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By Jani Ziedins | Weekly Analysis
Free Weekly Analysis and Lookahead
This was one of the most volatile weeks in S&P 500 history with the highs and lows spanning more than 20%. The moves were so dramatic in fact, the index actually started a new bull market after climbing 20% from Monday’s lows! (Also making this the shortest bear market in history.)
These are strange times. I was there for the dot-com bubble. 9/11. The housing crash and financial crisis. I even have memories of 1987’s Black Monday. But few things compare to the levels of uncertainty we are feeling today. 1987 blindsided market participants and few things are as shocking as watching 9/11 unfold in real-time. But neither of those events affected Mainstreet the way Coronavirus has completely and totally shut down the global economy. Everyone was numb after 9/11, but most people resumed their lives after a few days.
Not today. Governors are instructing, if not downright ordering, citizens to stay in their homes for at least two weeks. And that is just the start. No one knows how much further this could go. Stocks rallied this week after Congress approved a $2 trillion dollar stimulus package and the Fed assured us they have “unlimited ammunition” to combat this economic slowdown. That was good enough to launch stock prices 20% above Monday’s lows. But can these things solve our problems? No…not even close.
This week’s rebound was more of a massive relief-rally and short-squeeze than a vote of confidence about our “new” outlook. While it was definitely nice to see the stock market string together a few positive days, our situation is not any better this Friday than it was last Friday. In fact, in many ways, they are worse now because this virus continues expanding at an exponential rate and this week’s shelter-in-place orders had a minimal impact on the growth curve.
As nice as it felt to see the market put together an impressive performance this week, we are far from out of the woods and should expect this historic volatility to stick around for a while. At the very least, expect prices to retest the lows over the next week or two. Maybe we find support at the prior lows. Maybe we don’t. Either way, hopefully, anyone who was savvy enough to buy this week’s rebound is also savvy enough to lock-in a big portion of those profits before they evaporate. Investors can buy these discounts for the long-haul, but traders need to be extremely nimble because today’s profits will turn into tomorrow’s losses if we allow ourselves to get greedy.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
The S&P 500 produced its first three-day win-streak since early February. Congress agreed to a $2 trillion stimulus package and the Fed assured us they have “unlimited ammunition”. Those headlines were enough to launch stocks nearly 20% above Monday’s intraday lows. Looking beyond this relief rally, the bigger question is if these government interventions are enough to solve the market’s problems or if this strength is just another fleeting bounce on our way lower.
Three days ago bears were gloating over their investing prowess. Today it’s the bull’s turn. And so goes the swinging pendulum of sentiment in this violently volatile market. While it was definitely better to be a bull today than a bear, is the Coronavirus epidemic really solved? Did our politicians actually accomplish anything more meaningful than adding $2 trillion to our national debt? Ummmmm, no. We are in much of the same place we were Monday…and last Friday…and the Friday before that. Nothing has been fixed but at least some issues have been addressed…if only marginally.
These constructive headlines were at least good enough to stem the cascade of relentless selling. That said, we shouldn’t expect prices to race back to the highs anytime soon. The world is still gripped by fear of a killer virus and all the economic damage that goes along with these extreme preventative measures.
As I wrote on Monday, this market is incredibly volatile and that means huge swings in BOTH directions. One day’s gains become the next day’s losses (plus or minus a day or two). In periods like this, if swing-traders are not taking profits, then they are taking losses. Rather than gloat over the corpses of your adversaries, be savvy enough to realize that if you hang around too long, your corpse will soon be the one underfoot. While giving up on a winning trade is always hard to do, if you don’t, the market will take all those profits back.
I warned bears a few days ago and now I’m warning bulls. Lock-in those profits and be ready to go the other direction. The next big swing is just around the corner.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
By Jani Ziedins | Free CMU
Cracked.Market University
As crazy as the last few weeks have been, far and away the most critical factor determining our success is timeframe. One person is buying with both arms while another is shorting like mad. Who’s right and who’s wrong? As strange as it sounds, they could both be right and make a ton of money from their seemingly contradictory trades. The secret sauce is timeframe.
I bring this up because in these short, after-hours posts, I often neglect to stress timeframe when talking about positions. While it is often obvious given the context, for new readers, I want to make sure everyone understands how important this distinction really is.
Two days ago I wrote a post about the safety of buying these levels and yesterday I told readers the opposite thing when I said this strength was shortable. The difference between these two posts is the first covered long-term investing while the second exploited the market’s daily gyrations.
Despite how it sounds like I’m talking out of both sides of my mouth, I still believe both of these cases are as true today as when I wrote them. Anyone buying these discounts and holding for 12+ moths will see some really healthy profits. When prices finally reclaim 3k, whether a person bought at 2,300 or 2,400 will be fairly insignificant. The most important thing is they were busy buying discounts when everyone else was desperately selling them.
On the other hand, if a person wants to lock-in short-term profits next week, I would definitely suggest shorting today’s strength. This market is stuck in a choppy basing phase and one day’s gains become the next day’s losses. While today’s stimulus headlines were great and worthy of a 10%+ pop from Monday’s lows, now that we are at much higher levels, chances are good the next move is lower.
As strange as it sounds, I truly believe a person should be both buying and shorting this market. The distinction comes down to whether they are doing it with their long-term investments or in their short-term trading account. (You use both strategies, right?)
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
By Jani Ziedins | End of Day Analysis
Free After-Hours Update
The S&P 500 surged more than 9% today, putting up one of the market’s strongest performances in 100 years. While nothing concrete happened, stocks rallied in anticipation of Congress’s comprehensive stimulus bill that is inching closer to becoming law.
Who could have possibly seen today’s huge rebound coming? Easy, anyone who’s been paying attention. (Or at least reading this blog.) The strong, unidirectional moves are long behind us. This market entered the choppy, basing period a couple of weeks ago, typified by extreme volatility in BOTH directions. While it feels like the market’s done nothing but go down over the last two-and-a-half weeks, that’s hardly been the case. Over this period, we’ve seen up-days of +5%, +9%, +6%, and now today’s +9%. In fact, nearly every day over the last 12 sessions alternated between huge gains and towering losses.
As much as bulls and bears want to believe the next move will be a huge, multi-day rally or collapse, we are most definitely in the choppy phase of this correction and that means a lot of back and forth. One day’s dip is followed by the next day’s pop. These are great swing trading opportunities for the bold and nimble, but it is chewing up anyone coming to the market with a strong bias. Savvy traders are buying these dips and selling these pops, not gloating on social media that the other side is dumb, only to be left looking like the fool 24-hours later while holding a pile of losses.
Chances are good we haven’t seen the lowest lows of this bear market yet, but rather than crash lower, further losses will be nibbling at the edges, like yesterday’s dip, only to see prices bounce back into the consolidation a day or two later. As we transition into the basing phase, almost all of these daily breakdowns/rebounds are false alarms that should be traded against, not jumped on.
Avoid the temptation to fall into the bull or bear argument. No matter what we believe long-term, if we want to trade this chop successfully, we need to be pragmatic. Even if we’re bullish, that means shorting an unsustainable move higher. Or if we’re bearish, buying the next oversold plunge.
There is a ton of money to be made in this chop. But that also means we can lose a lot of money if we go at this the wrong way. Keep your biases in check and you will be miles ahead of everyone else getting ground up by these swings.
As for what comes next? Look for today’s huge rebound to fizzle and retreat back to the lows. Maybe this reversal starts tomorrow at the open. Or maybe we rally into midday before running out of buyers. Either way, be ready to short the next stumble. There is a good chance the next leg lower will follow the stimulus bill’s announcement in a classic buy the rumor, sell the news reversal.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
The S&P 500 tumbled another 3% Monday and set fresh lows for this selloff. Overnight futures were limit down, holding 5% losses for most of the night after the Congress failed to agree on a bailout package Sunday night. But spirits lifted shortly before Monday’s open after the Fed said they were prepared to buy “unlimited” Treasuries and mortgage-backed securities. Unfortunately, further gridlock on Capitol Hill rained on the Fed’s parade and is why stocks ultimately closed lower on Monday.
Higher, lower, or finding a bottom? That’s the question on everyone’s mind. Plenty of bulls are claiming this is a buyable dip while countless bears are screaming this is still the shorting opportunity of a lifetime. Who is right? At this point, both sides are doing nothing but blindly guessing in the dark. But they certainly don’t lack conviction in the accuracy of their blind guesses!
This is far and away the most uncertain time in anyone’s living memory, yet that uncertainty isn’t preventing anyone from telling us what they are convinced will happen next. I wish I had an answer for you, but no amount of fundamental, technical, or historical analysis will give us the answer. This situation is unique and it needs to be treated as such.
But just because this Coronavirus crash is unique doesn’t mean it will end any differently than any of the other “unique” crisis the market navigated. Assuming society doesn’t collapse, this is a buyable dip and is no different than any other crisis in market history. The only question is how low we go before bouncing.
Markets have fallen nearly 35% in a month. Could they fall 45%? Sure. But 6 months from now, how many people will be bragging about selling stocks when they were down 35%? Or is it more likely people will be bragging about buying stocks when they were down 35%?
The time to sell was four weeks ago when these waves of panic first hit the market, not now that the majority of the damage has already occurred. While prices could fall even further over the next few days and weeks, twelve months from now, no one will regret buying stocks at the lowest levels since 2016.
Once you admit you cannot pick the bottom, it simply becomes a choice between buying too early or too late. Either approach works well as long as it is consistent with a well thought out trading plan that includes risk management appropriate for this situation. (ie starting small, only buying sensible entry points, and keeping a valid stop nearby.) Don’t fall for the bull or bear arguments, be a pragmatic opportunist and the profits will come to you.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
By Jani Ziedins | Weekly Analysis
Free Weekly Analysis and Look Ahead
The S&P 500 just finished its worst week since the 2008 Financial Crisis. The Covid-19 epidemic continues to spread uncontained and governments are taking extreme measures to “flatten the curve”. It has yet to be seen if these strategies will work, but one thing is for sure, it’s wreaking havoc on the global economy. Schools are closed. Non-essential businesses are closed. Anyone who can work from home is working from home. Others are less fortunate and find themselves without a paycheck. All while hospitals are bracing for the worst.
As I wrote last week, this situation is without a modern precedent. No one knows how long this epidemic will last. We don’t have any idea what the economic damage will be. And most importantly for markets, don’t have a clue about how long it will take before the world returns to business as usual. Are we talking about weeks? Months? Even years? With so much uncertainty swirling around us, no wonder investors are on edge.
Stocks have fallen 30% from February’s all-time highs only a few weeks ago. That pullback priced in a tremendous amount of bad news. But has it been enough?
If there is one thing we know for certain about markets, it’s that they overreact. What is already too far often goes even further. Have we already passed too far? Can this go even further? No amount of technical or fundamental analysis can answer those questions. This is a crowd psychology problem and the only way to figure out what comes next is to follow the herd.
Luckily for nimble traders like us, these dramatic moves are big, fast, and easy to trade. We can profit handsomely even if we don’t know which direction the market is headed next. Buy the bounce. If that doesn’t work, short the breakdown. Start small. Keep a nearby stop. Take profits early and often. And get ready to go the other direction the next day. One day up, the next day down. Repeat over and over again until we have more profits than we know what to do with.
Will Monday bounce? Probably. Over the last ten trading sessions, we’ve alternated between gains and losses. Odds are good Friday’s tumble will be followed by Monday’s rebound. The best way to trade the bounce is to buy shortly after the open. Put stop under the morning’s lows. And hold on. If prices tumble under our stops, close and consider shorting the weakness. Again with a nearby stop. If the dip proves to be a false alarm and rebound, switch directions again.
While it is frustrating to get hit by the inevitable whipsawed, being nimble and fast means we get in and out quickly and any losses are small. More important is that once that next big directional move takes hold, we are in the market and ready to take it all the way. While bull and bears are busy arguing about whether the next move is higher or lower, I’m over here making money. I’m an opportunist and could care less who is right. All we need to do is wait for that next turning point, grab on, and enjoy the ride.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
By Jani Ziedins | End of Day Analysis
The Coronavirus continues dominating financial headlines as “social distancing” takes a heavy toll on economic activity. What seemed like the worst-case scenario only a few weeks ago is now our reality. While the actual effect of the virus itself has yet to be felt by most people, preventative measures are definitely impacting everyday life.
I will be the first to admit I have a bullish bias and that’s because over the long-term, markets also have a bullish bias. But over the short-term, anything can happen and that’s why it pays to be pragmatic. Back in late February, when this crash first started, I told readers:
Whether the market is right or wrong about the Coronavirus, it doesn’t matter, we trade the market we are given. As it stands, this 3% kneejerk reaction could go either way. We bounce sharply off the lows and never look back as confident owners continue ignoring every bearish headline. Or this massive strawbale shatters the camel’s back and turns formerly confident owners into a herd of panicked sellers.
What happens next is where it pays to be pragmatic. Rather than dig in my heels and argue this selloff was unjustified, I recognized the market’s emotional state and knew a great trade was going to explode in one direction or the other. Sometimes these things bounce hard and fast. Other times they keep going. As an opportunist, it made no difference to me which way the market went as long as I was making money.
And the following day I shared an educational post about the best way to trade these volatile markets. This simple approach produced four weeks of outstanding trades.
If we know a big move is coming, all we need to do is jump on the next move that comes along and see where it takes us. Prices bounced this morning. Great, buy the dip, start small, get in there early, keep a stop near your entry, and only add more money after the trade starts working. If we’re wrong, prices slip under our stop, we take a small loss, and we try again next time. Maybe that is another rebound attempt. Maybe stocks tumble under the lows and we flip to shorting the weakness using the same sensible approach. It makes no difference to me what the market does next as long as it does something. If you leave your bullish or bearish biases at the door, you can make money too.
As for what comes next? We should be thankful for this buying opportunity the Coronavirus just gave us. Back during 2018’s late meltdown, I wrote a post about Bad Luck Brian who was unlucky enough to start investing at the dizzying height of the dot-com bubble. But as bad as his timing sounds, consistently buying the biggest market collapses in stock market history proved to be incredibly profitable for Brian.
And lucky for Brian, he kept buying those discounted Nasdaq shares for more than a decade. Accumulating 20 and 30 shares per month started paying off handsomely when the index finally climbed out of its hole. By the time the Nasdaq recovered to the old highs in 2015, Brian had been able to buy so many shares at a discount that his $93,000 of invested principle was worth $204,000! The index was flat, but amazingly Brian was up 120%!
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
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