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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Did someone forget to tell the Nasdaq we’re in the middle of the worst economic contraction since the Great Depression???
Talk about a major divergence from reality. While the cynics cannot help but argue with this market, never forget, we trade stocks, not headlines or the economy. If stocks want to go up, there is only one way to trade this. If you don’t agree, your only choice is to get out of way because if you don’t, you are going to get run over.
Without a doubt, this rebound will end at some point because they always do, but this is definitely not that point. This month’s 6% collapse was the perfect setup to trigger a much larger collapse. If this rally was overbought and vulnerable, that was more than enough to trigger a much larger avalanche of follow-on selling. Instead, confident owners shrugged and bought the dip. When stubborn owners refused to sell, headlines don’t matter. End of story.
At this point, keep an eye on Monday’s lows. If we fall to this level, start locking-in some profits. If we retreat back to the previous Monday’s close, peel off some more profits. And if we return to this June’s lows, get all the way out. Anything other than that and lookout above. I fully expect the S&P 500 to match the Nasdaq and reach new highs over the next few weeks. We buy higher-highs, we don’t sell them.
If everyone knows the Fed rigged this market to keep going up, quit complaining about it and enjoy the ride!
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By Jani Ziedins | Weekly Analysis
Free Weekly Review and Lookahead:
Friday’s price action was disappointing as a 40-point opening gain dissolved into a 20-point loss. But if you zoomed out to the weekly view, it was actually a good week and the market reclaimed 60-points that were lost the previous week.
Headlines continue obsessing over a “second wave” and Friday’s tumble was exacerbated Apple re-closing 11 of its stores in four states.
Hopes of a quick recovery could be thwarted by another government-imposed shutdown, but so far most states continue reopening despite the recent uptick in infections. At this point, there might not be the political will to force people to stay indoors indefinitely.
But even if the government doesn’t force us to stay indoors, people might be reluctant to resume their normal lives if every news broadcast starts with a body count. Fear-mongering and human nature are just as important to this recovery as government policy.
But when it comes to stock prices, investor sentiment is far more important than reality. As long as investors remain optimistic about the future and refuse to sell their favorite stocks at a discount, expect stock prices to remain stubbornly firm despite what the headlines keep shouting at us.
It has been a scary few months and stock owners who fear the Coronavirus and subsequent shutdowns have been given plenty of time to bail out. And not only that, these nervous sellers were replaced by confident dip-buyers who were buying despite the dire headlines. If these confident owners didn’t sell the “first wave”, what are the chances they will sell this “second wave”? When confident owners refuse to sell, headlines stop mattering.
As long as this market remains above 3k support, the larger Covid rebound remains alive and well. Even a dip and test of this level isn’t a reason to abandon ship. But if prices fall under this level and the selling accelerates, as nimble traders, it is our responsibility to get out and reassess. Until then, continue giving this rebound the benefit of doubt.
Next week is an important make-or-break week for the market. If the breakdown doesn’t happen next week, it isn’t going to happen. Keep your stops near 3k and let the market tell us what it wants to do next. Until the price action tells us otherwise, ignore all the cynicism and second-guessing.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Thursday was the fifth trading session since the S&P 500 collapsed 6% in a single day. As dire as the situation felt last week, the market is doing a remarkable job of holding it together.
In the five sessions since last week’s collapse, the index already reclaimed 2/3s of those losses. If there is one thing we know about larger selloffs, they are breathtakingly fast. Compare this week’s reaction to the five sessions that followed February’s original Coronavirus breakdown. There, indexes fell another 12% during those next five trading sessions.
Without a doubt, we need to stand up and pay attention any time the market sheds 6% in a single day. But what happened last week was definitely different from what started back in February. That means we need to be careful drawing connections between the two events.
Even more important than the initial loss is how traders respond to it over the next few days. February’s first drop telegraphed the impending collapse that would eventually shave 35% off the index. The last few days has seen traders respond by buying the dip, not adding to the weakness.
As paradoxical as this dip buying seems given the widespread headlines proclaiming “a second wave”, it actually makes a lot of sense when you breakdown the supply and demand occurring under the surface.
The last few months have seen a tremendous amount of selling. Anyone scared of the Coronavirus and the ensuing shutdowns abandoned ship a long time ago. And not only that, when these panicked owners were selling, confident dip buyers were snapping up those discounts despite the headlines.
If confident dip buyers didn’t care about the “first wave”, do we really expect them to be scared by a “second wave”? No, of course not. That stubborn confidence is why stocks have been so steady despite predictions of a bigger selloff.
As long as the market remains above 3k support, everything is going according to plan and all-time highs are still in our near-term future. What happens after we get there is still undecided, but for the time being, enjoy this rebound, don’t fight it. Keep your stops near 3k and quit worrying about it.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 rallied for the third day in a row and continues recovering from last week’s devastating 6% tumble.
One large bearish collapse followed by three smaller bullish responses. Which signal is legitimate and which is misleading? That’s the question everyone wants the answer to.
Thursday’s crash was the worst day since the original Coronavirus meltdown. What started as a disappointing open quickly morphed into a mad dash for the exits. But as quickly as the selling started, it exhausted itself and stocks have already recovered a big chunk of those shocking losses.
If there is one thing we know about crashes, they are breathtakingly fast. No one has time to think and if you pause even for a second, you get run over. That’s what occurred Thursday. But rather than extend the panic selling the runaway selling like we saw back in March, the subsequent price action has been far more orderly and thoughtful.
Few things calm nerves like rising prices and the last three days of gains has a lot of people feeling better. Last Thursday’s second thoughts are quickly fading from memory and confidence is returning.
As I wrote previously, until further notice, we give this rebound the benefit of doubt. Trends continue countless times but they reverse only once. Going strictly off the probabilities, last week’s dip was far more likely to bounce than it was to continue. And that’s exactly what we are seeing.
And as long as this market remains above 3k support, we continue giving it the benefit of doubt. Fall under this level and all bets are off.
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