What to look for next week and how to trade it

By Jani Ziedins | Weekly Analysis

May 02

Free End of Week Analysis:

The S&P 500 finished in the red last week but the 0.2% loss hardly seems noteworthy. The optimist will say a six-point loss is laughable. The pessimist will say the lack of meaningful buying is the early signs demand is drying up. Which side is right? While I’d love to tell you, unfortunately, we will only know after it happens.

Momentum or gravity, which wins next week? While I cannot say what direction we go, we are definitely at a tipping point. If this market doesn’t break this week, it isn’t going to break anytime soon and we can quit worrying about it. But if it breaks, it is going to break in a big way. Either no move or a big move, now that’s something I can plan a trade around.

All we need to do is wait for the market to reveal its hand. If it stumbles, short the weakness with a nearby stop. If that initial wave of selling fizzles and bounces, cover and wait for the next opportunity. Just because the first trade doesn’t work doesn’t mean we give up and go home. Sometimes it is the second or third move that finally works. If we don’t stick around, then we let someone else collect profits that were supposed to come to us.

On the other side, if we get to the back half of the week and the selloff hasn’t started, give up because it ain’t going to happen. There is a fine line between patient and stubborn and we don’t want to step over it.

As usual, start early and start small. Regardless of the opening gap, short any early move that stumbles from the opening levels with a stop just above this level. Only add more money after the trade starts working. If we close near the lows, consider holding the position overnight. If the market rallies into the close, take what profits we have and try again tomorrow. If the first trade doesn’t work, get out and try again. And if the bounce is decisive, admit defeat and go long. There is no room for pride in the market, only making money and losing money.

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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.