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By Jani Ziedins | Free CMU
Cracked.Market University
We come to the market with different experience levels, expectations, and needs. But the one thing all of us have in common is the desire to improve our trading. It doesn’t matter if we are struggling or already pretty good at this, everyone wants to be even more successful than they are now.
The quickest and simplest way to improve our trading is to adjust the way we approach the market. Rather than torment yourself and overthink every decision, ask yourself, “What would a savvy trader do here?”
All too often we fall prey to our impulses and emotions. We love the feeling of a winning trade and don’t want to give up on it. But often that means holding too long and watching those profits evaporate. Or we enter into an online argument that makes us even more stubborn and reluctant to admit our mistake. Or we ignore a loss because regret keeps us hoping the rebound is just around the corner.
All of those common mistakes would have been avoided if a person pictured themself as a savvy trader and then made the same decisions a savvy trader would make.
Does a savvy trader brag about his winnings?
Does a savvy trader lock-in worthwhile profits or does he try to squeeze out every last dime?
Does a savvy trader check overnight futures at 3 am because he is worried about his positions?
Does a savvy trader hold losing positions, hoping they will come back?
Does a savvy trader chase the crowd or does he lead the crowd?
Does a savvy trader stay calm and rational no matter what is going on around him?
Does a savvy trader allow a poor trade to affect his mood outside of the market?
Does a savvy trader get discouraged following a loss or does he realize losses are inevitable and calmly move on to the next opportunity?
If you look back at all of your biggest losses, chances are you didn’t do what a savvy trader would have done in that situation. This simple exercise could have saved you a lot of money and heartache. While you cannot do anything about your previous mistakes, it is never too late to use this technique to improve all of your future trading decisions.
None of us are perfect, but it helps us if we aspire to be that perfect trader. Every time you find yourself faced with an important trading decision, ask yourself “What would a savvy trader do here?” Chances are, that is the move you should make.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $STUDY
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
Is it finally safe to buy NFLX?
Short answer:
Ummmm……No……..
Long answer:
If anyone finds themself asking this question, where have you been the last four months???
Without a doubt, NFLX looks good right now and is finally climbing out of the hole it put itself in last summer. But if a person is only noticing this now, they are a day late and a dollar short……or make that five months and $120 short.
NFLX disappointed investors last summer when its quarterly earnings report fell flat, triggering a long and bloody slide that shaved more than 25% off the stock. But as is often the case, the market overreacted. After two months of relentless selling, long-time bulls finally reached their breaking point last September and unloaded the stock in the biggest three-day selloff since the initial earnings disappointment.
But rather than signal the start of the next leg lower, that frenzied selling represented the capitulation bottom. This is when things finally got “so bad they were good”. And that is exactly what I told subscribers when it happened.
As bad as NFLX looked back then, we should never lose sight of the fact risk is a function of height. The lower a stock falls, the less room it has left to fall. While we cannot use this logic on dying companies and obsolete industries, it works really well when we believe in the underlying fundamentals.
A person with a lot of courage and a sensible stop just under the lows could have bought NFLX last September when everyone else was selling it. The first good sign was when prices refused to undercut the lows and bounced. That was our signal to add more to our initial position. Then, a few weeks later, the company announced earnings in October. But rather than fear another earnings disappointment, savvy investors knew the latest selloff lowered expectations so much that this time around the bar would be far easier to clear. And as expected, the stock popped following earnings.
Unfortunately, nothing is ever easy in the market and regretful owners who bought at much higher prices used that post-earnings strength to finally get out. But as is usually the case, the crowd gets it wrong and that happened again here. Rather than fear another tumble lower, opportunistic investors should have been buying the stock. The worst was already behind it and sentiment had finally turned. From that point on, NFLX has done nothing but climb and today it is within a few points of making all-time highs.
Those that had the courage to go against the crowd are counting their profits. Those that listened to the herd are left wondering what happened. While I still like NFLX at these levels, buying now is definitely late in the game. While the stock will almost certainly continue higher, the easy money is long gone.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $NFLX
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
By now everyone is familiar with the wild ride TSLA took investors on and without a doubt, that story is far from over, but I will save that analysis for another day. Today I want to write about AMZN and the hints of similarity its recent price action has with TSLA’s explosive move.
AMZN reported better than expected earnings two weeks ago and the stock popped 10% the next morning. That opening surge put the stock back near all-time highs and it spent a few days consolidating those gains. The initial risk was a conventional retreat that closes the gap, as is typical following big moves. But AMZN bulls are a stubborn bunch and resisted the temptation to take profits. Instead, after a few days, the stock started climbing again. And more than just climb, the last three sessions it started racing higher.
While AMZN has been on my radar for a long time and I told subscriber before earnings that a strong result would push the stock into record territory, this sharp acceleration the last few days really stands out. While I would be suspicious of something like this during more normal times, that buying frenzy in TSLA shows just how extreme buyers are willing to take things.
Now, I need to preface this by saying this is still a remote possibility and I am not predicting this is what will happen. I am simply saying this could happen. And if it does happen, we need to remember AMZN is 10x the size of TSLA and there is no way AMZN can climb 50% in two days. That said, AMZN stock owners are nearly as “cultish” as TSLA owners and this type of fanatical ownership group can lead to some extreme moves. Could we be on the verge of one of these extreme moves? This is really starting to feel like it.
First, there is no way I would want to be short AMZN at these levels. Without a doubt, a lot of TSLA’s lift came at the expense of short-sellers getting squeezed out at steep losses. And we could see a similar phenomenon in AMZN. If you are short AMZN, do something to protect yourself. If you are contemplating shorting AMZN don’t!
Second, if someone wants to get on this ride, remember, this is an extremely risky and low probability trade so adjust your position size accordingly. Start small and only add after it starts working. And not only that, keep a hard stop loss. Probably starting with something near $2050 and then move your stop up as the stock climbs.
And third, this is a quick trade. If this takes off, please don’t fall in love with it. Take profits quickly and don’t feel bad if you sell too early. People who ride these moves all the way to the top inevitably ride them all the way back down. Don’t be that guy.
How high could this go? I have no idea. But if a person has a huge appetite for risk, this could be an entertaining ride. Just be sure to keep your head screwed on tight and don’t fall for the hype if it works out.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AMZN $TSLA
By Jani Ziedins | Free CMU
Cracked.Market University
Spend any time with retail investors and it is almost guaranteed you will hear someone will complain, “the market is fixed.” This is one of the public’s most persuasive myths about the stock market. These people are convinced there is an evil puppet master rigging the system against hem.
My question to these cynics is always, “If you know the market is fixed, why would you do something so stupid as trading against it?” If they know for a fact big money is going to buy every dip, why would they do anything other than buying every dip? Don’t complain, take these valuable insights and profit from them! Complaining about it makes no sense.
In all honesty, I wish the market was fixed. That would make this so much easier. If there was a puppet master pulling the strings, all I need to do is figure out what his intentions are and follow along. Pilot fish swim behind sharks and live off the scraps. I’d be thrilled making a living as a pilot fish following the market manipulators and profiting from their leftovers. Unfortunately, there are no sharks controlling the market for me to team up with.
People think big institutions, high-frequency traders, hedge funds, and even the Fed is conspiring to ruin their trades. But if you spend any time reading the financial press, it doesn’t take long to realize these big institutions and hedge funds struggle with unprofitable trades just as much as we do. If these big players were rigging the system against us, don’t you think they would be making a ton of money? The brutal truth is 75% of professional money managers fail to even keep up with the dumb indexes every year. If these big players are manipulating the market, they sure don’t do a very good of profiting from it.
To be perfectly frank, what people really mean when they claim the market is fixed is, “I lost money and I refuse to take responsibility for my poor trading decisions”. Don’t be that guy! Take responsibility for your bad trades. Own up to them. Learn from them. And most importantly, don’t blame them on anyone else.
Just because your trade didn’t work doesn’t mean someone is out to get you. It simply means you didn’t understand all the factors at play. Learn from those mistakes and do better next time. Victims blame other people, don’t learn from their mistakes, and never succeed in this business. Don’t fall into that mindset.
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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 monthly employment report came in better than expected. In fact, the market actually thought it was a little “too good” and the S&P 500 dipped on the news. Traders are not rooting against the US economy but they are leery an overheating economy will pressure the Fed to back away from its accommodative monetary policy.
While people have feared “too good” for years, good news hasn’t held stocks back in more than half a decade. But old habits die hard and people keep reflexively selling good news because they think maybe this is the one that finally breaks this bull. Yeah, I don’t think so. This logic didn’t work last time and there is a good chance it won’t work here either.
Investors are also a little skittish about potential Coronavirus headlines over the weekend. Two weeks ago the market was hammered Monday morning and there is still a little “better safe than sorry” thinking going around the market ahead of this weekend.
But the thing about selling ahead of time is it actually reduces the risk of holding through the weekend. The more stocks go down now, the less room they have to fall Monday morning. This isn’t to say we cannot open even lower, but today’s 20-point decline took some sting out of any headlines that might crop up this weekend. And if nothing bad happens, expect those 20-points to come racing back Monday morning. We fear a market that is oblivious to the risks, not one that is preparing for them.
So far the market is acting really well and anyone who bought last Friday’s dip or this Monday’s bounce is sitting on nice profits. Move your stops up and start reviewing your plan to take profits. When the crowd finally starts thinking it is safe to start buying again is when we want to be selling.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
By Jani Ziedins | Free CMU
Cracked.Market University
As I wrote Monday, I like mixing the topic of these posts up a bit more but it is hard to ignore what is going on with TSLA. Not very often do we have the opportunity to witness one of these things blowing up in real-time and be able to dissect it as it happens.
In case you are living under a rock, TSLA had the biggest two-day run in the stock’s history earlier this week, at one point surging nearly 50% from Friday’s close. But as expected, that rate of gains was not sustainable. And not only did the rate slowdown but now it appears like the bubble burst. Wednesday the stock crashed, giving up the majority of those gains in a single session. Thursday’s rebound attempt was valiant but ultimately unsuccessful.
The reason I’m writing this post is because when trading, it is essential we always have a plan to take profits. If someone was fortunate enough to be in TSLA on the way up, great for you. But if you don’t act, it will all be for naught. If we are in this to make money, the only way we do that is by selling our biggest winners.
All too often people get caught up in the moment and start believing the hype. They know something other people don’t. That history doesn’t apply to this particular situation. While part of them deep down knows they should be taking profits, they are so afraid of missing out they cannot bring themselves to do what needs to be done.
Unfortunately for most of the people involved in TSLA’s staggering move this week, everyone who rode it all the way up is now riding it all the way down. As unbelievable as this sounds, at one point Thursday nearly everyone who bought TSLA shares in the best week of the stock’s entire history was sitting on fairly sizable losses. As my dad always liked to remind me after screwing up, easy come easy go.
And I wish I could say the worst was over. Unfortunately these things are even more spectacular on the way down. The market likes symmetry and the fall will be just as jawdropping as the rise. Expect this to go far beyond what anyone thinks possible. Just ask Bitcoin bulls how bad it got after that cryptocurrency fell from its parabolic highs. While I don’t expect the same magnitude of collapse here because Tesla is a real company with real value behind the stock, it will get shockingly ugly before this episode is over.
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What’s a good trade worth to you?
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Follow Jani on Twitter @crackedmarket
Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $TSLA
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