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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
‘Tis the season for making predictions about next year. While these things are mostly pointless because any number of unknowable things will occur over the next 12 months (can anyone say COVID!), I figured I’d get an early start on mine since the financial press is already bugging me about it.
The funny thing about most of these “forecasts” is they look awfully similar to what happened in the current year. If it was a rough year for stocks, most of these predictions will be very subdued. If it was a great year, expect most pundits to forecast another banner year for stocks.
Unfortunately, the stock market doesn’t work that way. In fact, most of the time the stock market does something entirely different next year. That means a good starting point for predicting next year is eliminating what happened this year from the list of possibilities.
That’s great news because I don’t think anyone could handle another year of pandemic! But more seriously, it was an amazing year for stocks all things considered. In fact, it was a good year for stocks period with YTD gains of 15%. But looking ahead to next year, that means we cross “good year” off the list of possibilities for 2021.
That leaves us with great year, not so good year, bad year, and really bad year. I’m torn between “great year” and “not so good year”. Maybe Covid stops being a concern this spring and everyone goes on a spending spree after having been cooped up for the last 12 months, setting the economy on fire. Or maybe the stubborn 6% unemployment becomes a persistent drag on the economy and we fall into a very conventional recession.
To be honest, I could easily see either scenario play out. And why should we be forced to choose one when we can have both! Therefore, my 2021 prediction is a strong start to the year as we conquer COVID followed by a second-half realization a lot of people are still unemployed and that’s not good for the economy. After producing very respectable midyear gains, I expect stocks to stumble in the back half of the year and finish either flat or slightly negative.
And next year at this time we can come back to this post and laugh at just how wrong I was.
If anyone wants to see what I predicted for 2020, check out this post from last year. Spoiler alert: I failed to predict a health crisis would crush the global economy and stocks would rally to all-time highs as a result.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
Bitcoin is making headlines again, this time for smashing through the old highs. But anyone who’s been reading this blog knew this breakout was coming.
Back in October, I commented on the cryptocurrency’s noteworthy bounce off of $10k support:
And then a couple of weeks ago when Bitcoin first challenged $19k, I said:
As I write this, BTC is already $3k higher and pushing toward $22k. So far everything is going according to plan.
I don’t expect this buying frenzy to cool off anytime soon. As I said a few weeks ago, 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.
We let the price-action tell us when it is time to lock-in profits. And if we get stopped out prematurely, no big deal, we just jump back in when the dip proves to be a false alarm.
This is easy money and the only people who will screw it up are the ones that hold too long. Don’t let greed cause you to make that mistake. Come to this with a plan and then follow that plan.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
AAPL popped 5% Tuesday after rumors leaked out the company is increasing iPhone production next year by nearly 30%.
This move breaks the stock out of a four month long consolidation and is the highest the stock’s been since early September.
As I often write, a stock that refuses to go down will eventually go up. That’s definitely the case with AAPL here. After a four month cooling off, this stock is finally ready to make its next move. And given the size of Tuesday’s pop, there is a lot of enthusiasm for this name.
AAPL is buyable as long as it remains above $120 and expect it to challenge the old highs over the next few weeks. And this one won’t just kiss the highs, it will smash through them.
But as always, maintain a sensible stop because there are no guarantees in the market. That said, this one looks as good as it gets.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 opened Monday morning with solid gains after the U.S. began distributing the first Covid vaccine this weekend. Unfortunately, investor enthusiasm was short-lived and the index skidded into the red by the close.
The Covid vaccine rollout quickly turned into a “buy the rumor, sell the news” event, but this shouldn’t surprise anyone. The U.K. approved the vaccine last week and drug trial headlines have been pointing to this result for months. Any investor that wanted to buy a successful vaccine launch did so weeks ago and very few people were holding out for the confirmation this weekend.
Failing to go up on good news is always a concern because it often signals exhaustion. That said, I’m not overly worried about not rallying on something as obvious and telegraphed as these vaccine headlines. This approval has been coming for a while and to the forward-looking equity market, it already priced this in weeks ago.
Thus far, November’s post-election surge is running out of momentum in December. But at the same time, downside vulnerability seems equally muted with most dips bouncing within hours.
By this point, most investors are content with their existing positions headed into year-end. If they wanted to buy or sell the election or Covid, they made those portfolio adjustments weeks ago. Maybe stocks float a little higher over the next few weeks or maybe they drift back to near-term support. Either way, I’m not expecting anything dramatic or meaningful until the calendar rolls over to 2021.
Sideways chop is one of the most frustrating things to trade. Directional moves are easy to grab ahold of and ride higher or lower with trailing stops. These grinding periods are far more likely to trigger our stops prematurely.
But that’s the way this goes. Sometimes it is easy to make money. Other times we are left twiddling our thumbs. But as long as our gains are larger than our give-backs (and that should have been really easy to do this year), then everything is going according to plan.
I don’t see a lot of potential in either direction and most likely the next great trading opportunity won’t come until after the holidays.
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By Jani Ziedins | Weekly Analysis
Free Weekly Analysis:
It was a relatively quiet week for the S&P 500 as the index slipped a modest 1% over the last five trading sessions. What’s even more noteworthy is the minuscule size of the decline when you consider four of the last five sessions finished in the red.
These almost inconsequential down-days tells us there is very little selling pressure in the market. Given the size of the run from the November lows, quite predictably, we exhausted a huge chunk of demand. But on the flip side, very few owners are interested in locking in profits at these all-time highs.
This continues to be a very complacent market. Most equity owners are holding for higher prices and that keeps supply tight. While we always hear warnings about complacent markets, the thing the critics fail to mention is complacency can last a very, very long time before the fall.
No doubt this rally will end like all of the other rallies that came before it. But given how weak the selling pressure has been lately, this is clearly not that time.
The index very easily could slip and test 3,600 support or even 3,500. But until something dramatic changes investor sentiment, expect any dip to be modest and bounce quickly.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slipped for the second day in a row. But rather than devolve into a mad dash for the exits like we would expect from a fragile and grossly overbought market, supply dried up within minutes and prices bounced back near breakeven. So much for this selloff, we barely got to know ya.
Of course, this stubborn resilience shouldn’t surprise anyone. This is how every down-day since the November lows ended. (And almost every down-day since the March lows.)
While it sounds sophisticated to argue against a strong trend because only sheep jump aboard something this easy and obvious, the truth is, a trend is far more likely to continue than reverse.
There have been 190ish trading sessions since the March lows. And in those 190 days, exactly zero have been the start of the next big pullback. But hey, maybe the 191st time is the charm and bears will finally get what they’ve been calling for. But…probably not.
I’m not suggesting we hold blindly. Every savvy trader has been following this rebound with a trailing stop. But until something changes, we keep giving this bull market the benefit of doubt. Maybe the index slips back to 3,600 support. Or maybe even 3,500. But until further notice, we treat every dip as a buying opportunity.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
I wrote about ZM last week when the stock tumbled 15% after announcing 367% revenue growth last quarter. As well as the company is doing, investors were hoping for even more.
Last week’s post-earnings selling stalled just above $400 support. Unfortunately, that resilience only delayed the inevitable and today the stock finally retreated under $400. But this latest violation shouldn’t surprise anyone. As I wrote last week:
There are few things more worrying than a stock that falls on good news. That signals unrealistic expectations and once the selling starts, it usually doesn’t stop. The market loves symmetry and rallies that go too high are almost always followed by pullbacks that go too low.
While nothing is ever certain in the stock market, this chart looks as bad as it gets. Fall under November’s lows and we could see another wave of defensive selling push this stock back to $300 or even lower. As bad as a 35% retreat from all-time highs feels, this still has room to get a lot worse.
This stock is giving us a great short entry under $400 with a stop just above this level. But who knows, maybe this thing turns around and bounces back. It’s possible and it happens occasionally. But if ZM is going to return to the highs, the first thing it needs to do is retake $400. Until that happens, this stock is untouchable.
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