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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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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Thursday gave us another rough start for the S&P 500 and the index easily undercut last week’s lows. But rather than trigger a follow-on wave of defensive selling, supply dried up and prices bounced back above 3,900 support before the close.
Sometimes things appear the most hopeless moments before turning around. Between violating 3,900 support in a poor finish Wednesday afternoon, gapping even lower Thursday morning, undercutting last week’s lows, and crashing through the 50dma, everything lined up for a free-fall. And that’s exactly when the market found a bottom and bounced.
We could dissect employment reports, Fed comments, and Congressional testimony, but in the end, the only thing that matters is how the market reacts and it actually took all of these developments in stride. Rather than devolve into a herd of panicked sellers, confident owners shrugged and kept holding.
Thursday’s dip and bounce wasn’t dramatic enough to qualify as real capitulation, but it was good enough to confirm most owners still don’t want to sell. As long as they continue holding for higher prices, dips will remain shallow and quick.
Following a similar theme, TSLA slumped back to $600 support before catching a bid and finishing the day closer to the mid-$600s.
So far so good. TSLA remains ownable above $600 support and we can keep holding. But if prices retreat and fall under $600 support, this turns into an attractive shorting opportunity.
With such a powerful momentum stock like TSLA, there is only hot or cold. Either we are riding a wave higher or we are getting out of the way. A violation of $600 support means there is more pain ahead and we should do our best to avoid getting pulled down in another wave lower.
It is okay for a person to be both bullish on the stock and also defensively locking in profits when prices retreat past our trailing stops.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday was another rocky session for the S&P 500 and the index lost half a percent. That makes four down days out of the last five sessions.
Interest rate headlines continue dominating the financial press. That said, the reactionary selling has been relatively constrained and the index is only marginally below last week’s record highs.
The thing to remember about stock market crashes is they are breathtakingly quick. In comparison, we’ve been dealing with bond yield headlines all month, yet here we are within 2% of all-time highs. That hardly qualifies as panic selling.
But while the rally still appears to be in good shape, we always need to have our line in the sand. While this dip will most likely bounce like all of the other dips that came before it, there are no guarantees in the market.
The greatest advantage we have as independent traders is the nimbleness of our size. There is no reason to hold a position all the way down given how effortless it is for us to sell and buy back in.
While picking stops is never easy, spreading stops across a range helps minimize indecision and second-guessing. Pick a high point, a low point, and something in between. This way you are locking in some profits quickly and you are giving other positions a little extra room to avoid a routine shakeout.
If prices bounce quickly, only a small portion of your position was shaken out. If prices fall further, you got out at higher levels and can actually take advantage of buying the bigger discounts.
The most important thing is as soon as you get dumped out, start looking for the next buying opportunity to get back in. Many times the pullback proves to be a false alarm and the bounce can be within days if not hours.
While riding through whipsaws is annoying, I’d much rather deal with that minor inconvenience than suffer a large loss by stubbornly holding a larger dip that doesn’t bounce.
It was another brutal session for GME. The stock lost 1/3 of its value and odds are it will never get back above $200 ever again.
As much as the cheerleaders are willing this to go higher, it seems everyone who wants to pay $200 for a $20 stock has already bought it and there are no other fools left to keep pushing prices higher.
Volatility will remain off the chart for a while but expect every dip make a lower-low and every bounce to make a lower-high.
If a person didn’t sell this latest echo, they have no one to blame but themselves and their greedy impulses.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 lost 0.8% Tuesday in the second-largest give-back over the last few weeks. Yet even when combined with last week’s -1.5% down day, the index remains within 1.6% of its all-time closing high. Hardly bearish material.
That said, you have to give the bears credit for their persistence. But so far they have been unable to crack this resilient bull market. No matter what is thrown at this rally, it just keeps shrugging off the bad news. While the cynics have been wrong 100 times up to this point, they insist this time they are finally right. Could they be right? Sure. But will they be right? No, probably not.
Successful trading is a game of probabilities and right now odds favor a continuation. This is a stubbornly resilient market and rather than fight the stubborn strength, we should be going along for the ride.
I’d love it if this market cracked wide open and panicked sellers started giving away stocks at huge discounts. Unfortunately, I don’t see that happening. We need to get cautious if Tuesday’s dip continues under Friday’s intraday lows. But until then, stick with what has been working, which is holding for higher prices.
GME reported earnings after the close and they missed pretty big on both the top and bottom lines. That didn’t stop after-hours traders from bidding up the stock right after the earnings release. Unfortunately, that initial strength was short-lived and the stock ultimately closed down 15% by the end of the after-hours session.
I’ve been skeptical of the sustainability of this latest “echo” and it seems the bounce’s momentum is quickly petering out. As I’ve been telling Premium subscribers for over a week, once this thing falls under $200, it ain’t coming back. There are only so many fools willing to pay $200 for a $20 stock and it looks like we finally ran out of them.
This was a momentum trade and now that the momentum’s gone, there is no reason to own this. Hopefully, regretful buyers from the first runup were able to get their money back during this impressive echo. But if they didn’t, they have no one to blame but themselves.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The week started well for the S&P 500 as it continued Friday’s bounce off of 3,900 support. Treasury yields moderated modestly and slipped under 1.7%. While not a big pullback, the decrease was enough to put stock traders in a dip-buying mood and the index is back within 1% of last week’s record close.
While the stock market is trading well and this resilience would be a big green light to start buying more under more conventional circumstances, I have a lot less confidence the worst is over in the bond market. In fact, I fully expect Treasuries to challenge 2% over the next few weeks.
Bond investors are human beings and prone to the same emotional mood swings as stock investors. That means these large moves tend to go way too far before eventually moderating. And in this instance, 2% seems to be the next target.
But as long as that move to 2% is relatively measured and turns into capitulation before retreating back to a more manageable 1.5%, this rise in yields shouldn’t threaten the bull market. Instead, this will simply be another bump on the stock market’s way higher.
That said, all bets are off if the bond selling intensifies and yields shoot past 2% and keep going. That’s the worst-case scenario. And as is usually the case with the worst-case scenario, the likelihood is of this outcome is slim. Most of the time reality turns out less-bad than feared. But that doesn’t mean equity investors won’t overreact to the risks over the near-term.
I really like the way the S&P 500 bounced off of 3,900 support and this move is buyable as long as the index remains above 3,900. Tumble under 3,900 on Tuesday and we need to pull the plug and reevaluate.
TSLA is struggling to add to March’s bounce off of $600 support and the rebound appears stalled under $700. The bounce is still holdable with a stop near $600, but if prices fall under $600, get out and even consider shorting the weakness. If $600 support doesn’t hold, the next obvious support level is $400. IMO, there is no reason to sit through a 33% pullback if we don’t have to. And if the stock bounces back above $600, it is easy enough to buy back in.
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