Jan 25

What GME’s wild ride is telling us about the rest of the market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

I don’t cover penny stocks because a lot of unsavory things go down in that shady portion of the market and it isn’t suitable for most investors. That said, I never expected to see penny-stock style manipulation occur in a well-known, billion-dollar company.

No doubt almost everyone is aware of the sheer craziness going on in GME. The stock rallied nearly 1,000% since January 1st, with the biggest portion of that move taking place this morning. But not to be outdone, this morning’s 150% gain was quickly erased by a 50% plunge from the highs a few hours later. Easy come easy go.

While it is tempting to jump aboard this seemingly easy trade, these things are best watched from the sidelines. A lot of people are going to lose a lot of money trading this and you don’t want to be one of them.

That said, I’m not really interested in analyzing the crazy hive-mind driving GME’s wild swings. But I am interested in what something like this tells us about the state of the broad market.

Having been around for the wild dot-com days, there are some noteworthy parallels. While most of the market isn’t outrageously overvalued, there are several companies that have been driven to undeservedly high levels. GME is only the tip of the iceberg. TSLA being the fifth most valuable company despite the fact it hasn’t figured out how to turn a profit selling cars is a concern. (TSLA’s profits come from selling tax credits, not cars.)

By all accounts, the Robinhood crowd has lost its mind. And while it seems like a big pullback in the share price of GME, TSLA, and bitcoin shouldn’t affect the wider market. This fails to take into account stock valuations are a game of confidence. If one segment pops, that stink spreads to everything around it. Given how far we came since the March lows, there is a tremendous amount of air underneath us if sentiment flips from a half-full to a half-empty.

That said, even with all of the warning sirens going off, these things usually go even further before they pop. We might be in the later innings of this game, but we are not at the end and it is most definitely not time to abandon ship simply because a few stocks have gone “too far”.

The greatest strength we have as independent investors and traders is the nimbleness of our size. We can flip from full-long to full-short with a few clicks of the mouse. We don’t need to predict the market when we can react to it in real-time.

Stick with what is working as long as it keeps working. But be ready to get out once the cracks start showing because when this goes, it could get really ugly.

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Jan 22

Weekly Analysis: Can this bull market really keep going?

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis: 

This was another record-breaking week for the S&P 500. The index rallied 1.9% and all-time highs continue getting even higher.

Biden assumed the presidency on Wednesday with far less drama and rancor than we’ve seen in recent weeks, which was a welcome sight. That said, investors were not really concerned and the market rallied modestly on the news of a peaceful transition. But this makes sense. Stocks were not selling at a discount because of this political uncertainty and that meant there wasn’t much room to bounce when reality turned out less-bad than feared.

If we step back and look at the big picture, this was one of the most contentious elections in recent memory and Covid infection and fatality rates are off the charts. How does the stock market react to all of this bad news? By carving out fresh highs.

If this bull market really was as overbought and fragile as the cynics claim, there have been more than enough bearish headlines to send this crashing. Yet here we stand.

As ugly as the headlines have been, these things are old news and already priced in. Investors are always looking six months ahead and no matter how bad things look today, between a highly effective vaccine, warmer summer months, and an endless supply of free money, investors are actually in a pretty good mood.

While it feels like this market has gone too far, it always feels that way at the highs.

Stick with what has been working and that is holding for higher prices. Keep our stops in the mid to upper 3,700s and see how far this goes.

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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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