Nov 27

Why Monday’s price action doesn’t mean anything

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped 0.2% on this first Monday back from the Thanksgiving-affected week.

Not much is going on in the financial press, and a little give-back following last week’s modest 1% gains is not a surprise. Big money was not involved last week, and institutional investors often undo what the little guys did when they were on vacation.

The first few sessions after a major holiday are usually slow, and I’m not expecting anything interesting before the second half of the week…at the earliest.

That said, it is constructive to see the index hold the majority of recent gains. If this market skating were on thin ice, Monday’s selling would have accelerated, not stalled after a fairly inconsequential loss.

At this point, most owners are comfortable holding for higher prices, and the resulting tight supply is keeping a floor under the market. The longer we go without retreating, the more real these prices become. (But as always, we can’t take anything for granted, and the next wave of fearful selling is never more than one bad headline away.)

The market is behaving well near 4,600 resistance, and acting like it wants to test this level before doing anything else.

Calm markets are bullish, and the path of least resistance remains higher, but I’m not excited to hold all of the risk underneath us for another 20-40 points of upside. That means I will keep watching this develop from the sidelines after collecting big profits before the Thanksgiving break. But if this strength persists and we are setting up for another pop through in overhead resistance, I will be happy to jump back in. But we’re not there yet.

Smashing through 4,600 resistance or getting rejected by this level, it doesn’t matter what the market does next as long as it does something. We will learn a lot about the market’s mood in the second half of this week.

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Nov 16

Why smart money is skipping next week

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Tuesday’s session up a tenth of a percent as it continues to digest the huge rebound from the October lows.

Stocks fall quickly from overbought and unsustainable levels. While holding gains for two sessions is not conclusive, it demonstrates there is some support for these prices. And the longer we stay here, the more real they become.

That said, as good as the market looks, I’m not one to look a gift horse in the mouth. The market gave me huge profits over the last three weeks, and I won’t allow myself to get greedy by asking for even more. As I wrote Wednesday evening, I locked in some really nice profits:

I’m not calling this a top and the index’s momentum could easily push us higher for a few more days, but common sense tells us the rewards above our heads are far smaller than the risks underneath us.

This has been a great trade, but all good things come to an end. We only make money when we sell our best trades, and this is the time to be collecting some very well-earned profits.

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Next week is Thanksgiving, and most big money managers will be on vacation, so we shouldn’t expect a lot of buying. The junior associates manning the desks don’t have the authority to initiate new positions, so it should be a quiet week.

That said, without big money’s guiding hand, that does give emotional retail traders more influence. Lucky for us, these impulsive traders have small accounts and can’t drive the market very far, but they can inject some volatility if they get whipped up into a frenzy.

Limited upside and elevated risks for increased volatility mean this is a great time to watch from the sidelines. Spend next week with friends and family, not obsessing over whether ten points up or down is the start of the next big move. There will be plenty of trading opportunities in the final weeks of the year. Enjoy our recent run of good luck and take some time off.

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Nov 15

All good things must come to an end

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added another 0.2% Wednesday, making this 11th winning session out of the last 13.

Not bad, considering sentiment was in the toilet three weeks ago after the index fell into correction territory (-10%). Yet, here we are, a handful of sessions later, within 2% of 52-week highs. Funny how that works.

Luckily, loyal readers were well-positioned for this whipsaw. As I wrote in my free analysis three weeks ago when this 400-point rebound was only one day old:

I have no idea if Monday’s bounce will stick, but it was a good start, and that’s all I needed to put on a partial position. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.

If the index retreats on Tuesday, I will pull the plug for a small loss and try again next time. If the rebound keeps going, I will add more and lift my initial stops to near my entry points, greatly reducing my risk.

As I frequently remind readers, buying bounces is hard because two-thirds of them fail. But if we limit our losses on the false starts by entering with partial positions and keeping stops nearby, riding a winner higher with a full position will more than offset any previous losses.

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I will be the first to admit I didn’t see a 400-point rebound coming, but we must be standing in the right place at the right time before we can get lucky. And that’s exactly what happened. I didn’t know how far and fast this rebound would run, but I knew a bounce was coming, and I grabbed hold.

But 400 points later, it is hard to be excited by the diminishing rewards left ahead of us versus the growing risks looming underneath us. Everyone knows stocks move in waves, and just as obvious as it was that a bounce was coming our way three weeks ago, it is equally obvious that this rate of gains cannot keep going.

Now, to be clear, I’m not calling this a top and the index’s momentum could easily push us higher for a few more days, but common sense tells us the rewards above our heads are far smaller than the risks underneath us.

This has been a great trade, but all good things come to an end. We only make money when we sell our best trades, and this is the time to be collecting some very well-earned profits.

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