Mar 20

Is the worst already behind us?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Monday 0.9% higher as the half-full outlook makes a comeback. While the banking crisis is far from being resolved, it isn’t spiraling out of control and this weekend’s less-bad-than-feared is enough to keep the sellers at bay.

More than simply cheering the helping hand being given to struggling banks, some investors are actually embracing this banking crisis as “bad news is good news”. This new wrinkle puts a tremendous amount of pressure on the Fed to slow rate hikes or risk turning this into a real crisis.

That said, this remains a choppy market and one day’s up is followed by the next day’s down. Monday’s bounce is a lot better than tumbling to fresh lows, but the coast is not clear and we need to remain cautious. While we might be avoiding the worst, we are awfully close to the edge and it won’t take much of a slip to send us flying off of the cliff.

Governments and big banks are propping up their struggling peers. While that has slowed the deposit withdrawals, is it enough to end this crisis of confidence? While it looks promising, only time will tell and we need to put a few more days of stability behind us. The problem with waiting for the all-clear is the good discounts will be gone by then.

I’m not happy buying this uncertainty, but the hardest trades often turn into our best trades. I’m nowhere near ready to start celebrating Monday’s small bounce, but it is working. I remain cautious and will be taking profits early and often, but I’m willing to give this bounce the benefit of doubt until it proves me wrong.

Start small, get in early, keep a nearby stop, and only add to a trade that’s working. And take those worthwhile profits when we have them because they won’t last long!

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Mar 10

I was wrong and why it didn’t cost me any money

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 shed another 1.5% Friday following a stronger-than-expected employment report.

This continues the “good is bad” theme as investors remain fixated on interest rates and continue rooting against the economy.

As I wrote Thursday evening, I actually expected the selling to capitulate and bounce Friday after the employment report:

“Sell the rumor and buy the news” happens often enough that people have given it a name. All of this week’s bloodletting actually improved the odds of a bounce on Friday. Once a nervous owner sells all of his stocks, his opinion no longer matters. So for every nervous owner that bailed out on Thursday, they lost their ability to vote on what comes next.

And more than just taking away weak owners’ votes, these worrywarts have been replaced by confident dip-buyers. If these buyers were afraid of Friday’s employment report, they wouldn’t have been jumping in Thursday afternoon. Out with the weak and in with the strong. That doesn’t sound like a bad thing to me.

Lucky for me, I don’t trade my opinion and was instead on the sidelines Friday morning, waiting for the market to tell me what it wanted to do:

Rather than guess about the employment numbers and then guess about the market’s reaction, I’ll wait for the market to tell me what it wants to do. This is one of those situations where I’d rather be a little late than a lot early.

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As it turned out, there were a lot more people waiting to sell stocks on Friday. As much as I liked Thursday’s setup, it didn’t work. That happens. If this game was easy, everyone would be rich and we know that’s not the case.

This continues to be a half-full market and no doubt dip-buyers will be scarce next week as we wait for the latest round of inflation data.

But just because stocks didn’t bounce on Friday doesn’t mean waiting for a bounce is a bad trading thesis.

Obviously, I was early, and in the stock market, early is the same thing as wrong. But at the same time, this trade could start working later next week or the week after that.

The market has a nasty habit of convincing us we are wrong moments before proving us right. I was clearly wrong on Friday, but since I was waiting for the market to make its move first, I was lucky to be wrong from the sidelines.

But if the market bounces following next week’s inflation data, I will be one of the first to jump aboard that bandwagon. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.

If the selling resumes and I get dumped out again for a small loss again, it happens. For every bounce that works, there will be two or three that don’t. But as long as my losses are on partial positions and my wins are with full positions, I will come out ahead in the end.

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Mar 09

Why savvy traders are not worried about Thursday’s dreadful price action

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday’s S&P 500 session started out innocently enough with the index showing a modest gain, unfortunately, it was all downhill from there as the index shed nearly 2% by the close.

As ugly as Thursday’s session looked, we can’t read too much into this price action because this wave of selling was nothing more than handwringing ahead of Friday’s employment report.

“Sell the rumor and buy the news” happens often enough that people have given it a name. All of this week’s bloodletting actually improved the odds of a bounce on Friday. Once a nervous owner sells all of his stocks, his opinion no longer matters. So for every nervous owner that bailed out on Thursday, they lost their ability to vote on what comes next.

And more than just taking away weak owners’ votes, these worrywarts have been replaced by confident dip-buyers. If these buyers were afraid of Friday’s employment report, they wouldn’t have been jumping in Thursday afternoon. Out with the weak and in with the strong. That doesn’t sound like a bad thing to me.

As for what happens Friday, I have zero idea what the employment report will say, and more than that, even if I knew the number, there is no telling how the market will react to it anyway.

Is good still bad, or have we switched back to good being good again? Maybe stocks rally on bad, but what if it’s really bad? How bad is too bad??? No one knows what Friday holds and it isn’t even worth the effort trying to figure it out.

Rather than guess about the employment numbers and then guess about the market’s reaction, I’ll wait for the market to tell me what it wants to do. This is one of those situations where I’d rather be a little late than a lot early.

Give the market 30ish minutes Friday morning to get the knee-jerk out of its system. After that, the market won’t be able to hide its true intentions and it’s time to jump aboard the resulting move.

That said, odds are good that this week’s selling priced in a lot of bad news and anything that meets expectations, or better yet, turns out less bad than feared, will lead to a nice pop.

I will let the gamblers place their bets ahead of the employment report. I’m more than happy to show up a little late to this party if it dramatically lowers my risk. If this really is the start of the next big, multi-day move, being 30 minutes late isn’t going to change much.

But as I’ve been saying for a while, I believe we are stuck in a trading range. All of the hype surrounding Friday’s employment numbers will most likely result in a letdown and this will be old news by Friday afternoon. If we really are stuck in a trading range, Thursday’s retreat to the lower end of the range means stocks are buyable and I will be more than happy to snap up these discounts once all of the dust clears later Friday morning.

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Mar 08

Why smart money is betting on a trading range and not a breakout or breakdown

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday turned into a mixed session for the S&P 500.

The index spent most of the day trading modestly in the red as Powell continued testifying in front of Congress for a second day, but a late surge of buying pushed the index into the green, closing up a somewhat trivial 01.%.

While no one is getting excited over a 0.1% gain, on the heels of Tuesday’s 1.5% tumble, any gain, even a tenth of a percent is an accomplishment.

As I’ve been saying for a while, if this market was fragile and vulnerable, stocks would have crashed a long time ago. Sure, inflation remains a stubborn problem that the Fed is still trying to fix, but we’ve been living under these conditions for a year. At some point, no matter how bad the news, eventually it gets priced in and stops mattering. And right now, this market seems okay with stubbornly elevated inflation.

Without a doubt, stocks could fall to fresh lows, but we need the headlines to be truly shocking and unexpected, simply more of the same isn’t going to break this market. Until something changes, expect this choppy sideways trade to continue.

Both the bulls and the bears are wrong on this one. We are not racing up to the highs and we are not crashing back to the lows any time soon. I will reevaluate my outlook if prices crash under last week’s lows, but until that happens, I will continue buying every bounce and taking profits early and often because nothing in this market will last long.

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Mar 07

Why Bulls AND Bears keep losing money

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 retreated 1.5% Tuesday after Powell threw cold water on last week’s rebound.

I’ve said it before and I will say it again, this is a choppy market and that means the only people making money are the ones locking in profits when they have them.

Both bulls and bears are too busy arguing with each other to make money. Bulls insist every bounce is the start of the next big move higher and bears gloat every time prices fall.

Unfortunately, this approach means both sides are making the exact wrong moves at the exact wrong time. Bulls are buying the highs when they feel the most confident and end up selling the lows a few days later when they get scared. And bears are doing the mirror image, gleefully shorting the lows and then getting spooked and covering after prices blow up in their face.

Buying strength and selling weakness works great in directional markets, but this is not a directional market, so everyone trading that way is getting killed.

Last week I told readers to buy the next bounce in my post titled, “Should we be worried about this test of the recent lows?” But equally important, I also warned readers to take profits quickly because they wouldn’t last.

I will be there to buy the next bounce and the one after that. But because I know this is a low-energy environment, I will be quick to take profits because it won’t be long before those profits are gone.

A bigger directional move is coming, but it is still a way out. Until then, keep taking profits early and often.

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Well, here we are a few days after stocks surged impressively from Thursday’s lows. Unfortunately, a big chunk of those profits have already been erased. This was an extremely profitable trade for everyone that treated it like a trade. For everyone else, they lost even more money reflexively buying Friday’s strength and selling Tuesday’s tumble.

Trading isn’t hard once we shed our bullish and bearish biases and start trading the market instead of our opinions.

As for what comes next, I will keep buying weakness and selling strength until the market tells me it is ready for the next big directional move. Until then, expect this volatile sideways chop to continue.

Powell will continue speaking to Congress on Wednesday, we have the monthly employment report coming Friday morning, and more inflation data next week. Expect these wild whipsaws to continue.

If you are not taking profits when you have them, then you will end up taking losses when the market inevitably swings in the other direction.

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