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By Jani Ziedins | End of Day Analysis
A free excerpt from today’s Premium Analysis:
Market Mentor
Tuesday morning’s gains launched us above the psychologically significant 2,900 level and prices are within 100-points of all-time highs. People who sold last week’s headlines are now having second thoughts, and that’s the way this game goes. Traders who make the most money are the ones that trade proactively, not react reflexively to what everyone else is doing.
There is a very important difference between selling because your preplanned stop was hit and selling because you are scared things will get worse. Just like there is a difference between holding because that is what your trading plan said you would do and holding because you are hoping that the market will bounce at any moment. Pros trade their plans, amateurs trade their gut.
While there is no guarantee a trading plan will produce a profit in any single trade, following a solid trading plan definitely guarantees better odds for success over the long run. Always plan your trades. That includes when to buy, when to sell defensively, and when to take profits. Just as important, anytime we get flushed out for a loss, don’t get discouraged because the next buying opportunity could be hours away.
At the moment, the market is buyable as long as we hold 2,900 support. The opening gap made it a little more risky to buy because a sensible stop under 2,900 is a little further away. But we can manage that larger risk by trading smaller. Start small and add more after the position starts working.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
On Monday, the S&P 500 recovered a chunk of Friday’s trade war tumble. Last week Trump “ordered” U.S. companies to stop doing business in China and that sent traders scrambling for the exits. But as bad as a 2.6% loss seems, it wasn’t the biggest loss this month. Heck, it wasn’t even the second-biggest loss of in Agust. While three 2.5%+ losses in as many weeks is terrifying, the market is actually holding up remarkably well and is still within 150-points of all-time highs.
Is this a stubbornly bullish market that refuses to breakdown, or a market teetering on the edge of collapse? That’s what we want to know.
Today’s strength was a good sign. The trade war didn’t get worse over the weekend and rather than continue selling the fear, traders were more inclined to buy last week’s discounts. Major selloffs are dominated by “sell first, ask questions later”. Any break in the selling gives people time to analyze the situation and almost always the calm allows people to realize things are not as bad as feared. The trade war has been brewing for a year and a half and it hasn’t killed this bull. That’s doesn’t count as proof these escalations cannot break this market, but odds are a trend is more likely to continue than reverse. Until further notice, expect the market to keep withstanding these trade war headwinds.
Currently, the market finds itself in between two psychologically significant levels, 2,800 and 2,900. While this is a stubbornly resilient market, it is also extremely volatile and that means we should resist the urge to rush in. Wait for the market to prove itself before buying the dip. If prices recover 2,900, that is the signal to jump in. If prices tumble and under 2,800, wait to buy until prices bounce back above this support level.
A big part of the reason to wait until prices recover a key support level is that lets us place a stop close by. The tighter our stop, the less money we have at risk. Another important strategy in volatile markets is reducing our position size so that a big opening gap doesn’t leave us with an uncomfortable loss. While making money is great, long-term success comes from limiting our losses. This volatility is giving us a lot of great trading opportunities, just make sure you keep your risks in check.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
The S&P 500 started Thursday with nice gains, but a midmorning selloff pushed prices into the red. But rather than trigger a waterfall selloff and crash through 2,900 support, supply dried up, and prices rebounded nicely of the early lows.
Volatility is elevated, and that means abrupt moves in both directions as traders overreact to every bump in the road. And while volatility can be unsettling, the market is actually trading well, all things considered.
Headlines have been quite bearish between Trump’s never-ending trade war escalations with China, the Fed sending out conflicting signals about interest rate policy, and technical indicators telling us the US economy could be headed into a recession. Common sense tells us the market should be down 15%, not the fairly trivial 3% we find ourselves from all-time highs.
There are two ways to interpret this reluctance for the stock market to crash. Either confident owners are incredibly nieve and the crash is coming. Or confident owners are indifferent to these headlines and their lack of selling means these headlines no longer matter (i.e., are priced in).
No doubt you picked the scenario that fits the best with your bearish or bullish disposition. But the thing to remember about stock market crashes is they are brutally quick and happen before most people even know what hit them. There is no time to debate the fundamentals and make a sensible trading decision to sell before things get worse. There is the freefall, and if you stop to think twice, it is already too late.
To put this in context of current market conditions, the big “oh shit” moment happened 21 days ago when Trump announced he was adding tariffs to the last $300 billion in Chinese imports not already taxed. The stock market imploded over the next four days. But after that initial kneejerk of reactive selling, prices have recovered a big chunk of those losses.
If a person believes stock market crashes move in slow motion and we have plenty of time to make thoughtful trading decisions, then they should be nervous. For the rest of us, a market that refuses to go down on bad news will eventually go up.
If prices dip under 2,900 on Friday after the Fed chairman speaks, bouncing back above support is our signal to buy. On the other hand, if prices don’t even slip to 2,900 support, that is our signal this market is stubbornly resilient and higher prices, not lower prices, are ahead of us.
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Tags: S&P 500 Nasdaq $SPY $QQQ
By Jani Ziedins | Free CMU
Cracked.Market University
How the news affects the stock market is one of the biggest enigmas in trading. Intuitively, bad news should make stock prices go down and good news makes them go up. Unfortunately, it is rarely that simple. This often contradictory puzzle of news and the stock market is the number one reason people claim “the market is rigged”.
While news is important to the stock market, the thing most people forget is news by itself doesn’t move prices, only traders buying and selling can do that. If we take this concept to the next level, it isn’t news driving market moves, but traders’ reaction to the news that matters.
Why this distinction is so important is because all traders come to the market with expectations. Expectations and beliefs about what will happen next. That means it isn’t whether the news is good or bad, but if the news is better or worse than the crowd expects. This is where the confusing paradox of “good news is bad” and “bad news is good” comes from.
Traders often correctly anticipate a piece of news and they trade the market ahead of it. And when their intuition proves right, rather than make money, the trader gets hit with a stinging loss when the market moves in the opposite direction of what it “should do”. When traders get the news right but lose money is when they start claiming “the market is rigged”. Sound familiar?
The mistake is thinking the market should react to the news. What we really should be focused on is the market’s reaction to the news, not the news itself. This is concept is extremely important in the current environment. Trade wars, Fed interest rates, and hints of a looming recession have may traders running scared. But paradoxically, the stock market remains stubbornly stuck near all-time highs.
If a person was only looking at the headlines, it would be easy to assume the market is well on its way into a bear market. But if we look at the market’s reaction to these headlines, we actually see the opposite. A market that is frustratingly indifferent.
If our goal is to make money, then we should be trading the market, not the news. No matter what we think of these headlines, the only thing that matters is what the market thinks. Keep that in mind when you place your next trade.
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Tags: CMU S&P 500 Nasdaq $SPY $QQQ $study
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