What to expect from the market’s next move lower

By Jani Ziedins | End of Day Analysis

Apr 07

Free After-Hours Update

The S&P 500 3% popped at the open as global Coronavirus infection rates showed their first hints of moderating. This was welcome news for fatigued markets and the relief extended the market’s rebound more than 500-points above our lowest point.

As I often write, the market loves symmetry. It was almost inevitable that a historic crash would be followed by an equally historic rebound. As incredulous as people were two weeks ago when the market rebounded 20% and headlines proclaimed the bear market was over, here we are, still standing. As bad as things seem in their darkest hours, we always manage to push through them and this episode will be no different.

That said, there is a huge difference between starting to heal and being recovered. This market is still incredibly volatile and that means big moves in both directions. While the free-fall might be behind us, that doesn’t mean we should expect clear sailing back to the highs. There are definitely promising signs in the battle against the Coronavirus, but the economic cost of this progress is staggering and cannot be ignored. Following this brief relief rally, expect our economic reality to start weighing on stock prices again. We saw the first signs of this second-guessing show up this afternoon as stocks retreated from their early highs.

Markets move in waves and this latest rebound will invariably end in the next move lower. I don’t expect a major crash, but any retest of support feels scary. It has to. If it didn’t feel real, people wouldn’t sell and we wouldn’t dip. But rather than tumble out of control, realize this next move lower is simply an exhale, not a crash.

As for how to trade this, anyone with short-term trading profits should have locked them in. As volatile as this market is, waiting a day too long is the difference between harvesting profits and accumulating tax write-offs. While no one likes taxes, I definitely prefer paying taxes on profits than using losses as a tax deduction.

More important than how the market opens tomorrow is what its initial move is. Gap lower or higher doesn’t matter as much as that move in the first 30 minutes. Buy an early bounce with a stop just under the opening levels or short a dip with a stop just above the open. If we get stopped out, consider switching direction and going the other way. Collect profits before the close and limit overnight exposure. Repeat this process again on Thursday.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM


About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.