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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Surprise, surprise, the S&P 500 recovered from Wednesday’s massive intraday reversal. Okay, no one was really surprised because Thursday’s 1.4% bounce was the market’s third rebound attempt this week.
“If at first, you don’t succeed; try, try again.”
You definitely have to give bulls credit for not giving up. The level of selling since Thanksgiving has been staggering, yet here we stand, only 3% from record highs. Talk about a can-do attitude!
As I often write, trends are far more likely to continue than reverse. That’s because a bull market bounces countless times but dies only once.
Maybe this bull market is dying, but smart money is sticking with the higher probability trade. Bears have been wrong all year, so what are the odds they’re right this time? Yeah, not very good.
The smartest way to trade this volatility is continuing to give the benefit of the doubt to the bull market while protecting our backside with a sensible stop-loss; ie, buy the bounce but keep a stop under recent lows.
Monday’s bounce didn’t work and neither did Thursday’s early rebound, but you know what, more often than not, the third time’s the charm.
It is hard to buy a third bounce after the first two unceremoniously dumped us out. But the harder it is to buy a bounce, the more likely it is to succeed. (contrarian trading)
I bought the bounce early because if I’m wrong, no big deal, I sell at my stops and wait to buy the fourth bounce.
Remember, getting in early is critical because 1) it greatly reduces our risk by giving us a healthy profit cushion, and 2) by the time the bounce is obvious, most of the discounts will be long gone.
FB’s recent price action looks downright dreadful. But is this finally getting so bad it’s good?
The stock is setting up for a nice bounce off of $310 support. Above this level, the stock is buyable. Under this key level and we get out. It really doesn’t get any simpler than that.
Okay, maybe it gets a little more complicated if the stock dips under $310 for a bit before bouncing back above this key level. In that case, we get out under $310 and buy back in above $310.
(Violating support before bouncing is an even more bullish trading signal than simply bouncing off of support because it shows selling capitulation and that bears have lost control of this trade.)
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday started off well enough for the S&P 500 as prices popped more than 1% at the open. And a wave of follow-on dip-buying pushed the index even higher through the morning. By lunchtime, it looked like this was just another example of alternating up and down days.
But the afternoon session had other plans and hit the rebound with a sledgehammer, knocking it down more than 3% from the intraday highs, turning this into the largest bearish intraday reversal we’ve seen in a while.
Was the market spooked by the first confirmed American Omicron case? Or was it an echo of Powell’s Tuesday comments about winding down the Fed’s bond-buying program? Or maybe traders finally started looking down and realized just how high we are above the October lows?
Most likely it was a cocktail of all of these plus a few others that sent a shiver of second thoughts through the market.
No matter the source, the price action was dreadful; a nice bounce turning into a big loss. And not only that, we undercut Tuesday’s lows and closed at the bottom of the intraday range. Who knows how much further this would have gone if the closing bell didn’t stop the bleeding.
But these things are obvious to everyone that watched the day unfold. What readers really want to know is how to trade this.
Hindsight being 20/20, we know buying the bounce this morning was a mistake, but for anyone that bought the bounce, it actually wasn’t a bad trade. Get in not long after the open and the morning rally gave dip buyers a nice profit cushion. And when midday selling started, retreating under the opening levels was a clear signal to get out.
Buying near 4,610 and selling near 4,610 isn’t a bad trade. If this was the real bounce, the upside potential of returning to the highs would have been 90ish points. Ten-ish points of risk for a shot at a 90 point reward? I’ll take that risk/reward every day.
As it turned out, buying the bounce didn’t work and savvy traders move back to cash long before the day’s real selling started.
While insecure critics love to taunt people for making “wrong” trades, buying the bounce this morning was actually a savvy play. While it didn’t work out this time, there is always next time.
Maybe the selling continues Thursday. Or maybe this was the capitulation bottom and the next bounce is the real deal. Often the third time is the charm and it would be a shame to miss a really nice profit opportunity simply because we were too scared or stubborn to buy the next bounce.
I’m buying the next bounce and if that one doesn’t work, no big deal, I get out and try again next time.
GME tumbled under the all-important $200 support level Tuesday and the bloodbath continued Wednesday. If the Christmas shopping season can’t save this physical retailer, I don’t know what will. This is a no-touch under $200 and we could challenge $150 support before Christmas.
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What’s a good trade worth to you?
How about avoiding a loss?
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Follow Jani on Twitter @crackedmarket
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