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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
TSLA is at it again, this time smashing through $1,300 and nearly reaching $1,400. Last month I wrote the post, “Is it too late to buy TSLA?” I even accused the stock of being a bubble. But unlike most critics, I don’t run from bubbles, I chase after them. And that’s exactly what I told readers last month.
This is a red-hot stock and there is a very good chance this is another bubble. While that scares some people, what should we be doing when we see a bubble? Why, buying it, of course! What a silly question.
That said, buying bubbles is risky and I told readers to be careful. I laid out a thoughtful trading plan that protected the late buyer but also left them in the best possible position to profit from the next big move.
[F]or the more adventurous, this is still buyable with a stop just under $1k. That said, late buyers should be prepared to get squeezed out a few times by false alarms and whipsaws. But as long as you are committed to buying back in every time the stock pops back above $1k, you will be in the catbird seat for the next leg higher. A few small losses are no big deal if we are there to catch the next big move. $1,200 here we come!
Obviously, my biggest mistake was being too modest with a $1,200 profit target. Silly me!
Now that we are nearly $1,400, is it too late to buy? Hell yes! We buy sensible levels where we can place an intelligent stop to protect our backside. Last month buying above $1,000 with a stop under this level was a very thoughtful level and a natural fit for this rally. As expected, there were a few whipsaws along the way, but as long as TSLA kept reclaiming $1k, we kept buying back in.
While riding whipsaws is annoying, it sure beats sitting through a 60% correction like stubborn owners did this spring. Even better, when stubborn owners were patiently waiting for prices to bounce back, the savvy trader is squeezing even more profit out of this trade. Why profit from a rally only once when we can profit from it twice?
Which brings us to the present. $1,400 is a stupid high level and we should be making a plan to take profits, not adding new money. Consider locking-in a portion of your profits practively and following the rest higher with a trailing stop. When this rally inevitably pauses and/or retreats, it will give us another sensible entry point and we buy back in for the next leg higher.
As for all of the other fanbois drunk on the Koolaid, remember, those that hold all the way up also hold all the way down. We only make money when we sell our favorite stocks. Just because we take sensible profits doesn’t mean we cannot buy back in when the time is right.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 bounced off 3k support Monday morning and it continued that resilience today. The index now finds itself with a 100-points profit cushion as it continues defying all predictions of an imminent collapse.
The most prominent headlines scream “second wave”. This initially spooked the market into a 6% tumble a few weeks ago. But that single, fearful session was as far as this got and prices have remained “surprisingly” resilient ever since.
To those of us that have been paying attention, this resilience isn’t surprising. We know panicked sellers abandoned the market in droves two moths ago. But just as important as chasing off the weak, for every panicked seller, there was an opportunistic buyer who confidently ran into the fire to snap up those steep discounts.
Fast forward a few months and most of those confident dip buyers are still confidently holding for higher prices. If they bought during the “first wave”, doesn’t it make sense to assume they would continue holding through “second wave” too?
No matter what the critics claim, when confident owners don’t sell, scary headlines don’t matter. As long as prices remain above 3k support, the Covid rebound is alive and well. Savvy traders are buying this bounce off of support, not selling it. If prices tumble under 3k, we will be forced to reevaluate our outlook. But until then, continue giving this market the benefit of doubt.
Buy the dip and keep adding to what is working. If prices undercut 3,030, start peeling off longs and use 3k as a hard stop. If prices retest 3k over the next few days, buy the bounce and short the breakdown. It really is as easy as that.
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By Jani Ziedins | Free CMU
Cracked.Market University
Three traders find themselves standing on a road at the top of a mountain. All three are looking over a blind crest, wondering what is on the other side.
The first trader announces to the other two, “Look at how the camber of the road leans a little to the left. Obviously that means the road turns left on the other side of this crest.”
Confidently, the first trader jumps in his car, turns the wheel to the left, reves the engine, closes his eyes, and guns it.
A few seconds later, the other two traders flinch as they hear crashing sounds coming from the other side of the blind crest.
The second trader responds with, “Can you believe that idiot, what was he thinking? If you look at the terrain a little further down the valley, obviously the road turns to the right on the other side of this crest.”
Confidently, the second trader jumps in his car, turns the wheel to the right, reves the engine, closes his eyes, and guns it.
By now, the third trader is not at all surprised when he hears the sound of crunching metal coming from the other side of the blind crest.
Hopefully by now, everyone realizes the point of this story. Successful traders react to what the market gives them. They don’t just guess at what is ahead and blindly trade it. And as such, the third trader calmly gets in his car and with his eyes wide open, carefully navigates all the twists and turns on his way safely back down the mountain.
If you want to survive in this business, you must react to the market as it comes to you. There is nothing wrong with making educated guesses about what lies on the other side of a blind crest. But by no means commit to that position regardless of what you find when you get to the other side.
In our current environment, there is nothing wrong with having a bullish or bearish opinion about these Coronavirus shutdowns and the unlimited resources governments are throwing at the problem. It’s human nature to anticipate what’s coming. But when we get to the other side of the crest, we must follow the road, not our biases.
Three weeks ago that meant buying a relentless rebound no matter how far we were above the March lows. This week, that meant locking-in profits as prices slumped back to support.
What is coming next week? I’m not sure. But I do know that if we go up, I will be buying and if we go down, I will be selling. What will you be doing?
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By Jani Ziedins | End of Day Analysis
My Trading Diary
The S&P 500 started the day in the red, but rather than accelerate lower like yesterday, prices quickly found support and are trying to get back to breakeven.
This is one of those half-full, half-empty situations. I like this market and I’m not worried about this dip. But at the same time, it keeps hitting some of my stops. At this point, I’m half in and half out and that is probably a good place to be given the uncertainty.
Will this emotional selloff accelerate or dry up? I have no idea and I’m currently playing both sides of the fence. If prices firm up this afternoon, then I’ll start adding back in. If we retreat under this morning’s lows, I’ll continue peeling off. No big deal. As long as I am in the right place at the right time, that’s all that matters.
My Trading Plan
Most Likely Next Move: This is a buyable dip and prices will return to the highs. The only question is how low we go first.
My Trading Plan: I’m half in and half out. If prices slump this afternoon, I’ll continue peeling off. If the market trades well, I’ll start adding back in.
If I’m Wrong: At this point, I’m ready for this market to go in either direction and I don’t really care which way it goes. Higher means profit. Lower means even more profit. I’m okay no matter what happens.
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