Aug 23

Why the market doesn’t care about the growing Trump scandal

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

On Thursday the S&P 500 finished modestly lower after drifting sideways for most of the day. Headlines continue to be negative for Trump, but as expected, the market doesn’t care.

This is what I wrote Tuesday after the market initially dipped following Michael Cohen’s guilty plea and accusations against Trump:

I don’t expect the market to overreact to these Cohen headlines because anyone who was paying attention saw this coming a mile away. Remember, we fear what we don’t know, not what everyone else is talking about. There are real risks lurking out there, but this is not one of them.

 

The market is a little more vulnerable to these headlines simply because we are at the upper end of the trading range and a cool down was inevitable. If it wasn’t these headlines, it would have been something else. We are still stuck in the slower summer months and we won’t have the firepower to push a large directional move until institutional money managers return from their summer cottages. Until then we should expect these smaller directional moves to fizzle at the edges of the trading range or one reason or another.

The growing Trump scandal isn’t dampening the market’s mood and traders are not concerned about recent developments. These events first came out months ago and if prices were going to tumble, they would have done so back then. The fact we didn’t sell off initially tells us we don’t need to worry about these headlines today. If the market doesn’t care, then neither should we. The market’s benign reaction the last two days confirms that outlook.

It’s been a while since Turkey and trade wars made the headlines and our “no news is good news” market continues hovering near all-time highs. While confident owners have zero interest in selling the news, it is harder to convince those with cash to buy these highs and is why the gains have stalled. We are at the tail end of the slow summer season and it will be a few more weeks before we start seeing more meaningful buying.

Many money managers are underweight stocks because they sold defensively earlier in the year. These managers have been desperately waiting for a pullback so they could jump back in. Unfortunately, the market is not cooperating and this latest round of gains is pressuring them to chase prices higher. Once they give up waiting for the pullback, they are going to be forced to bite the bullet and buy stocks at all-time highs. The breakout is not imminent, but it is coming.

Even though the market is acting well, we are still vulnerable to near-term volatility. Risk is a function of height and it would be normal, even routine for the market to dip modestly here. Prices are responding well to these Trump headlines. That means we are more likely to go higher than lower, but the risks of a small dip are always there. As long as we know what to expect, we are less likely to overreact to a modest bump in the road.

At this point, any dip is a buying opportunity, not an excuse to sell stocks. Remember, we take profits by selling strength, not weakness. If someone is not sure they can sit through a small dip, they should take profits now. Otherwise, there is nothing to do other than patiently watch the profits pile up.

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Jani

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Aug 21

All-time highs! Who knew this was coming?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Tuesday was a doubly significant day for the S&P 500. Not only did we notch a fresh all-time high, this also became the longest bull market in history. Not bad for a market that most were giving up on only a few weeks ago.

Last week stocks stumbled on fears of a Turkish collapse, but I wasn’t worried. If the stock market didn’t care about a trade war between the world’s two largest economies, why would it get spooked by problems in a minor eastern European country with an economy smaller than Netflix’s market cap?

Hindsight bias being what it is, everyone knows now it wasn’t a big deal. But if we want to make money we need to know these things ahead of time. Luckily readers of this blog were ready because I wrote the following last Tuesday before we dipped to 2,800 and bounced decisively off support:

While it already looks like the Turkish selloff is dead, we need to hold this bounce for a few more days to be certain. There is a chance this bounce could fizzle and we continue slipping back to 2,800 support. If that happens, that will be a far more attractive entry point. Until then I will keep watching, waiting, and hoping for that next profitable opportunity.

 

As for our longer-term positions. There is nothing to see here. Stick with what has been working and ignore the noise. The market is still setting up for a strong rally into year-end.

That was simple and profitable advice for both short-term traders and long-term investors. And even better for regular readers of this blog, they had the cash to buy the dip because I recommended locking in profits the week before.

While it is nice to reflect on profitable trades, what people really want to know is what comes next. Even though Tuesday was a record day for the S&P 500, things got a more difficult in the afternoon after Trump’s personal lawyer plead guilty and appears willing to work with prosecutors. If the worst plays out, Trump could be implicated in campaign finance violations. This was a developing story at the close and stocks continued to fall in after-hours trade.

That said, the losses were relatively minor, only falling 0.5% after the close. While this Michael Cohen stuff is making headlines today, it doesn’t really surprise anyone. This scandal has been brewing for months and if the market was truly worried about it, we would have fallen on these headlines a long time ago. If it didn’t matter then, it doesn’t really matter now.

The market is a little more vulnerable to these headlines simply because we are at the upper end of the trading range and a cool down was inevitable. If it wasn’t these headlines, it would have been something else. We are still stuck in the slower summer months and we won’t have the firepower to push a large directional move until institutional money managers return from their summer cottages. Until then we should expect these smaller directional moves to fizzle at the edges of the trading range or one reason or another.

As I said, I don’t expect the market to overreact to these Cohen headlines because anyone who was paying attention saw this coming a mile away. Remember, we fear what we don’t know, not what everyone else is talking about. There are real risks lurking out there, but this is not one of them.

And to editorialize a little here, I actually don’t think the market would mind all that much if Trump was bogged down by a scandal that robbed him of a big chunk of his political capital. The stock market got the regulatory relaxations and tax cuts it was looking for last year. In a perfect world Trump would have gone on a two-year vacation instead of starting fights with our biggest trading partners. At this point there is a good chance the market would actually cheer Trump getting his hands tied so that he couldn’t screw with anything else.

Earnings season is winding down and by all accounts, it was a good one. Trade and politics don’t matter nearly as much as economic growth and profitability. Despite all the negative headlines dominating the financial press over the last six months, companies are doing well and the stock market is rallying on that strength. Nothing else mattered then and it won’t matter now. This is a strong market and we should continue to trade it as such.

For short-term traders, the opportunity to buy was last week as we tested support, not now that we are making new highs. This is a better place to be taking profits than adding new money. Assuming this Cohen thing is short-lived, we should push toward 2,900 resistance over the next week or two. That would be a good place to take short-term trading profits.

For our long-term stocks, there isn’t a lot to do here other than relax and let the profits come to us. We are setting up for a rally into year-end and we should enjoy the ride.


As for the tech trade, it missed the early parts of last week’s bounce off of support, but it has been catching up the last two days. The tech trade will survive as long as the broad market does well and it will continue leading the way. FB and NFLX got hit pretty hard and are consolidating their losses, but the worst is behind us. These are the discounts people were praying for a few months ago. No doubt in a few months those same people will be kicking themselves for not buying these discounts when they had the chance.

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Jani

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Aug 16

The profit opportunity everyone should have seen coming

By Jani Ziedins | End of Day Analysis

End of Day Update:

On Wednesday the S&P 500 forgot about Turkey and rallied sharply on news the US and China restarted trade negotiations. Those headlines were enough to put traders in a buying mood and pushed us back near all-time highs.

I assured readers on Tuesday that we didn’t need to worry too much about those Turkish headlines because this current crop of confident owners refused to sell far worse news. In fact, I said we would be lucky if prices dipped to 2,800 support because that would give us a great entry point. As luck would have it, we dipped to 2,800 support Wednesday morning before bouncing back to the highs. Savvy traders that understood what was going on were able to make a quick buck at the expense of those that didn’t know any better. (sign up for free email alerts so you don’t miss the next trading opportunity)

Last week Turkey was new and unexpected, something traders hadn’t been talking about previously. But one week and two dips later, it has come a long way and the initial shock is wearing off. Friday will mark a full week for traders to process these developments and execute a response. Traders who fear Turkey have been given plenty of time to sell and is what drove this week’s weakness. But as expected, the majority of confident owners shrugged off the news and continued to stick with their favorite stocks. If they refused to sell an escalating trade war between the two largest economies in the world, did anyone actually expect them to overreact to problems in some minor eastern European country? Turkey is getting priced-in and each subsequent recycling of those headlines will have less and less of an impact.

Wednesday’s dip to support was a great opportunity for anyone that missed the first run to all-time highs to jump aboard this rally. But now that we are back near the highs, chasing becomes riskier. The path of least resistance is still higher and this market is setting up for a strong year-end rally, but over the near-term we should expect a little more choppiness as we consolidate recent gains. That said, any positive developments from the negotiations between the US and China could fuel a swift move up to 2,900. I don’t mind owning stocks here, but anyone that missed Wednesday’s discounts and is trying to buy now should be willing to sit through a little near-term volatility.

And as usual, there was nothing to do with our long-term investments except keep holding them. Prices will keep going higher over the next few months and we want to be there to enjoy the ride.

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Jani

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Aug 14

How a savvy trader could have missed this Turkey mess

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Tuesday the S&P 500 rebounded from Monday’s fizzle and is recovering from a brief bout of Turkish worries. The names have changed, but the story is the same. A small European country is struggling and threatening to take the rest of Europe down with it. These headlines were the catalysts for last week’s tumble from the highs.

While we are still under last week’s highs, fear of Turkey’s economic collapse has been contained. A one day bounce is far from conclusive, but three days into this selloff and we are down less than 1%. That means most traders are definitely not overreacting to these headlines. This remains a “half-full market” and most owners are willing to give it the benefit of doubt.

While these Turkish headlines are new and impossible to predict, it was still possible for a savvy trader to sidestep this dip. I wrote the following last Thursday when stocks were at record highs and before Turkey hijacked the front page of the financial section:

Even though the market left most of its concerns behind as we climbed to these highs, that actually makes this a more dangerous place buy. Smart traders buy discounts, they don’t chase premium prices. Risk is a function of height and this week’s gains made this one of the riskiest places to buy all year. Now don’t get me wrong, I’m most definitely not calling a top or predicting and imminent collapse. But what I am saying is we rallied up to resistance and it is normal and healthy for the market to pause and even dip a little.

I don’t have a crystal ball so I don’t know if we stall at current levels, or if we break through 2,880 resistance and stall above it. Either way it doesn’t really matter because the risk/reward has shifted against us and this is a better place to be taking profits than adding new money. It is a fool’s errand to try and decide if the peak will be 2,862, 2,875, or 2,892. The point is ‘good enough is good enough’ and that is all that matters. And the thing to remember is we cannot buy the next dip if we don’t have any cash. Buy weakness, sell strength, and repeat until a good year becomes a great year.

But just because we slipped from the highs doesn’t mean we need to run for the hills. As expected, the selling has been limited and we didn’t even fall to 2,800 support. As with every other headline over the last six months, owners are reluctant to sell. After years of selling prematurely and regretting it, most traders have learned to hold no matter what. That has been the smartest way for long-term investors to navigate these dips and it doesn’t look like anything changed yet.

Turkey is a small nation and by itself it cannot take down the global economy. No doubt it could cause a lot of pain for some European banks, but there is no reason to think the ECB won’t come to the rescue this time too. That is why the market’s reaction to these headlines has been so muted.

That said, the danger with the above assumption is it means very little risk has been priced in. If everything works out, the upside is limited because we didn’t dip very far. But this complacency leaves us vulnerable if things do not go as planned. I don’t expect this situation to make much of a dent in the global economy, but we have to monitor it closely because if the situation deteriorates, it will weigh on stocks. Unlike Trump’s trade war, larger Turkish risks have definitely not been priced in.

The trader in me misses the days when headlines like these would lead to widespread predictions of another economic collapse. Unfortunately the days of 10% swings in the indexes are long gone. Now the best we get is a 1% dip. The stability is great for care-free holding of long-term positions, but for trading opportunities, there is a lot to be desired.

The dip to 2,820 and subsequent bounce presented us with a fairly weak risk/reward. Day traders could have profited from this few hour move, but for me I’m waiting for something more worthwhile.

While it already looks like the Turkish selloff is dead, we need to hold this bounce for a few more days to be certain. There is a chance this bounce could fizzle and we continue slipping back to 2,800 support. If that happens, that will be a far more attractive entry point. Until then I will keep watching, waiting, and hoping for that next profitable opportunity.

As for our longer-term positions. There is nothing to see here. Stick with what has been working and ignore the noise. The market is still setting up for a strong rally into year-end.

If you found this post useful, join the thousands who follow me on Twitter so you don’t miss future updates: 

Jani

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Aug 09

What to expect now that we reached the highs

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Thursday the S&P 500 slipped for a second consecutive day, but “slipped” is a bit of an exaggeration since combined both days didn’t even register a 0.2% loss. That leaves us still within 1% of all-time highs as we simply slow down following last week’s impressive bounce off 2,800 support.

Long gone are last month’s trade war and rate-hike fears. Funny how calming rising prices can be. But this isn’t a surprise to anyone who has been reading this blog for a while. Long ago we recognized this market’s strength. While others were waiting for the impending collapse, we saw a market that refused to go down no matter how bad the headlines got. One of the things I learned a long time ago is what the market is not doing is often more insightful than what it is doing.

There are few things more bullish than a market that refuses to go down on bad news. All it took was a break from the negative headlines and this market would surge on “no news is good news”. And that is exactly what happened. Remember, we trade the market, not the headlines. If the market doesn’t care about trade wars and rate-hikes, then neither should we.

That explains this markets assent to all-time highs, but the trader in all of us want to know what comes next so we can profit from it. While I’ve been calling for this move to all-time highs, I’ve also been warning that prices would run into resistance at these levels. We are still stuck in the slower summer months and that means we lack big money’s firepower to drive large directional moves. That won’t come until after Labor day when institutional money managers return from their summer cottages. Until then we should expect the market’s moves to be more measured and breakouts and breakdowns to stall quickly.

Even though the market left most of its concerns behind as we climbed to these highs, that actually makes this a more dangerous place to be buying. Smart traders buy discounts, they don’t chase premium prices. Risk is a function of height and last week’s gains made this one of the riskiest places to buy all year. Now don’t get me wrong, I’m most definitely not calling a top or predicting and imminent collapse. But what I am saying is we rallied up to resistance and it is normal and healthy for the market to pause and even dip a little.

I don’t have a crystal ball so I don’t know if we stall at current levels, or if we break through 2,880 resistance and stall above it. Either way it doesn’t really matter because the risk/reward has shifted against us and this is now a better place to be taking profits than adding new money. It is a fool’s errand to try and decide if the peak will be 2,862, 2,875, or 2,892. This point is good enough for me and that is all that matters. And the thing to remember is we cannot buy the next dip if we don’t have any cash. Buy weakness, sell strength, and repeat until a good year becomes a great year.

From a short-term trading perspective, this is a better place to be taking profits than adding new money. But for our longer-term investments, stick with what is working and that is buying-and-holding our favorite stocks. We might see a little near-term weakness, but this market is strong and the rally into year-end is still on.


Stock crashes are breathtakingly quick, which means NFLX and FB hanging onto current levels for two weeks tells us the post-earnings selloff is largely done. At this point it would take a new round of bad news to launch the next move lower. While it will take a while to recover recent losses, it seems most owners are willing to give their favorite stocks the benefit of doubt and are sticking with them. That means we should expect FB and NFLX to retake their leadership position later this fall. Meanwhile GOOGL, AMZN, and AAPL are either making new all-time highs or are just about to. The best trade of the first half of 2018 is getting ready to be the best trade of the second half.

It didn’t take long for Bitcoin to tumble all the way to $6k support. Long gone are the hopes of retaking $8k and now only a few hundred dollars separates us from another lower-low. This chart is very sick and we still have a way to go before this over.

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Jani

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Aug 07

Why this rally to all-time highs was obvious

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P 500 finished Tuesday higher for the fourth time in a row and is at the highest levels in six months, just a few points shy of all-time highs. While traders lived in fear of Trump’s trade war and the Fed’s rate-hikes, the market’s done nothing but climb higher.

Regular readers of this blog know we trade the market, not headlines. This market’s strength has been obvious to us for a while. I could quote any of my blog posts from the last six months, but I’ll save regular readers the repetition and invite new readers to browse my archive.

That said, at times even I was caught off guard by just how resilient this market has been. Last week it looked like we were on the verge of tumbling under 2,800 support, but that was yet again another false alarm. But rather than argue with this strength, we should embrace it. It has been a very profitable ride for anyone that understood why the market was acting the way it was.

Often it is more insightful to look at what the market isn’t doing than what it is doing. For months this market refused to breakdown no matter how ugly the headlines got. There are few things more bullish than a market that refuses to go down on bad news and that is exactly what happened here. While the cynics are dumbfounded we are within a few points of all-time highs, those of us that knew what was going on saw this coming from a mile away.

Of course that was then and this is now. Let’s not forget we are still in the slower summer months and institutional managers won’t return from their summer cottages until after Labor Day. Without big money’s deep pockets, we should expect these directional moves to run out of steam fairly quickly. Prices rebounded from 2,600 and paused at 2,700. When we finally broke away from 2,700, we stopped at 2,800. And now that we are approaching all-time highs near 2,880, we should expect yet another pause. The only question is if we trade sideways for a bit before breaking out. Or if we dip back into the mid-2,700s before launching the next leg of this bull market.

Either way, this is a better place to be taking profits than adding new money. The most profitable trade since February’s bottom has been buying weakness and selling strength. Nothing has changed and that means this week’s strength is a better selling opportunity than buying one. Even though everyone feels a lot better because we are no longer on the “verge of collapse”, the lack of fear and recent price gains actually make this a far more risky place to buy than last week’s fearful dip under 2,800 support.

Everything looks good and we should keep doing what has been working all summer long. For our longer-term investments, that means sticking with our favorite buy-and-hold investments. For our short-term trading positions, we need to shift our mindset from offense to defense and start thinking about locking-in profits as we run into overhead resistance near 2,880. If prices dip and retreat back into the mid to lower 2,800s, that is simply giving us another profitable dip to buy. If we trade sideways for a few weeks, then we jump back in ahead of this fall’s next bull leg higher. Either way this market isn’t going anywhere fast and we don’t need to worry about being left behind.


Despite brief scares in FB and NFLX, the tech trade is still very much alive. While I cannot say it is well given the beatings FB and NFLX took last week, it looks like both stocks have bottomed and are starting their recovery. People who miss a big trade always pray for a pullback so they can jump aboard, unfortunately most of those people lose their nerve when the market finally answers their prayers. If someone wanted to buy FB and NFLX at discounted prices, they better move because those discounts are disappearing pretty quick. At this point the biggest risk to FAANG stocks is broad market weakness. As long as the indexes continue trading well, expect FAANG to keep leading the way higher.

It is hard to find anything positive to say about Bitcoin. Last week’s bounce above $8k support failed and rather than break the destructive trend of lower-highs, it looks like we made another one. Failing to hold $8k, it didn’t take long for us to crash under $7k as any hope brought about by the latest rebound vanished faster than it appeared. If we cannot retake $8k support over the next few days, expect us to tumble through $6k support and start making new lows. This is still a very broken chart and Bitcoin is guilty until it proves itself innocent. So far it hasn’t managed to that.

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Jani

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