Apr 23

A bullish weekly loss for the indexes and a trade so bad it is getting good

By Jani Ziedins | End of Day Analysis

Free Weekly Analysis: 

The S&P 500 finished last week in the red, snapping a four-week winning streak.

That said, retreating a barely noticeable 0.13% doesn’t count as a meaningful loss. In fact, this dip ended up being highly constructive for the index.

Everyone knows stocks cannot go up every single day and periodic down days (and weeks) are inevitable. As is usually the case, how we finish counts a lot more than how we start. Stocks slipped on Monday and Wednesday’s mid-week bounce fizzled and retreated. But when it mattered, the index rallied decisively on Friday and closed within a whisper of all-time highs.

This strong close turned a weekly loss into a very bullish development. As I often write, something that refuses to go down will eventually go up. If the bears couldn’t kill the bull market this week with the wind at their back, chances are good they won’t be any more successful next week.

Stick with what has been working, which is holding for higher prices with stops under the weekly lows near 4,120.

Far less constructive was COIN‘s post-IPO trading. After last week’s eye-popping initial pricing, the stock has retreated six of the last seven trading sessions and finds itself down 32% from the frenzied IPO highs.

But that’s the way this usually goes. The more hyped the IPO is, the bigger bust it turns out to be. (I will dig into the psychology behind this phenomenon another time. That said, it is fairly intuitive if you think about it.)

That said, COIN might be getting so bad it is starting to looking good. Now, this is nothing more than a short-term trade, but this stock is on the verge of bouncing hard. If not Monday, then over the next few days. Buy the bounce with a stop under the lows and be ready to take profits quickly.

As for investing in this stock, if a person is patient and waits a few more weeks, prices will get even more attractive.

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Apr 22

Is Biden’s tax increase going to kill this bull market? Plus the best time to buy Bitcoin.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday was a dramatic session for the S&P 500. The day started off well enough when a small opening dip bounced back to breakeven. But not long after, the flood gates opened the index tumbled nearly 60 points in an hour.

If you believe the headlines, traders were blindsided by reports Biden plans on doubling the capital gains tax. Right or wrong, that was enough to trigger a cascade of reflexive selling. But as ugly as things looked midday, the weekly lows near 4,120 provided rock-solid support.

Will 4,120 support continue holding on Friday? While there are no guarantees, there is a good chance this knee-jerk selling already came and went.

If anyone is surprised a Democratic president is going to raise taxes on the rich, I have a bridge to sell them. This is old news and anyone that feared president Biden’s tax agenda sold way back in November. Investors still holding stocks under a Democrat-controlled Washington D.C. are clearly not worried about these things.

While today’s reflexive selling put on a good show, don’t expect it to add up to much because higher taxes is old news. This bull market got to these levels because of the unprecedented money printing. As long as nothing threatens the flow of stimulus, then the rally is still on.

That said, never underestimate a spooked herd of selling fools. If prices undercut 4,120 on Friday, step out of the way and let the knee-jerk continue. But someone else’s loss can turn into our gain if we are willing to step in a few hours later and buy the bounce. And that’s only if we get lucky enough for the panic selling to continue Friday morning. Most likely, the worst has already passed.

Hold above 4,120. Sell if prices retreat under 4,120 and be ready to buy the bounce even if it is only hours later.

It’s been a rough few days for Bitcoin. The cryptocurrency is down more than 20% from last week’s record highs. While the initial $60k breakout was buyable, this subsequent fizzle was a clear signal to get out. As I wrote earlier:

The $60k breakout failed and it is best to get defensive until this gets back above $60k. Until then, expect the ride to get bumpy.

While it seems obvious now, everyone had the opportunity to sell when this fell back to $60k. While fortune favors the bold, that doesn’t include holding speculative investments all the way down. Remember, it is far easier to buy back in following a false alarm than it is to plead a stubborn trade higher. (Selling at a higher level is always better than wishing you sold at a higher level.)

As for what comes next, Bitcoin is in no man’s land between $40k support and $60k resistance. A bounce back above $60k is buyable as is a bounce off of $40k support. But in between these two trading signals, this is a wait-and-see.

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Apr 21

An index trade that worked as planned and a $NFLX trade that was postponed until Thursday

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Following two days of selling, the S&P 500 came roaring back Wednesday and added 0.9%.

Not bad, not bad at all. As overpriced as this market seems, dip buyers cannot help themselves.

As I wrote Tuesday, there were two ways to trade Wednesday based on the resulting price action:

Bounce and close well [on Wednesday], that is a buy signal with a stop under the intraday lows. If Wednesday’s selling cannot find a bottom, lock-in profits in our existing positions and agressive traders can short a violation of 4,100 with a stop just above this level.

Dip buyers took control not long after the open and this pullback disappeared even quicker than it came. But that’s the way this usually goes. Either dips bounce shockingly quickly or the selloff goes a whole lot further than anyone expected.

At this point, this looks like just another shockingly quick bounce.

As I described on Tuesday, Wednesday’s bounce was buyable with a stop under the dip’s lows. As long as the index remains above this level, the bounce is alive and well.

But if prices fall under 4,120, the selling isn’t done yet and an aggressive trader can even try their hand at a quick short.

While the index trade worked nicely, NFLX did the one thing I least expected, hold steady following a large gap lower.

Normally, big moves either accelerate or they reverse. Almost never does the pre-market get it exactly right and put the stock right where it should be. That’s like flipping a quarter and having it land on the edge. But almost never is not the same as impossible and occasionally these things happen.

That said, I don’t expect this stability to last for long. Either the selling picks up steam or the dip buyers come rushing in. It didn’t happen Wednesday, but the same trade is still valid for Thursday.

Buy the bounce in NFLX or short the breakdown. This stock is going to make a big move in one direction or the other, we just need to wait for the market to tell us which way it wants to go. (Not bouncing Wednesday suggests dip buyers are scarce and that gives the edge to NFLX bears.)

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Apr 20

How the index is going to tell us what comes next, plus the best way to trade $NFLX’s miss

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Tuesday was another bad session for the S&P 500. The index lost 0.7%, adding to Monday’s 0.5% loss and making this give-back the biggest in a month.

Let’s be honest, things must be pretty good if the biggest thing we are worried about is a two-day, 1.3% decline. That said, every big selloff starts off small.

So which is it? An insignficant wobble on our way higher? Or the start of the next downturn?

Since both of these outcomes start the same way, looking backward won’t give us the answer. Instead, we have to look toward what comes next, most importantly, what happens Wednesday. If prices slump at the open and the selling accelerates, this dip isn’t done and we still have a ways to go. On the other hand, open weak, bounce off of those early lows, and close well above those lows, the worst is already behind us.

This divergence on Wednesday forms the basis for our next trade. Bounce and close well, that is a buy signal with a stop under the intraday lows. If Wednesday’s selling cannot find a bottom, lock-in profits in our existing positions and agressive traders can short a violation of 4,100 with a stop just above this level.

Most likely this is nothing more than a minor wobble on our way higher. But we are due for a down wave and if it is getting started, we don’t want to be caught on the wrong side of it.

NFLX reported disappointing subscriber growth after the close and got smacked in after-hours trade. There are only two ways this plays out. Either this is a lot of nothing and the stock will continue higher. Or this is the start of the next big pullback. In a stock with such a sky-high valuation, there no room inbetween.

Much like the above index trade, it all comes down to how NFLX closes Wednesday afternoon. Bounce from the early lows and this is buyable with a stop under the midday lows. On the other hand, close near the lows and this turns into a short..

Let the market tell us what direction this stock is deaded and then hang on for a quick buck.

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Apr 19

The best way to trade the indexes at the highs, plus what to make of this Dogecoin trade

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

On Monday, the S&P 500 experienced its biggest loss in nearly a month. That said, “biggest loss” only amounted to a 0.53% decline. This shows just how gentile and benign this rally has become.

Two steps forward, one step back. That’s how this works, always has, always will. While no one is flinching over a 0.53% decline from record highs, there will come a time when these losses start piling up. And by the time people become worried about it, a good amount of damage will have already occured.

Now to be clear, I’m not a bear or anything remotely close. But I’ve been doing this long enough to know this rate of gains cannot continue indefinitely. And once this surge runs out of gas, there are only two options left, sideways or down. Either way, that is a far better time to be locking in profits than adding new money.

For those that have been following these posts for a while, we are sitting on a pile of profits and it is time to get defensive and protect those profits.

Once we give up on the foolish idea of picking tops, we realize the only two choices left are selling too early and selling too late. And as is usually the case in the market, this doesn’t have to be a binary decision. Don’t think all-in and all-out, instead trade in shades of gray.  It is perfectly okay to take some profits and let the rest ride with a trailing stop. That gives us the best of both worlds.

For the time being, I’m holding for higher prices but if I see further weakness and closes near the daily lows, I will start peeling off profits proactively even if my stops haven’t been hit.

And you know what? Once I sell, there is nothing that prevents me from getting back in when prices bounce. It’s like having your cake and eating it too! Never forget, we only make money when we sell our winners.

Bitcoin tumbled under $60k support as it turned into a source of funds to fuel this borderline absurd Dogecoin rally. While I don’t have a problem buying something that is going up (meaning Dogecoin is a legitimate trade), but that is only as long as people are trading this and not investing in it. As long as a person is agile and willing to take profits, they can ignore all Dogecoin critics. But if a person believes the hype, good luck with that.

As for Bitcoin, the $60k breakout failed and it is best to get defensive until this gets back above $60k. Until then, expect the ride to get bumpy.

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Apr 16

When to lock in profits in the index and what the FAANG stocks are telling us

By Jani Ziedins | End of Day Analysis

Free End of Week Analysis:

After spending most of February and March consolidation between 3,900 and 4k, the S&P 500 finally broke out and launched itself nearly 5% in just two weeks.

Coil…spring…coil again…spring again…

So far everything is going according to plan. That said, 5% in two weeks is steep even for the most bullish of markets. That means at the very least, we should expect the rate of gains to slow down over the near term.

Expecting a slowdown doesn’t mean I’m bearish, just that I’m realistic and have been around the block a few times. Two steps forward, one step back.

That said, we don’t need to bail out of this market until the next dip actually starts. Keep holding for higher prices as long as the index remains above our stops in the upper 4k’s/lower 4,100s. Just because another 5% move is unlikely doesn’t mean it is impossible.

Savvy traders let the market tell us when it is time to lock in profits and so far this one isn’t signaling us yet. The biggest warning sign of faltering demand will be a couple of fizzles into the close. That is a good sign to lock in some profits proactively and we don’t need to wait for the market to hit our stops.

If there is one warning sign of a looming slowdown, it is the lethargic behavior of the FAANG stocks this week. These best-of-the-best stocks helped launch the 4k breakout, but these same stocks lagged behind badly this week.

If they get their act together next week and start outperforming again, all is forgiven and forgotten. But if their underperformance continues next week, expect this to weigh on the entire market and the near-term consolidation/pullback is upon us.

As we saw in February and March, the index cannot rally without the biggest stocks participating.

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Apr 15

How to protect profits in the index and the best way to trade $TSLA’s reversal

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 popped 1.1% Thursday and is up 8% in three weeks. (Trade that with a leveraged ETF and the profits are spicy!)

Three weeks ago investors were cowering from spiking Treasury yields. Now I cannot even remember the last time I saw an article mention Treasury yields. But that’s the way this always goes; buy the fear and sell the relief.

As good as this trade has been, only a greedy fool expects the index to surge another 8% by early May. I’m not suggesting people rush out and sell everything because “stocks are too high!”, but I am saying we need to be far more careful following a nice, one-direction run like this. (Everyone knows stocks move in waves.)

Keep holding for higher prices but move up our trailing stops and consider locking in some profits proactively if the index stumbles into the close on Friday or early next week.

Wednesday was an awful day for TSLA and things were only marginally better Thursday. The stock popped early Wednesday and challenged $800 resistance, but rather than chase prices higher, investors hit the sell button and the stock ultimately finished down 4%.

While I’m not going to give up on this stock because of one bad day, but this intraday fizzle was a huge warning flag. The important thing is the stock stabilized Thursday and the selling didn’t continue.

Everything is fine as long as TSLA remains above $700, but lock-in profits if this retreats under $700 because the selling won’t stop until it hits $600 support. (The most aggressive trader could short a violation of $700 with a stop just above this level.)

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