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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
AMZN finds itself at an important inflection point. While its FAANG peers AAPL, FB, and GOOGL are busy making record highs and NFLX is constructively digging itself out of the hole it fell into last year, AMZN has kind of been stuck in neutral without a clear sense of direction. We got a really nice pop a few weeks ago when Amazon announced record holiday sales but no further details were given and we have to wait until earnings at the end of the month to learn what “record holiday sales” really means. Since that initial pop, the stock has been mostly holding under $1,900 resistance as traders wait to see what comes next.
I was a big fan of buying NFLX’s dip last fall because after a few months of relentless selling, the stock became oversold the crowd had given up hope and it reached a capitulation bottom. It had finally got “so bad it was good”. But I don’t see the same capitulation in AMZN’s recent consolidation. This is more of a rounding out and it really hasn’t tested investors’ resolve the same way the NFLX dip did.
That said, the stock is still above the far more significant 200dma and that is constructive. Remain above this moving average and the stock is doing well enough to earn the benefit of doubt. But if we fall under this level over the next few weeks, that dramatic capitulation drop could be just around the corner. But just like any good capitulation point, that will be our opportunity to jump in, not bailout.
I won’t pretend to know what AMZN’s earnings will look like when they report at the end of the month, but whichever direction the stock moves in the days after earnings, expect that to be the start of the next big move. Thrill investors and AMZN will return to the highs. Disappoint and new lows are ahead of us. In the meantime, I would be wary of holding too much AMZN. At this point, the risks seem larger than the reward. Wait for that definitive move after earnings and then place your bets. It is better to be a little late on this trade than a lot early.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AAPL $NFLX $AMZN
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
You have to be living under a rock if you haven’t heard how hot TSLA is right now. The buying frenzy got so heated today the stock surged 10% in just a few hours. What triggered today’s excitement? Some no-name analysist raised his price target. (The important thing to remember about analysists is if they could trade, they wouldn’t be analysists. Think about that next time you are tempted to follow their advice.)
If only we could have seen this surge coming before it happened. Oh wait, we did. Back on December 19th, I told readers to expect something big out of TSLA as it challenged resistance that has been holding the stock back for nearly two years. Either the stock was going to smash through resistance, or it was going to get beaten back for the umpteenth time. Either way, this represented a golden trading opportunity. I suggested readers consider buying the stock above $390 and shorting it if it fell under $390. It doesn’t get any more straightforward than that.
That said, this trade turned out even easier than I expected. I figured the stock would stall at resistance for a little while before making its decisive move. Nope, it was in too much of a hurry. It smashed through $390 resistance and never looked back, making a quick 35% for anyone who was paying attention and willing to take the risk.
But now that the stock is 35% higher, would I consider buying it here? No way in hell!!! Risk if a function of height and this stock is freaky scary at these levels. I don’t care about the company’s fundamentals or any of that stuff, but I know trading and crazy surges like this are not sustainable. Expectations have gotten so high, it would be nearly impossible for the company’s earnings report to exceed them and send this stock even higher. We buy when everyone doubts the stock, not when it is making front-page news across the entire internet.
If a person was lucky enough to jump aboard this bandwagon last month, don’t get caught up in the hype. At the very least, form a plan to get out. Whether that is taking profits proactively or following the stock higher with a trailing stop. Or even better, a little bit of both. And even more important, if someone missed this move, it would be both foolish and reckless to chase the stock at these levels. If you missed it, you missed it. Don’t worry about it. Another trade with a far better risk/reward will be along any minute.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $TSLA
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
Bitcoin rallied nicely late last week and retook the $8k level. This is the first time since November the cryptocurrency has traded this high. This latest bounce inevitably leads us to the more important question, where are prices headed next?
The most obvious place to start is the attached chart. You don’t need to be a Certified Master Technician to see the problems with Bitcoin’s chart. On multiple timeframes this currency is experiencing a strong downtrend, most evident by the clearly defined pattern of lower-highs. Last year’s bounce to $10k was impressive and I was cheering for it the entire way, but at this point, it looks like that rebound ran out of energy and every subsequent bounce has been lower and lower. The biggest point of concern is in the mid-$6k range. This is where Bitcoin prices collapsed last time. We still have a bit of a buffer, but things could get real ugly if we return to this critical tipping point.
Bitcoin is setting up for a nice trade here. Hold above $8k and everything is great. But if support fails, look out below. The most obvious way to trade this is buying a move above $8k and shorting a dip under it. While this strategy will inevitably lead to a few whipsaws along the way, no doubt the next big move will start from here and it could go in either direction. I don’t mind getting whipsawed a little over the near-term if it means I will be in prime position to catch the next big move. The best way to manage these nuisance whipsaws is to start small and only add to your position after the trade starts working.
All of that said, given this sickly looking chart, if I were forced to choose, the most likely next move is lower and chances are good prices will undercut last year’s $3k lows. The only hope this has over the near-term is if we break through $12k and end this pattern of lower-highs for good.
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Tags: Bitcoin BTC.X
By Jani Ziedins | End of Day Analysis
Free After-Hours Update
NFLX has been struggling for six months to recover from its disappointing earnings report last summer. That said, it looks like the worst is behind it and the stock is well above its September lows. In fact, it doesn’t have far to go before it recovers all of last year’s selloff. Now that things are finally looking constructive for the stock, the bigger question is if it is still a buy at these levels.
I’ve been bullish on NFLX for a while. Last fall’s selloff was clearly overdone and it reached the point of being “so bad it was good.” Risk is a function of height and the lower we go, the less room we have to fall. Granted, this rule only applies to businesses with a bright future, but if we still believe in the fundaments of a company, every dip presents a buying opportunity. While panicked NFLX owners were busy abandoning their stock at steep discounts last summer, savvy investors were presented with a buying opportunity.
Without a doubt, NFLX was overbought last summer and even meeting expectations was going to be difficult. But once that bubble burst, everything turned around. By the time of the next earnings report, expectations were so low it was easy to beat them and that is why the stock popped. The recent tumble and sour sentiment made NFLX feel like an extremely risky buy, but it was actually one of the safest times to buy the stock in years. The thing to remember is the best opportunities come when other traders are nervous, not when everyone feels confident.
A lot can change in three months. Last quarter’s earnings confirmed NFLX isn’t headed out of business and the stock is dramatically higher. Today’s setup definitely nowhere near as attractive as it was three months ago. But an important thing to realize about the last six months, there has been a tremendous amount of selling in the stock. Nervous owners were abandoning ship and selling to confident dip buyers. Even though the stock is a lot higher than it was near the lows, the current ownership group is far more robust than it was when this selloff started.
NFLX is still a buy here, but as I already mentioned, higher prices mean this is a riskier buy. Trade an appropriate size so if the company reports dreadful earnings in two weeks, the loss isn’t unreasonably large. If earnings are bad, abandon ship and even consider shorting the stock. But if they meet expectations, or better yet, beat expectations, this stock will be making new highs in no time. One negative outcome versus two positive outcomes, I like those odds. There are no guarantees in the market, but this setup is attractive.
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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:
It’s been a dramatic 24 hours for the S&P 500. Iran launched rockets at two U.S. airbases in Tuesday evening, sending futures tumbling nearly 2%. Between the headlines and the futures market’s reaction, it was easy to be concerned for our equity positions on Wednesday. Yet barely 12 hours later, futures recovered those towering losses before the open and the index opened in the green. And it got even better, prices actually rallied to record highs later that afternoon!
While this performance was definitely awe-inspiring and a bit shocking, this resilience shouldn’t have surprised anyone. This was the fourth session in a row affected by headlines from the Middle East. It started Friday, then Monday, and again on Tuesday. What did all three of those sessions have in common? Owners largely shrugged and continued holding for higher prices. Would a fourth day of headlines change anything? Probably not. And that is exactly what happened today. Owners shrugged, supply dried up, and prices rallied back to the highs.
Agree with the market or don’t, but there is no arguing with it. If this market doesn’t want to go down, there is only one way to trade it. Anyone who overreacted to these developments is dumbfounded by the market’s blatant disregard for headlines that “obviously” should have sent stocks crashing. But while those people are busy arguing with the market, others of us are over here making money. I see a market that refuses to go down on bad news and from experience, there are few things more bullish than a market that refuses to go down.
I have no idea how much longer this strength can last, but as long as it keeps doing all the right things, I’m going to stick with it.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
By Jani Ziedins | Free CMU
Cracked.Market University:
The only way to make money in the stock market is by taking profits in our favorite trades. This blog post covers how I lock-in profits. This is a particularly timely post, not because I think this is the time to take profits, but because of what taking profits allows me to do.
First, I don’t know how to consistently pick tops and I bet most of you don’t either. If we cannot pick the top, then by rule, we are either selling too early or we are selling too late. Both strategies are perfectly acceptable and they come with their own unique set of advantages and disadvantages.
The first and easiest to understand is selling too late. This happens when we hold a stock past the peak and sell it on the way down. We’re in this to make money and that means we naturally want to squeeze every last dime of profit out of a trade. Who wants to sell for a 10% profit only to watch the stock rally another 200%?
The most conventional way of selling late is following the stock higher with a trailing stop. When the stock rallies from $50 to $60, we move our $40 stop up to $50. If the stock moves up to $70, we lift our stop to $60. We repeat this process until the stock finally peaks and dips under our trailing stop. This seems easy enough.
(Of course, a lot of traders are not sensible and rather than employ a thoughtful system like a trailing stop, they react impulsively to every bump in the road and only sell after they become convinced their favorite stock is crashing. And as most of us know from personal experience, this happens moments before prices rebound!)
But there is another way to take profits and is the approach I prefer, selling winners on the way up. The most obvious disadvantage of selling early is once we get out, we give up on any further upside. Unfortunately, most people believe this and it is absolutely not true. Just because we sold last week, yesterday, or even this morning doesn’t mean we cannot jump back in if the conditions warrant it. But most people have the mindset that once they sell, they are out of the trade and this just isn’t true. Selling simply means the risk/reward is no longer stacked in our favor. But like everything in the market, the situation can change quickly.
There are two reasons I like selling early. First, taking profits early frees my mind to look for the next trading opportunity. Selling early leaves me hungry and forces me to start looking for something to do with my cash. Sometimes that means buying back in after a short period out of the market. Other times it allows me to be the hungry dip buyer during the next dip. Second, I don’t like holding stocks moving sideways. I’m not getting paid when a stock is consolidating, yet when I own a stock, I continue holding all of the risks of the unknown. I only want to hold risk when I’m getting paid and that means avoiding stocks moving sideways.
The reason this applies to our current market is because I took profits proactively before the holidays. The S&P 500 rallied above 3,200 in mid-December and that was good enough for me. Every other time the market hit a round level over the last few months, it traded sideways for a bit. Now, I will freely admit I missed the move a few days later to 3,250, but I wasn’t worried about it. Not long after later prices tumbled and when the crowd was fearfully debating whether they should bailout before the market crashes, I was eagerly looking at this dip as a buying opportunity. While people were abandoning ship yesterday, I was buying the dip.
Selling early gives me more flexibility and it keeps me out of the market when I don’t need to be in. I had a nice holiday out of the market and taking profits early left me in a great position to jump back in once the market presented the next opportunity.
That said, this is what works for me and it doesn’t necessarily apply to you. Find the strategy that works for you and stick to it. The only way to do this wrong is making it an emotional decision.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $STUDY
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