Jan 21

Why FB bounced and where it is headed next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Exactly one week ago, I wrote a bullish post about FB as the stock fell off a cliff:

This latest leg lower kicked off after [FB] announced it was suspending Trump’s accounts for violating their terms of service. No doubt investors are expecting backlash from Trump supporters and there will be an incremental hit to their revenues.

But as far as boycotts go, this one will be mild. Very few corporate advertisers are interested joining this boycott because they don’t want to get dragged into the dumpster fire taking place in Washington D.C. That means FB’s advertising rates won’t take a meaningful hit.

As far as users go, FB’s target audience is suburban soccer moms that share cupcake recipes. They are highly unlikely to abandon FB and head over to these unmoderated free speech alternatives. 

Seven days later and the stock is up nearly 10%. Not bad for a few days of work.

Now don’t get me wrong, publishing that post on the exact day this stock bottomed was pure luck. But recognizing the buying opportunity was most definitely not luck.

Trading successfully comes from recognizing opportunities when the odds are stacked in our favor. One of the most profitable trades is when the herd starts rushing out of a perfectly good company for an immaterial reason. And even when the reasons are legitimate, most of the time the stock market takes the selling too far and even defective stocks are primed for a snapback.

Headlines affecting FB over the last several weeks and months will do little to damage one of this country’s most profitable companies. I would view any further weakness in FB as a buying opportunity. Unfortunately, I don’t think we will get that lucky because this stock is giving off vibes it is ready to head back to the highs.

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Jan 20

The last warning flag for this bull market that just went away

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 popped to record highs on the first day of the Biden presidency. While there were some shocking and unprecedented events along the way, most people believed there would be a peaceful transition of power and that included most investors. Despite the political rancor and discord of the last several weeks, the stock market barely budged from record levels.

The broad market has been notching numerous new highs over the last few weeks, but notably absent was strength in the high-flying FAANG stocks. These best-of-the-best companies have been struggling to pull themselves off of recent lows and were stuck in consolidation patterns.

Some of this underperformance makes sense since Democrats have been vocally targeting these titans of tech for their anti-competitive business practices. Add in last week’s moves to censor Trump and popular right-wing social media platforms and the storm clouds were swirling around these former market darlings.

But as the popular saying goes, it is darkest right before the dawn. Tuesday night NFLX smashed earnings expectations and the stock surged 17% to record levels. GOOGL also popped to record highs. And FB, AMZN, and AAPL all had good days too.

The biggest red flag of the S&P 500’s recent strength was the lack of participation by this country’s best companies. But as the saying goes, better late than never. The FAANG stocks are getting their mojo back and expect them to not only catch up to the indexes, but actually start leading the charge higher.

There is no reason to fight what is working. Continue holding for higher prices and keep moving our trailing stops up.

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Jan 19

NFLX finally did what the chart told us was inevitable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Back in early December, I flagged intriguing price action in NFLX after it continued bouncing off of $475 support. This resilient behavior was even more striking because the company had two disappointing earnings reports during this period. Yet, the stock refused to crash through support.

As I wrote on December 7th:

NFLX had two disappointing earnings reports…and the stock tumbled -6.5% and -6.9% the day after each earnings report. Yet here we stand, still within 10% of all-time highs.

Bad news and a resilient stock? That’s a textbook case for a stock that wants to go higher. Anything that refuses to go down will eventually go up. And right now, NFLX is acting like it wants to go back to the highs. 

Fast forward a month and a half and the company crushed quarterly earnings and the stock surged 12% in after-hours trade.

But this shouldn’t surprise anyone. Earnings are a game of expectations. Two disappointing quarterly reports in a row inevitably lower expectations. Fool me once, shame on you. Fool me twice, shame on me.

And as expected, investors came into this earnings report with much lower expectations. But paradoxically, these lower expectations make it easy for the company to beat expectations. And that is exactly what happened Tuesday evening.

The first part of my analysis proved prophetic. But for readers that missed this move, you’ll be happy to read what I wrote next:

If [NFLX] gets back to the highs, expect it to keep on going.

And I stand by what I said then. NFLX’s six-month consolidation chased off most of the weak holders and the only owners left are the ones who believe in this company. Once the stock gets back to the highs, expect it to keep going.

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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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Jan 14

Is it time to give up on FB?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

While the S&P 500 keeps carving out fresh all-time highs, FB finds itself falling into a hole and is down nearly 20%. That’s an unusual position for one of this country’s most popular and profitable companies.

This latest leg lower kicked off after the company announced it was suspending Trump’s accounts for violating their terms of service. No doubt investors are expecting a backlash from Trump supporters and no doubt there will be an incremental hit to their revenues. But as far as boycotts go, this one will be fairly mild.

Very few corporate advertisers will join this boycott because they don’t want to get dragged into the dumpster fire taking place in Washington D.C. That means FB’s advertising rates won’t take a meaningful hit.

As far as users go, FB’s target audience is suburban soccer moms who share cupcake recipes. They are unlikely to abandon FB and head over to these unmoderated free speech alternatives. (For anyone not familiar with these venues, they can be very disturbing, even for those with thick skin.)

And once these Trump headlines blow over, there is still the threat of Democrats breaking the company up for being anti-competitive. But you know what? Those storm clouds will pass too. It’s been a long time since the government forced a company to break up and it’s unlikely to happen this time. This is almost certainly more bark than bite. (And chances are Democrats will go easy on the company if they continue their hardline with Trump.)

FB’s near-term pain isn’t over yet, but we should be looking at further weakness as a buying opportunity, not a reason to leave the company for dead.

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Jan 13

ZM: Bargain or Bull Trap?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

It’s been a good couple of days for ZM. The stock bounced decisively off recent lows and gained 5.7% Tuesday and it added another 2.2% Wednesday. What’s not to like about that?

Well……

Every rebound starts by bouncing off of the lows and ZM has done a great job resisting another leg lower this month. I often say, “something that refuses to go down will eventually go up.” Unfortunately, that doesn’t apply to ZM here. In fact, this looks more like the mirror image, “something that hangs out near the lows long enough will eventually fall under them.”

Tuesday’s bounce was a good start, but Wednesday’s 2.2% gain was actually more bearish than bullish. That’s because the stock retreated from much higher levels earlier in the day. In the stock market, it’s now how you start, but how you finish that matters most. And in this case, rather than embrace the early rebound, regretful owners took the opportunity to sell these higher prices. Selling pressure every time the stock rallies tells us a large number of owners have given up and are looking for the best way to exit their positions. That’s never a good sign.

As far as the stock chart goes, even the last two days of gains cannot erase all the damage that’s been done. At the very least, the stock needs to get above $380 resistance and break above the larger downtrend. Until then, this remains a shockingly bad chart.

ZM will be a lot more interesting if it back above old support at $400. Until then, this is a no-touch (and a shorting opportunity for the most aggressive trader).

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Jan 12

A plan for protecting Bitcoin profits

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

It’s been a wild few weeks for Bitcoin. The last time I covered this cryptocurrency on my free blog was back in mid-December when it first broke the $20k barrier.

As I wrote back on December 16th:

I don’t expect this buying frenzy to cool off anytime soon. As I said [in early December], maybe the top is $25k, maybe it is $30k. Or maybe we keep going to $40k. Who knows. But when something moves this fast, the only choice we have is to grab ahold and see how far it goes.

This is a strongly directional move and we can (and should) follow this higher with a trailing stop. Right now $20k is a good level to protect our profits. When prices get up to $25k, we move our stops up again. $30k, ditto.

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To be honest, my initial $40k profit target was a tad optimistic, but BTC proved all of the doubters wrong and did something that seemed impossible only a few months ago.

But now the $40k euphoria is wearing off and we already find ourselves in the lower half of the $30k’s. This is definitely a challenging spot for Bitcoin. Prices rallied 400% from the October lows and anyone expecting this buying frenzy to continue another 400% is quite honestly, drunk on greed.

All good things come to an end and so will this latest surge in Bitcoin. Maybe this week’s brief poke above $40k was the near-term top for this rally. Maybe we get a little higher. Either way, we need to be thinking about taking profits, not pressing our bets. We only make money when we sell our winners. And unfortunately, as quickly as these things go up, they fall even faster.

Make sure you have a plan to take profits and don’t let these epic profits escape. Maybe you take profits proactively. Maybe you keep following this higher with a trailing stop. Or better yet, do a bit of both; take some profits proactively and follow the rest higher with a trailing stop.

But no matter what you do, have a plan. Only fools hold too long ride these things all the way back down.

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