Sep 24

This was a good week for those of that were paying attention. Plus what Bitcoin’s price action is telling us.

By Jani Ziedins | End of Day Analysis

Free Weekly Analysis:

The S&P 500 crashed at Monday’s open and the selling accelerated through the day. Luckily, a last minuted bounce prevented it from turning into the worst day of the year. And wouldn’t you know it, those Monday lows were as bad as it got. From there, it was all uphill and the index actually closed in the green for the week!

Talk about a wild ride. For traders playing offense, it actually turned into a fairly profitable week. The pullback that started two weeks ago chased anyone with a sensible trailing stop out of the market and they missed all of the carnage that wrecked so many traders this Monday. And just when the masses were bailing out of really good stocks at steep discounts, the opportunistic trader sitting on a pile of cash was licking his chops and getting ready to pounce.

Monday’s late bounce gave the aggressive trader an opening to put on a partial position and the subsequent strength on Tuesday and Wednesday was good enough to add to that initial position. By the end of the week, there was enough profit in the trade to move our stops up to our entry points and now we have a low-risk trade.

Maybe the bounce sticks or maybe it doesn’t, but for those of us that got in early, it really doesn’t matter. Collapse and I get out at my entry point and get to try again next week at even lower prices. Or keep bouncing higher and I’m sitting on some nice profits while this week’s sellers are riddled with regret and being left behind.

To the victor goes the spoils and in the market that means the people willing to act when everyone else is either too complacent or too scared.

(And for those that have been following this free blog, I’ve been laying it out all in real-time and hopefully some of you had the courage to profit from this volatility too!)

Bitcoin got punched in the face when China came out and outlawed cryptocurrency trading. But to be honest, a 5% loss following such dramatic headlines seems fairly insignificant. This remains above $40k support and at this point, that’s the only thing that matters. If this can shake off these headlines, it is hard to imagine what it will take to actually hurt this thing. I’m not a cryptocurrency fanboi, but it is hard to deny this unshakable resilience.

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Sep 23

If this market doesn’t make sense, start by reading this

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

One day down and three days back up. As poorly as the week started, amazingly enough, by Thursday the S&P 500 already turned green for the week.

Bears did their best to break this market, yet most owners showed their stubborn resolve and kept holding. Real estate bubbles in China? Fed tapers? None of it seems to matter to this bull market. But should anyone be surprised? This bull market was born in the depths of a global health pandemic. Of course it doesn’t care about these “little” things.

While I bought the dip following Monday’s late bounce and added more on Tuesday, I’m not convinced this bounce is the real deal. False bottoms also look like the real deal moments before the bottom falls out.

Lucky for those of us that got in early, we already moved our stops up to our purchase price and are now sitting on low-risk trades. Compare that to the person who abandoned ship on Monday and is now riddled with regret and indecision. One trader is coasting on easy street. The other is lying awake at night, stressing over what they should do next. Which trader would you rather be?

As I say over and over again, every time we sell, always, always, always have a plan to get back in. Dips are almost always false alarms and we need to have a plan to deal with them so we don’t get left behind when the market bounces.

Start small, get in early, keep a nearby stop, and only add to a trade that is working. Follow those simple rules and dips like this won’t bother you either. In fact, you will actually look forward to them because they are some of the easiest and fastest profit opportunities we get.

But now that the good dip-buying opportunity is behind us, now it’s time to figure out what to do next.

As I said, I’m not convinced this bounce is the real bounce. Lucky for me, just because I bought the bounce doesn’t mean I’m married to it. My stops are at or above my reentry points, but even more important, I’m focused on SPX 4,400. Hold above that level and the rebound is alive and well. Fall under it and we need to move to a defensive posture, which means scaling back open positions. And at this point, there is zero excuses to stick with a trade if the index falls under 4,350.

Remember, the best traders move proactively, not reactively. Have a plan ready and you will never get stuck on the wrong side of the market.

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Sep 22

Bump on our way lower or dip on our way higher, which is it?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday was the S&P 500’s first meaningful up day in what feels like ages. That said, this 0.95% gain would have felt even better if the index held above 4,400 support instead of slipping back under this key level ahead of the close. But at this point, a 1% up day is a 1% up day and no one is complaining.

Stocks don’t go up in straight lines and they don’t go down in straight lines either. That means every rally has down days and every decline includes up days. The million-dollar question is if the last two-week decline is a little wobble on our way higher? Or if Wednesday’s bounce was simply a bump on our way lower? And the answer is yes!

The latest selloff did a lot of damage and we are unlikely to bounce right back to the highs anytime soon, so that means we have a date with recent lows over the next week or two.

But just because we retest the lows doesn’t mean the stock market is imploding. Pullbacks like this are normal and routine. Last month I warned readers that almost every year has a 5% pullback and we hadn’t had one yet. Well, what do you know, look, a 5% pullback!

Maybe this hits -6% or -7% before it is all said and done. But even pullbacks of this magnitude are a normal and healthy way of consolidating gains and getting ready for the next move higher. I would be far more concerned about the sustainability of this bull market if we didn’t take this step back and instead continued charging higher without resting.

So yes, this is both a small bump on our way lower over the near-term and a very normal pullback on our way higher over the medium-term.

As for how to trade this, a nimble and savvy trader could have bought this week’s bounce off of Monday’s lows for a quick buck, but the all-bets-are-off line is 4,350. There is no valid reason to hold a trading position under this level. But after we get flushed out at 4,350, be ready to buy back in when we reclaim this level. Sell the dip, buy the bounce, and repeat until the real bounce finally takes us back to the highs.

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Sep 21

A quick update on Tuesday’s pathetic price action and what to expect next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 started Tuesday well enough, opening in the green and extending Monday’s late bounce. But by the end of the session, the index gave back all of those early gains and finished flat.

While flat is clearly better than extending the selloff, it didn’t do anything to end the selloff. And unfortunately, that means the selloff is still alive and well.

As I wrote previously, this decline turned into an emotional selloff and we rarely shake those off within a few days. More often than not, it takes weeks and even months to get back to the old highs. To get these things through our system, most of the time we need to go “too far” before we can bottom and bounce for good. Tuesday’s weak rebound tells me we haven’t reached “too far” yet and we need to prepare ourselves for lower prices over the near term.

The only question is if we minorly violate Monday’s lows or if we smash through them and keep going. At this point, I could see either scenario playing out and that means our trading plan needs to be prepared for both.

Hopefully, everyone reading this blog has their trading account sitting in cash and is ready to pounce on these discounts. If the index falls under 4,300 over the next day or two, bouncing back above this level becomes an excellent entry point with a stop just under this level.

Remember, start small, get in early, keep a nearby stop, and only add to a trade that is working.

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Sep 20

Has the market’s mood finally soured and what that means for the rest of the year. Plus a Bitcoin trade.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Monday was the ugliest session in a long while for the S&P 500 and only a late bounce off the midday lows saved it from being the worst day of the year.

Financial journalists blame this weakness on real estate problems coming out of China. But the thing to remember about journalists is if they could trade, they would be traders, not journalists…

While this property bubble story out of China sounds plausible, it’s been years since U.S. markets cared about what’s going on inside China’s economy and nothing changed this weekend.

Readers of this blog know the real answer is this “unstoppable bull” was setting up to run into some headwinds this fall. We didn’t know what “the problem” was going to be, but we knew it was coming. Markets move in waves and if it wasn’t China, it would have been something else. It was simply time.

Now that we got that out of the way, it is time to figure out what comes next. All of the other dips this year bounced within days, if not hours. Should we expect the same thing this time? Nope, not at all.

This time is different because it is the first dip that truly sent fear and indecision racing through the crowd. Previously every dip was met with a shrug and prices bounced within hours due to the lack of follow-on selling. That confidence is long gone and everyone is now wondering if this is “the big one”.

As for what comes next, it takes a while for emotional selloffs to work their way through the system and we shouldn’t expect this one to bounce back to the highs anytime soon. In fact, there is a good chance we’ve seen our last record high this year.

The market’s mood has clearly changed and that means the half-full outlook has been replaced by nervousness and second-guessing. Fear of the other shoe dropping will keep traders on edge for weeks, if not months.

Monday’s intraday lows near 4,300 set a new benchmark to keep an eye on. Above this level and an adventurous trader can buy a near-term bounce for a quick buck. But take profits early and often because we will retest 4,300 again over the next week or two, if not later this week.

Expect a few violations along the way, but anytime we get back above 4,300, that qualifies as a buyable bounce. Maybe it doesn’t amount to much, but if we start small, get in early, the risk is almost zero the potential reward is quite large.

And if this thing keeps falling, even better. The lower prices go, the better the discounts get. (You are in cash right?)

Bitcoin continues failing as a hedge against volatility in the equity market. This cryptocurrency fell along with everything else today and no one was safe.

Nimble traders had their trailing stops get them out closer to $50k and now these savvy opportunists are eager to take advantage of these discounts. A bounce off of $40k is buyable, but all bets are off if this falls under $40k. Plan your next trade accordingly.

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Sep 17

The warnings this week was shouting at us

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis:

The S&P 500 finished the week 0.57% in the red, making this the first time we’ve had two consecutive down weeks since May.

The good news is that two week selloff back in May was nothing more than a minor hiccup on our way higher and the next three weeks finished green. Will we be as lucky this time? That’s the million-dollar question.

The most notable difference between this week and that episode in May is this week ended at the weekly lows while back in May, that second week finished near the weekly highs.

As I often write, it isn’t how we start but how we finish that matters most. And in this case, this Friday afternoon gave us a very poor finish.

The market attempted several bounces over the last two weeks and each one ended in disappointment. Markets bounce decisively from oversold levels and this week’s pathetic rebounds tell us we are not yet oversold. And if we know anything about emotional pullbacks, it’s that they don’t give up until they’ve gone too far. Quite simply, if this market isn’t oversold yet, then the selling isn’t over.

I still like this market even though I am approaching it with a lot more caution given the changing seasons. But I’m still treating this as a buyable dip. Friday’s violation of the weekly lows was a clear signal to get out. But that line in the sand now becomes our next buy signal. Bounce back above this level next week and it is time to get back in. Start small, get in early, keep a nearby stop, and only add to a trade that is working.

We will know pretty early in the week if this market wants to bounce or continue falling. Rather than try to predict what it will do, savvy traders simply wait and follow its lead.

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Sep 16

The calm before the storm? Or the worst already passed?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 continues flirting with recent lows near 4,430 for the fifth day in a row.

To breakdown or not to breakdown, that is the question.

The thing about breakdowns is they typically fall hard and fast. Five days of grinding sideways isn’t hard and it isn’t fast. Does that mean the selloff is already over? The market sure is acting like it.

Lucky for us, we have a very clear line the sand near Tuesday’s lows that will tell us if and when this week’s bounce fails. Fall under this level and get ready for more selling. Hold above it and the rebound is alive and well. Above is buyable. Under is sellable. It doesn’t get any more straightforward than that.

But the market doesn’t like being easy, so the curveball might be a momentary violation of 4,435 support before bouncing back above. In that instance, the return above 4,435 is buyable and the rebound is back on.

Pundits are trying to convince us they know conclusively that this is either a bounce back to the highs or the start of a much lager selloff. Me, I don’t know and I really don’t care. I trade what the market gives me. If that means buying the bounce, then I buy the bounce. If it means shorting a bigger breakdown, then I short the bigger breakdown.

Following the market’s lead sure beats trying to win an argument when it isn’t listening.

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