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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Thursday was another wild session for the S&P 500. Overnight futures traders abandoned ship and sent the index tumbling at the open. But rather than join the dash for the exits, big money started buying those discounts and it was all uphill from there.
As I often remind readers, it’s not how we start but how we finish that matters most. And by that measure, Thursday’s 0.3% loss was actually a very bullish performance. Rather than join the selling, most owners shrugged and kept holding. That resilience is always a good sign. If this market was overbought and as fragile as the cynics claim, we would have opened low and kept falling. Instead, the selling stalled out of the gate and the index recovered almost all of those early losses by the close. For a down day, it doesn’t get much better than that.
The market loves to convince us we are wrong moments before proving us right. And now that we moved past the “convincing us we are wrong” part, it is time to get on with “proving us right”. As I said above, if this market was weak, we would be challenging the lows, not bouncing back toward the highs. 4,100 is still very much in the cards.
As for trading this morning’s weakness, if a person was tricked out by those early losses, there is nothing wrong with that. More important is we stay nimble and open-minded after getting out. Sometimes the next buying opportunity is only hours away. And today was one of those days. As easy as it is to get back in, we should never let ourselves get left behind if the market tricked us with one of these false alarms.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slipped 0.8% Wednesday, giving back all of Tuesday’s gains and leaving us stuck under 4k resistance for the fourth session in a row.
As I’ve written previously, it is not a surprise to see the October rebound stall at prior resistance levels as the cynics inevitably claim the index is too high and on the verge of collapsing. But one of the first things experienced traders tell new traders is, “Never try to pick tops.” That’s because what looks like a top is almost never the top. And I have a strong suspicion that this week’s “top” is nothing but another pause on our way higher.
Everyone knows markets move in waves, but that never stops people from calling every down day the start of the next big selloff. As much as I’d love to see prices rally every single day, everyone knows that’s not possible. So why overreact when we get one of those inevitable red sessions?
At this point, I don’t see anything out of the ordinary about Wednesday’s losses and this week’s struggles with 4k resistance. In fact, this price action actually looks constructive because across several days of testing the weekly lows, every single time supply dried up and prices bounced. That’s a characteristic of a strong market, not a weak one.
If this rebound was as fragile and overbought as the critics claim, we would be crashing back to the lows, not stubbornly hanging out near multi-month highs. Follow the market’s lead and ignore the noise.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Tuesday was another back-and-forth session for the S&P 500. The index exploded above the psychologically significant 4k level when another monthly inflation reading came out better than expected. Unfortunately, that early enthusiasm fizzled and the index retreated back to breakeven just after lunchtime. But just when the cynics thought they finally won a battle, an afternoon rebound reclaimed +0.9% of those early gains.
The cynics thought they finally broke the October rebound when they kicked it back under 4k. For a bear that believed this rebound was nothing more than smoke and mirrors, that retreat under 4k was too good to resist and the shorts piled in hard and fast.
But there is a very good reason all new traders are warned against picking tops. The biggest problem bears have to deal with is the odds are simply not in their favor. This rebound has been charging ahead for over a month and Tuesday set yet another multi-month high. That means anyone betting against this rebound has been losing piles and piles of money for weeks.
Sure, this rebound will stall and retreat like all of the others that came before it, but was Tuesday that day? No, probably not. Think about it this way, if something continues dozens of times but it can only reverse once, what are the odds that today is that single day when it finally reverses? Yeah, not very good.
Of course I would prefer to see the market go up every single day, but everyone knows that’s not realistic. Yet every time the market slips a few points, the crowd can’t resist labeling it a top.
It always takes stocks time to push through prior resistance levels because that’s where people love to call tops. But as I wrote previously, this market wants to challenge 4,100. If it was as weak and fragile as the critics claim, we would have already failed by now. As much as people hate chasing a market that’s gone up, the contrarian trade is betting on the continuation and not joining the chorus rooting against it.
The headlines are improving and the bears are losing the argument. Maybe things will get worse, but for that to happen, we need to see things actually start getting worse. We never trade what could happen, we trade what is happening. And right now this market keeps telling us it wants to go higher.
Protect our profits by moving stops up to the mid-3,900s and keep holding for higher prices. And remember, as soon as we get out, always be ready to get back in if the dip proved to be a false alarm.
This rebound will continue countless times and it will die only once, which side do you want to bet on?
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
After some early flirtations with breakeven, the S&P 500 finished Friday on solid ground, adding 1% to Thursday’s towering gains and the index closed at the highest level since early September.
We finally got some good news on inflation Thursday morning and that sent stocks popping like a cork. As I’ve been writing for a while, inflation has been moderating as this spring’s willy-nilly price hikes have given way to price-sensitive consumers pushing back and hunting for the best deals. Add to this the glut of inventory that built up following the post-pandemic over-ordering and few businesses have the courage to keep raising prices this fall.
As fast as stocks shot up Thursday, it’s tempting to think this surge went too-far too-fast, but that only applies to long and extended runups. Thursday was a single session on the heels of multiple large down days, so we are nowhere near overbought right now and this pop still has room to run. I’m not talking about many hundreds of points, but once we get through 4k, it won’t take long to challenge 4,100.
Sometimes the market needs to convince us we are wrong before it can prove us right, and Wednesday’s post-election selloff definitely did a good job of challenging my conviction. But the art of trading is knowing when to admit defeat and when to get stubborn. And Wednesday was one of those stubborn days.
Now, I’m most definitely not advocating stubbornly holding a tumble under our stops, but there are times when we see the market breakdown in a way we didn’t expect and that tells us to pull the plug long before our stops get hit. But I fully expected Wednesday’s knee-jerk selloff to exhaust itself quickly because this is a Fed driven market that doesn’t care about politics. And Thursday’stowering reversal confirmed the Fed is far more important than who controls Congress.
Even though Wednesday’s dip went a little further than I expected and squeezed me out at my highest stops, I wasn’t worried about the rest of my positions and was willing to continue holding them. If stocks crashed Thursday, I would have admitted defeat and pulled the plug. But lucky for me, stocks went the other direction on Thursday and my conviction was rewarded handsomely.
As I said, there is never an excuse to hold under our stops, but sometimes we have to know when to pull the plug early and when to stand our ground. Wednesday was definitely a stand-our-ground kind of day.
And trust me, as easy as that is to say today, it was anything but easy to do on Wednesday. But that’s where our analysis and trading plan help us stick with what we should be doing.
As for what comes next, keep holding the rebound and lift our stops to the lower 3,900s. 4,100 will be here soon enough.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 added a towering 5.4% Thursday, making this one of the biggest up days in stock market history.
As much as I expected inflation to start moderating, I never expected the market to react in such an oversized way to what was a fairly modest change in inflation. But the trend is everything and Thursday morning’s inflation reading suggests our inflation fever is finally breaking.
Netting out Wednesday’s -2% post-election hangover, we’re “only” up 3.4% from Tuesday’s close, which is still a lot, but a tad more reasonable. And more importantly, Thursday’s gains put the rally to 4k back on track. (And at this rate, we could be there Friday morning!)
As much as bears tried to punish stocks for Republicans’ underperformance in the midterm elections, as I wrote Tuesday evening, this market isn’t concerned with politics.
The stock market really isn’t concerned with politics this time around because it knows the Fed is the one controlling the economy. By Wednesday afternoon, expect the election to be old news for the market and it will go back to what it was doing before, which is obsessing over inflation and rate hikes.
If the market’s attention is going back to what it was doing before the election took over the airwaves, that means October’s rebound is back on and 4k is within reach.
Well, it turns out my Wednesday afternoon forecast was a tad premature, but hopefully, most readers can forgive me for being off by a few hours.
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As expected, the only thing that matters to this market is inflation and rate hikes and Thursday morning’s lower-than-expected inflation reading means the Fed doesn’t need to move as aggressively with future rate hikes.
Sometimes it is better to be lucky than good and Thursday was one of those days. I was fairly certain Wednesday’s election-fueled selloff would fade quickly. What I didn’t expect was Thursday’s historic gains following a “less bad than expected” inflation report, but that’s the way this game goes sometimes. The important thing is recognizing the direction the wind was blowing because we can’t get lucky if we don’t know which side of the street to stand on.
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What’s a good trade worth to you?
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