Jul 29

What does a bad night mean for Friday’s session? Plus when it’s safe to buy HOOD

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday was a good session for the S&P 500 with the index adding 0.4% and pushing back near record highs.

But that was then and this is now. In after-hours trade, the indexes are tumbling on continued Asian weakness and U.S. futures down more than half a percent.

Is this finally the start of the long-predicted stock crash? Bears are definitely dreaming about that tonight.

But if bears have been wrong all year, what are the chances they finally get it right this time? Ummmm, yeah…..

While there is an entire night for this situation to develop, I don’t put a lot of weight in overnight futures. This is an incredibly thin market and easily swayed by small and impulsive night owls. Big money trades during the day and they couldn’t care less about what a bunch of guys in their pajamas think.

Occasionally other parts of the world lead our market, but those episodes are few and far between. Our current bull market is fueled by a huge resurgence in the U.S. economy and what’s going on in the rest of the world doesn’t matter. In fact, things are so good here foreign investors are flooding into our markets because this is where the party is happening.

No doubt Asia and Europe still have their problems, but they are not a concern for U.S. investors. If these weak futures cause our indexes to gap lower Friday morning, that gives us an excellent entry point. Wait for the early bounce and buy with a stop under those initial lows. This is an easy, low-risk trade. If the selling resumes, no big deal, we get out and buy the next bounce.

HOOD got slammed on its first day of trading, but that usually happens to most over-hyped IPOs. Expect the selling to continue for a few weeks and even months. But this will eventually bottom like it always does. And that is when investors who believe in this stock should be taking advantage of those discounts. No doubt a good trade in this stock is coming, we just need to be patient and wait for it to come to us.

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Jul 28

What the indexes are telling is coming next, plus the best way to trade Bitcoin’s next move

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday was another do-nothing session for the S&P 500.

As dramatic as last week felt, it didn’t change anything and we are still stuck in the dog days of summer. Big money is on vacation and they are the only ones with enough firepower to move markets in a meaningful and sustainable way. The rest of these summer peanut-shooters expend all of their capital in a matter of hours and is why price moves bounce back so quickly.

As I wrote previously, it’s been a very nice, nearly 5% run this summer and a sideways consolidation is long overdue. Expect the market to grind sideways into the fall and that is when things will get more interesting. But until then, keep expectations low.

And remember, sideways includes lots of up and down that doesn’t go anywhere. Avoid the temptation to read too much into any and every gyration because most will fizzle and reverse not long after they get started.

The only thing that would change my mind is a sustained move above 4,400 or a dip under 4,250. Until then, the next few weeks is nothing more than a boring grind sideways.

Bitcoin’s pop back to $40k resistance this week has been impressive. And just as meaningful is holding those gains the last few days. Unsustainable moves tend to retreat under their own weight fairly quickly and staying at these levels tells us the market believes in this price. That said, I would be quick to lock in profits if this retreats back under $40k. Above $40k, this is a buyable breakout. Under $40k, it is stuck in a $30k to $40k trading range and we want to be sellers at the top of the range.

Which is this? Smart traders follow the market’s lead and we will have our answer soon enough.

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Jul 27

Why Tuesday’s loss was bullish, but it still doesn’t matter

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Tuesday was a mixed session for the S&P 500. The index opened with losses and the one-way selling knocked stocks down more than 50-points in midday trade.

The CDC reversed its guidance and now these alleged experts tell us vaccinated people should resume wearing masks in most of the country due to the pervasive Delta variant.

While this is a flip-flop from previous guidance and wearing masks is most definitely uncomfortable, this announcement was not an economic development. As we have seen over the last 12 months, mask-wearing is not a meaningful economic deterrent. The stock market rallied nearly 100% from the Covid lows while everyone was wearing masks and a return of those policies won’t make a difference to the stock market. Consumers (and investors) still have money burning a hole in their pockets and they will continue spending it regardless of their mask status.

And unsurprisingly, it didn’t take long for cooler heads in the market to prevail and the index bounced decisively off of those midday lows. Prices still closed in the red but they recovered more than half of those early losses and that resilience is considered a win for the bulls.

As I’ve been writing over the last few weeks, this remains a strong market and owners remain stubbornly confident. That is keeping a floor under prices and decisively rebutting things like last week’s selloff. But at the same time, we’ve come a long way and some sideways consolidation is long overdue.

The most important thing to remember about sideways consolidations, all of the ups and downs inside the consolidation are totally meaningless!!! Things will get more interesting this fall when big money managers return from summer vacation and start adjusting their portfolios ahead of year-end. Until then, these daily gyrations don’t matter.

The lone exception to the above analysis is if the index falls under last week’s lows. Slip under 4,250 and all bets are off. Until then, “this ain’t nothin’ but a thang.”

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Jul 26

The index is back to making new highs, but for how long?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Following last week’s brief bout of volatility, the S&P 500 slipped back into its more leisurely summer mood on Monday, adding a modest 0.24%. But that was good enough for yet another record close and last week’s second thoughts are quickly fading from memory.

More important than this almost imperceptible 0.24% gain is the index continues holding last week’s bounce. False bottoms fail quickly and they most definitely don’t keep making new highs. By those measures, last week’s selloff is clearly dead and this bounce is the real deal.

But as I wrote last week, I also don’t have high expectations for big gains over the near term. It’s been a good run over the last few months and the rally will likely stall and grind sideways into the fall. That said, this is just my opinion and the market is always willing to prove me wrong. At the moment, the rally is trading well enough to be worth sticking with, just come into this trade with measured expectations.

We are a few weeks into earnings season and while we still have a lot of important companies yet to report, if there was something structurally wrong with the economy, it would have shown up already in the first wave of earnings. While we will continue to see individual winners and losers, overall, the economy looks to be in pretty good shape.

Inflation, money printing, deficits, the Delta variant, and all of the other reasons stocks should tumble from these highs are still out there. But most investors don’t seem to care and when they don’t care, I don’t care.

Knowing what we know now, selling last week’s dip at our stops was not necessary, but there was no way to know that at the time. Smart money trades everything as if it is the real deal because you know what, it often turns out to be exactly that.

That said, we actually got lucky last week. Locking in some nice profits the previous week near the highs allowed us to jump in at lower prices during last Tuesday’s bounce. While that modest exchange isn’t making anyone rich, it is hard to beat protecting ourselves from a much larger selloff and getting paid to do it!

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Jul 22

What this week’s volatility means for the remainder of the summer (and it isn’t what you think)

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Blink and you missed this week’s collapse and bounce-back in the S&P 500. While Monday’s tumble was the biggest one-day drop in three months, Tuesday’s rebound was equally impressive. And here we stand a few days later, right back where we started and wondering what the heck just happened?

But this pick-up volatility isn’t a surprise for readers of this blog. As I wrote over a week ago, we needed to approach this run to 4,400 with a healthy dose of skepticism and that proved to be valuable advice as the index shed nearly 150 points over the next three trading sessions:

Now to be clear, I’m not calling a top, simply pointing out the risk/reward is no longer skewed in our favor. In fact, following a 5% move over four short weeks, the risk/reward is most definitely skewed against us.

The first part of my comment, “I’m not calling a top”, is now the most relevant part for us going forward from here.

Three days later and Monday’s selloff is dead. Emotional selloffs need emotion to keep going and this one lost all of its momentum following this three-day bounce. Nervous owners are no longer nervous and that makes a world of difference when it comes to convincing people to make irrational trading decisions.

But just because owners are confident again doesn’t mean everything is back to the way it was last week. No, those with cash are still having second thoughts and reservations about chasing stocks near all-time highs.

Confident owners that don’t want to sell and gun-shy buyers afraid of these high prices is the perfect recipe for a prolonged sideways grind under 4,400 resistance. Something that will stretch out for the rest of the summer.

That said, while I don’t expect this market to go anywhere anytime soon, buying Tuesday’s bounce was still a great entry point. For anyone that got in early, they can move their stops up to their entry points, giving themselves a free trade. While the market might not go anywhere for a while, it is hard to beat the risk/reward of a free trade! (go up and we make money, go down and we get out at breakeven)

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