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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Thursday was a good day for the S&P 500 with the index notching yet another record close. That’s miles from last week’s apprehension over the looming stock market collapse.
It’s been a few weeks since the last record high, but more important is this rebound extends the trend of higher-highs. As much as the cynics try to bash this market, fragile markets don’t keep making new highs. That confirms this a strong market, not a weak one.
The other nice thing to see Thursday was was a modest decoupling between bonds and stocks. Previously, stocks were rising and falling at the mercy of the bond market’s whims. Thursday, the bond market was mostly flat while stocks staged this nice rally to record highs.
But this shouldn’t be a surprise. As I wrote last week, stock investors are not afraid of these historically low 1.5% interest rates. They were worried this surge would continue to 3% and beyond. But so far, yields are settling in around a very reasonable 1.5% and that level seems good enough for the equity market.
Every pullback feels real. By rule, it has to. That’s because if it didn’t feel real, no one would sell and prices wouldn’t drop. Buying last week’s bounce was hard, but so far it looks to be the right call.
The thing to remember is risk is a function of height. The higher we are, the further we have to fall. And the opposite is true. The more the indexes pullback, the closer we are to the next bounce.
It is hard to buy when everyone else is predicting a collapse, but that is often the safest time to be buying. If a trader waited until today’s “conformation”, they would be getting in at record highs. The trader that took a chance on last week’s bounce already has a nice profit cushion protecting their trade.
Start small, get in early, keep a nearby stop, and only add to a trade that is working. That’s how we keep ourselves out of trouble.
TSLA is riding on the coattails of the index’s rebound and has bounced hard off of Monday’s lows. Was this capitulation and enough to end the 40% collapse from the highs?
That’s a good question we cannot answer it right now. It’s been a long time since this stock followed anything remotely close to fundamental analysis. That means this is a momentum trade and either momentum is still behind this stock or it’s not. With a PE measured in the thousands, there is no option other than another race higher or a spectacular collapse.
TSLA’s bounce is buyable above $600. On the other hand, this turns into a strong short if this rebound fizzles and the stock retreats back under $600.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Wednesday up as the relative calm in the bond market continues.
Bond investors are not fundamentally any different than stock investors. They are humans that feel the same tugs of greed and fear and are equally prone to overreacting to a selloff.
Chances are good a big portion of this latest runup in bond yields was triggered by a wave of contagious herd selling that got carried away. And that is the way equity investors are treating this as they buy last week’s dip.
The thing to remember in both stocks and bonds is most owners would rather keep holding than sell what they have. These episodes of runaway selling are triggered by fear. But after several days of calm, that fear dissipates and investors are able to make more rational trading decisions. And those rational decisions almost always include continuing to hold.
For the time being, the S&P 500 is acting well and there is only one way to trade this. Keep holding for higher prices with stops in the lower 3,800s. The advantage of buying the dip early is now we have a profit margin to protect us if the selloff resumes. Move your stops up to your entry points and see where this goes.
Silliness is returning to GME and the stock was up $100 Wednesday afternoon. That was until it fell $175 in a few short minutes. The size of the collapse was spectacular and shows just how thin the buying is in this stock. While most GME owners are “holding with diamond hands”, there are not many fools left willing to pay $300 for a $20 stock. All it takes is a few owners to start locking in their profits and this will get real ugly, real quick.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 continues bouncing between big gains and losses depending on what is going on in the bond market that day. Treasury yields fell Tuesday and that sent stocks sharply higher as equity investors let out a sigh of relief.
The S&P 500 is trading really well and extending last week’s decisive capitulation and rebound. I love the way stocks are behaving but I have far less conviction about what is going in the bond market. That makes it hard to have a lot of confidence in the sustainability of this equity bounce because it is built entirely on the bond market keeping its cool.
But as I often write, the best trades always have uncertain starts. By the time we get more clarity, the discounts will have long since disappeared. And that means we have to get in before it feels safe.
I’m not convinced this is the last we’ve heard from the bond market. In fact, I believe higher rates will be responsible for the next recession and bear market. But this is a 6-12 months story, not a right now story. At least for the time being, equity investors are feeling better and there is a good chance this week’s bounce will stick.
Without a doubt I could be wrong, but for that to happen, we need to make a lower-low. Last week’s dip set a fresh low mark around 3,750 and as long as we remain above this level, everything is progressing well enough. While I’d love to see a new higher-high, at this point, avoiding another down wave is far more important.
That makes Wednesday a critical day for the market. Extend the rebound and all is good. Violate 3,800 support and lower-lows are in our immediate future.
The best part of being aggressive and buying the bounce early is that gives us a nice margin to play with. We should have already moved our stops up to our entry points. Few things are better than free trades and even if buying this bounce turns out to be a mistake, it won’t cost us much, if anything at all.
That said, I’m still expecting higher. Hold it together Wednesday and everything is setting up for a move to fresh highs.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 started Monday with nice gains and it looked like we were finally shaking off the Treasury yield blues. Unfortunately, those early gains fizzled and the index ended with the eleventh loss in three weeks.
While eleven down days out of fourteen trading sessions sound absolutely dreadful, amazingly, the index is little more than 2% from all-time highs. How does that happen???
As much as bears are trying to hype the inflation fear-mongering, most owners are not falling for it and are sticking with their favorite stocks.
While market folklore frequently warns of complacency, the thing most people forget to mention is just how long complacency lasts before the fall. Quite simply, when confident owners refuse to sell, prices remain stubbornly resilient.
How much longer can this complacency last? Well, if there is one thing we know about brutal selloffs, they are shockingly quick. At the rate this pullback is moving, the market is dropping an average of 0.14% per day. That qualifies as many things, but shockingly fast is not one of them.
As long as the index remains above 3,800 support, there is nothing to do but continue giving this market the benefit of doubt.
While this bull market shrugged off dozens of bearish headlines over the last year, maybe this interest rate story is the one that finally takes us down. But if yields are going to take us down, the first thing that needs to happen is for the index to fall under 3,800 support. Until that happens, keep trading this from the long side.
If there is one thing that gives me pause about this bull market, it is the absolutely dreadful price action from the FAANG highfliers. FB, AMZN, AAPL, NFLX, and GOOGL, none of these stocks can get out of their own way and most are down more than 15% from recent highs. If something takes this market down, it will be a lack of leadership from these best-of-the-best companies.
On the other hand, if this bull market can hold it together for a little bit longer, these 15%+ discounts in these bluechip stocks will prove to be a great opportunity to buy more.
At this point, there are only two ways this plays out. Either the FAANG stocks catch up. Or they take everything down with them. I’m giving the index the benefit of doubt, but if the FAANG stocks continue lagging, I will have to reevaluate my outlook.
(As poorly as the FAANG stocks are doing, TSLA is in an entirely different category and I’ll cover this former darling Tuesday evening.)
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