As I often say, a market that refuses to go down will eventually go up.

The way this is going, 4,000 is only days away.

Stick with what has been working. Keep holding for higher prices and continue moving our trailing stops up.

This bull market will die like all of the others that came before it. But this is not that time.

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Feb 16

Is it time to get defensive with TSLA?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

TSLA finds itself at a critical inflection point Tuesday, closing under the increasingly significant $800 level.

$800 has been supporting this stock since early January. We tested this level a couple of times since then, but both flirtations were quick and prices bounced decisively the next day. Will this time turn out any different? That’s the $764 billion dollar question.

TSLA reported record-breaking earnings late last month and the company threw fuel on the fire last week when it announced a $1.5 billion investment in bitcoin. (Its purchase is already up nearly 50%!)

Surely the stock would be sharply higher following two-pieces of such bullish news… Yeah, no. The stock tumbled 8% following earnings and coincidentally enough, it is also fell 8% after the bitcoin news.

Two pieces of great news and the stock fell both times. A stock that cannot go up on good news is a huge red flag. Either investor expectations are unreasonably high and even great news is no longer good enough. Or we are reaching the saturation point where everyone who wants to buy TSLA has already bought the stock and there is no greater fool left to keep pushing prices higher.

I’m not ready to give up on the stock simply because it closed a measly $3 under $800 on Tuesday. But it is enough to force me to take a more defensive posture. This stock is definitely ownable above $800, but we need to be really careful under this key support level. The stock surged $400 since November and even good stocks experience routine and even healthy step-backs on their way higher. The scary thing is a routine and healthy step-back could lop $200 off the price.

I’m not turning against TSLA, but as long as it stays under $800, this becomes a prove-it situation. The prudent move is to lock-in some profits and see what happens. If prices bounce back above $800 tomorrow or the next day, it is easy enough to buy back in. On the other hand, if prices challenge $600 support over the next few weeks, even better. Take those profits and buy the next bounce.

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Feb 12

The only way to trade this “too high” market

By Jani Ziedins | End of Day Analysis

Free Weekly Analysis: 

It was another good week for the S&P 500 as it added 1.2% and continues grinding its way into the record books.

It’s only been two weeks, but the meme stock feeding frenzy is definitely over. GME retreated 89% from the highs and AMC is down 73%, with both stocks slipping another 20% this week.

It was spectacular while it lasted, but anyone with even the smallest amount of market sense knew this spectacular collapse was inevitable. The market loves symmetry and what races higher with breathtaking speed ends up crashing down just as quickly. No conspiracy needed.

As for the indexes, they are relieved the meme frenzy left as quickly as it came. The old rules still apply and conventional investors don’t need to worry about these bubbles infecting to the rest of the market. Those reassurances put the nearly year-long rally back on track and pushed the index back to record highs.

That said, most of the index’s strength is coming from beaten down, garbage stocks catching up as the economy starts rebounding from Covid. The FAANG stocks have been stuck in neutral lately, but this was expected.

The strongest stocks bounced early in the recovery and they have less room left to go. I don’t mind this underperformance as long as the FAANG stocks keep treading water. But for the entire market to start the next meaningful leg higher, we need the best-of-the-best companies to wake up and start leading the charge. Until then, expect further index gains to be slow and fitful.

If stock prices were overbought and vulnerable, we would have crashed by now. This market still wants to go higher and there is only one way to trade it. Keep holding for higher prices and lifting our trailing stops up.

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Feb 11

The stock proving me wrong

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

While meme stocks dominated the financial press over the last few weeks, an old favorite came back to life under the radar.

As the world fixated on GME and AMZ, ZM quietly went about its business, reclaiming the all-important $400 support level. This was a major technical achievement and back in mid-January I told readers to be on the lookout for it:

ZM needs to get above $380 resistance to break the larger downtrend….and this will be a lot more interesting if it gets back above old support at $400. 

Now I’ll be honest, I was pretty hard on the stock back in early January because its price action was absolutely dreadful. But as opportunistic traders, no matter what we think, we need to keep an open mind when the evidence changes.

Rather than extend the selloff, ZM found a floor and actually started challenging $400 resistance not long after I wrote my last post.

I was skeptical about this bounce at first. But as I wrote in January, getting above $380 broke the downtrend and things really started looking good once it reclaimed $400 last week.

If a person was short, there have been plenty of clear and obvious signals to cover and lock-in those nice profits. And for the patient dip buyer, clearing $400 last week gave us a very sensible entry with a low-risk stop-loss just under this level.

Will this bounce stick and turn into a larger recovery? I don’t know. But as long as this stock remains above $400, it deserves the benefit of doubt.

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Feb 10

When boring is profitable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

There was a little up and a little down, but by the time it was all said and done, the S&P 500 finished Wednesday almost exactly where it started.

This week’s pause is nothing more than cooling off following last week’s long string of up-days. Two-steps forward, one-step back. It doesn’t get any more complicated than that.

Confident owners are stubbornly holding for higher prices and that means every dip bounces within hours. In today’s case, the selling was measured in minutes.

This calm and gentile climb higher cannot last forever and there will be multiple cases of extreme fear and uncertainty this year, but this is not one of those times. Until further notice, this bull market is alive and well and there is only one way to trade this.

No doubt, readers crave deep insights and criticizing the herd is one way pundits make themselves sound sophisticated. But more often than not, successful trading is as simple as going with the flow. There is nothing sophisticated about that. In fact, it’s downright boring and unimaginative. But as long as I’m making money, I’m okay with boring and unimaginative.

No doubt more challenging times are ahead of us. And chances are we will be longing for these boring and easy trades soon enough. But until then, stick with what has been working and that is riding this grind higher.

If this market was fragile, overbought, and on the verge of breaking down, it would have happened by now.

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