Monthly Archives: January 2022

Jan 31

How I always know which bounce to buy. Plus, an obvious trade in AAPL pays off

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The stock market loves symmetry and following a brutal few weeks, the S&P 500 was finally ready to bounce back with a vengeance.

The index climbed 1.9% on Monday, adding to Friday’s 2.4% pop, and now finds itself 7% above last Monday’s intraday lows. Blink and you missed the index reclaiming HALF of the January correction over just a few sessions!

But this was always going to be the case. Emotional markets make oversized moves … in both directions. +4% pop one day, followed a few days later by +2.5% and +1.9%.

While it is hard to call a -12% tumble from fun, rarely is it this easy to make a quick buck in the market.

As I explained to readers last week, the key to profiting from these opportunities is ensuring we are always standing in the right place at the right time. (That means both knowing when to get it and when to get out!)

While some people try to guess which bounce will be the real bounce, I’m too nimble of a trader to put up with such foolishness. Instead, I treat EVERY bounce as it if is the real bounce until it proves otherwise. Start small, get in early, keep a nearby stop, and only add to a position that is working.

Following those simple rules, I avoid the dips and am always there to capitalize on the bounces.

Sometimes I chase my tail during a false start, but you can bet I don’t mind a little extra effort when it eventually pays off like this.

Now, don’t get me wrong. January’s correction is far from over and we won’t be heading back to the highs anytime soon. But I’m sitting on a large cushion of profits while the “day-late and dollar-short” crowd is second-guessing this bounce. Which group would you rather be a part of?

Maybe this bounce fizzles and retreats, but that won’t be a problem because my trailing stops are already well above my entry points. And if I get dumped out, no big deal, I collect my profits and get to do this all over again the next time the market bounces.

Bring it on!

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AAPL turned strength into strength as it added 2.6% to Friday’s 7% pop.

But this is the way it usually works out with the best-of-the-best stocks and companies.

Always use a trailing stop to protect our profits, but never be afraid of getting back in just because our stops got us out. AAPL has been one of the best stocks of the last decade and odds are minuscule that it was going to suddenly forget how to make money.

Sell dips, buy bounces, and repeat.

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Jan 28

Why nimble traders are buying this bounce. Plus why AAPL’s pop shouldn’t surprise anyone

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Give the stock market lemons and sometimes it makes lemonade. A strong rally Friday afternoon turned what would have been the fourth consecutive losing week for the S&P 500 into a winner. And boy, did we need this winner.

Headlines haven’t changed in a meaningful way and the Fed’s Taper and Rate Hikes are just around the corner. While those headlines triggered the first stock market correction since the original Covid selloff, the market seemed to find its footing this week.

The resilience started Monday afternoon when a midday 4% bloodbath reversed and surprisingly enough, turned into a 0.3% gain by the close. As shocking as that rebound was, most investors remained skeptical and the index continued probing 4,300 support all week. But much to the chagrin of bears, 4,300 withstood 4 different assaults before the market eventually closed Friday above 4,400.

Not bad. Not bad at all. Especially given where this could have gone.

As I’ve been writing all week, these things always look the worst moments before they turn around. By rule, they have to. If it didn’t look bad, people wouldn’t sell and prices wouldn’t fall. And the thing to keep in mind is these things don’t bounce until the crowd has been demoralized and given up.

While a few days holding 4,300 support doesn’t mean this correction is over, it does look good and that means nimble traders are riding along.

No one knows which bounce will be the real bounce. But as nimble traders, that isn’t a problem. Rather than pick sides and guess, we treat every bounce as it were the real deal until proven otherwise.

Buy the bounce, start small, get in early, keep a nearby stop, and only add to a trade that is working. Follow those simple rules and this is actually a really low-risk way of trading this volatility. Get in near the bottoms of these bounces and a few hours later we have a nice profit cushion protecting our backside.

Move our stops up to our entry points and if the selling resumes, we get out for what we paid. Big rewards for catching the rebound and small risks if we get it wrong? What’s not to like about that?

Now, don’t get me wrong. Nothing in the market is easy. And plenty of bounces fail. But if we are okay with chasing our tail a few times, by keeping at it, we ensure we will be standing in the right place at the right time. And catching the next big wave higher will make it all worthwhile.

If most people lose money buying the tops and selling the bottoms, shouldn’t we do the opposite?

I bought a partial position Friday morning and added more Friday afternoon. If prices retreat on Monday, no big deal, I get out and try again next time. But if the bounce keeps going, I will be sitting on a pile while everyone else is wondering if they should get in.

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It’s been a rough few weeks for AAPL as this market darling was weighed down by external market pressures. But a shift in investor sentiment didn’t change AAPL’s fundamental business model and the company shattered earnings expectations Thursday evening. And the most valuable company in the world got 7% more valuable Friday.

Not bad for those that still believed in this company. While smart investors use trailing stops to protect their profits, just because we get out doesn’t mean we cannot get back in. In fact, the first thing we should do as soon as our stops get us out is start looking for that next opportunity to get back in.

Monday’s crash and bounce was remarkable for all the reasons I mentioned previously. This stock was bound to bounce and it was only a matter of time. So when it finally bounced, savvy traders were ready. Buy the bounce and put a stop under the lows. It really isn’t that hard.

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Jan 27

How savvy traders are approaching these market lows. Plus the traders who AAPL is rewarding

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday was another back-and-forth session for the S&P 500 as early gains gave way to midday selling.

As I often remind readers, it’s not how we start but how we finish that matters most. Opening gaps are easily manipulated in the thin, overnight futures market. But the end of the day? That’s when the heavy hitters come out and there is no manipulating the close.

How we finish tells us what big money is thinking. And since big money drives the market, savvy traders always listen to what big money has to say.

At this point, we’ve had three weak closes in a row where the index retreated from intraday highs. While these late slumps haven’t sent us spiraling out of control yet, it does reveal big money is cautious at these levels and they are not chasing the bounces.

Without follow-on buying, every bounce stalls and retreats. But this isn’t unusual following such a demoralizing correction. Most investors are more worried about keeping what they have in this environment than making a quick buck buying the next bounce.

But the thing to remember about dips is they don’t bounce until the crowd becomes convinced prices are headed lower. And right now, the AAII sentiment survey shows 52% bearishness, putting this stat at the highest levels in five years.

While we’ve hit 50% bearishness a couple of times over the last five years, each time that level turned out to be the capitulation point. Can bearishness get even higher? Sure. But is it the most likely outcome? Definitely not.

So what do we do with all of this data? Big money’s reluctance to buy the dip means prices could retest Monday’s lows, but we are getting close to a near-term capitulation point where we run out of sellers.

Without a doubt, bear markets fall more than the 10%. But larger bear markets take time to develop. The pre-Financial Crisis top occurred in late 2007 and that bear market didn’t bottom until early 2009. Even short bear markets take three months to fully play out.

What I’m getting at is that while stocks could fall further from these levels, we’re not going there in one big jump. And that means we should expect some stability and bounces along the way.

Call them false bottoms, but to a nimble trader, those are buyable bounces. And that’s how I will be trading them.

To be perfectly honest, I don’t know which bounce will be the real bounce. (No one does.) The best way I’ve found to deal with this uncertainty is to assume everything is real until the price action proves otherwise.

That means I will keep buying bounces and selling them when they break down. (Start small, get in early, keep a nearby stop, and only add to a trade that is working.)

Sure, I’ll take it on the chops a few times, but losing a dozen points on a 1/3 position isn’t that big of a deal. Especially when bounces like Monday rack up 200 points of profit within hours.

While it is increasingly looking like Monday’s bounce is a bust, it was still a profitable trade for those of us willing to jump aboard it early and lock in profits when prices started slumping.

If the market wants to undercut Monday’s lows and bounce another 200 points, I’m perfectly willing to do it all over again. Buy the bounces, sell the dips, and keep at it until something better comes along.

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While this market correction has been destroying the FAANG stocks and even mega-caps like AAPL are not immune to the market’s forces, these highfliers did give us an entry point this week after bouncing off of Monday’s lows.

(Important note: we buy bounces not dips!)

While this was a slow trade to get started, AAPL is finally proving its worth, smashing earnings expectations and popping 5% in after-hours trade.

As I wrote earlier this week, people pray for market pullbacks so they can buy more of their favorite stocks, but every time the market answers their prayers, most of them are too chicken act. But for those willing to buy AAPL’s bounce, this is turning into a nice trade. Move stops up and see where this goes.

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Jan 26

The easy way to trade this market volatility. Plus what to do with TSLA at these levels

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 took us on another wild ride Wednesday.

The session started off well enough with the index spending most of the day up a healthy 2%. Unfortunately, the Fed rained on the market’s parade when they hinted at the possibility of a more aggressive rate-hike schedule than many investors expected.

As much as bulls and bears want to argue over what this means for stocks, for savvy traders, the process is fairly simple. Either this is a non-event and prices make their way back to the highs over the next few weeks and months. Or the market is about to implode in a death spiral of panicked selling.

Option A we go up. Option B we go down. Why bother picking sides when it will be easy enough to simply follow the market’s lead? That’s what I will be doing.

The only thing that matters to me is the market does something. If I’m fully honest, it would be nice to see stocks fall a little further because cheaper is always better. But if it wants to go higher, I’m fine with that too.

Buy the bounce, sell the breakdown, and collect my profits. It doesn’t really get any more straightforward than that.

As for how I’m trading this. As I explained in my previous posts this week, I bought Monday’s bounce and was adding to that position with stops at or above my entry points. Things were looking really good Wednesday when the rebound was hitting new highs. But the Fed came along and changed all of that.

This remains an emotional and volatile market and there are no half-steps. When the market started falling Wednesday afternoon, that was our sign to get out. Holding and hoping for a quick bounce wasn’t an option. This market moves too fast to think like that. Pull the plug quickly and start looking for the next entry point.

If a person acted decisively enough, they pocketed some nice profits locking in this week’s swift bounce from Monday’s lows.

While it’s nice to pocket a few bucks, we are always looking toward what’s coming next.

Maybe the index bounces Thursday, giving us another nice entry. Or maybe the panic selling sends us crashing under Monday’s lows. Either way, I’m perfectly content being a little late than a lot early. I’ll let other people argue about what stocks “should” be doing. Instead, I’ll stick with trading what it “is” doing.

Buy the bounce and sell the breakdown. Start small, get in early, keep a nearby stop, and only add to a position that is working. And if I get dumped out, no big deal, I wait for the next bounce and try again.

Follow a simple trading plan and this isn’t nearly as difficult as most people make it out to be.

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TSLA reported historic profits after the close but the stock barely moved in after-hours trade. While flat isn’t as exciting as up, it sure beats going down. That tells us most investors were expecting this result and are comfortable with these valuations.

More important is this week’s bounce off of $850 is still intact. Stick with this bounce as long as it remains above support and see where this trade goes.

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Jan 25

The market gods answered your prayers. What are you waiting for? Plus the next profit opportunity in TSLA

By Jani Ziedins | End of Day Analysis , Free CMU

Free After-Hours Analysis:

Tuesday was another wild session for the S&P 500 as it swung between 3% losses and breakeven before eventually finishing down an intermediate 1.2%.

When is a 1.2% haircut actually considered constructive price action? When it follows a 4% intraday reversal the day before. In this case, two steps forward, half a step back. It is hard to call Tuesday a bad day given what could have happened.

If Monday’s sharp rebound was a house of cards, it would have collapsed Tuesday during that early 3% retreat. But instead of spiraling out of control, supply dried up and prices spent most of the day comfortably above those early lows.

Everyone laments how they wish their favorite stocks would pull back so they could buy more. But every time the market gods answer our prayers, most people lose their nerve. Instead of loading up on all of those wished-for discounts, most people join the panicked herd dumping stocks. Pretty ironic, eh?

While it feels like these selloffs and bounces come out of nowhere, that is almost never the case. Like a lobster resting in a cool pot of water, the heat comes on gradually.

Back in early January, we got that first interest rate fueled 2% tumble. But the market actually gave us plenty of time to get out near 4,750 when prices undercut recent lows. (You use trailing stops right???) That was our first and best signal to start peeling off profits. A few days later, the index bounced off 4,600. People who missed the first 4,750 selling opportunities were given another chance to get out.

And here we are, two weeks later, testing 4,200.

As I told readers back on January 5th when all of this started: 

I came into Wednesday with sensible trailing stops spread across the lower to mid 4,700s to protect my profits “just in case”, but I was already pulling the plug on some of those positions long before those stops got hit. As easy as it is to buy back in, there is no reason to stick around when the tide so obviously starts turning against us. When the panic selling hits, I want to be one of the first to get out, not one of the last. And that means acting early and decisively.

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That was then, but what about now?

While Monday’s 4% rebound left a lot of people flat-footed, Tuesday’s retrench gave everyone another shot at buying those big discounts. Did you have the nerve to take advantage of it?

Remember, start small, get in early, keep a nearby stop, and only add to a position that is working. Follow those simple guidelines and you can profit from these great trading opportunities too.

If prices retreat later this week, no big deal. We get out at our stops and then buy the next bounce. It really isn’t that hard.

If a person is paying attention, the market isn’t nearly as cruel as its reputation. Look for the clues and you can avoid most of the carnage and be there to profit from everyone else’s misfortune.

Keep your cool during times like this and making money is pretty easy.

Much like the indexes, TSLA gave us a nice buyable bounce Monday.

If we sold the violation of $1k support last week, we were sitting on a pile of cash looking for the next trading opportunity. And as luck would have it, it only took two trading sessions for TSLA to give us the next entry point. Buy the bounce with a stop under Monday’s lows.

Maybe this bounce holds or maybe it doesn’t. But someone that bought the $850 bounce is already well ahead of the TSLA owner that held this retreat from $1,200.

Profit comes to those willing to act. Everyone else gets left holding the bag. Don’t be everyone else.

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Jan 24

Why savvy traders knew Monday was going to end in a sharp bounce. Plus the next trading opportunity in Bitcoin

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

If a person only looked at the S&P 500‘s closing print, the 0.3% daily gain completely obscured one of the most shocking trading sessions in nearly two years.

The index crashed 4% in midday trade, easily shoving us into correction territory (a pullback greater than 10%). Last week’s aggressive selling over rising interest rates devolved into a full-on, panicked dash for the exits on Monday.

But just when all hope was lost, an impressive rebound erased every single dollar of those midday losses. As jarring as the crash was, the rebound was even more spectacular.

All told, we covered more than 8% in a single session. You have to go back to the depths of the original Covid crash to find something this wild.

But to be honest, Monday afternoon’s “shocking” rebound wasn’t all that shocking to those of us that have been doing this for a while.

Monday’s early 4% crash was far and away the largest losing session of this correction. And during periods like this, the critical thing to keep in mind is emotional, waterfall selloffs typically capitulate on their biggest down days.

And guess, what? This emotional, waterfall selloff capitulated on its biggest down day.

Who could have seen this coming??? Oh yea, that’s right, readers of this blog knew it was coming. As I wrote last Friday:

Emotional sellers panic, get out, and prices bounce hard not long after. This story is as old as trading itself.

Odds are good next week will enjoy a meaningful bounce. Selloffs that go too far in one direction inevitably end with a snapback that goes too far in the other.

Maybe the market bounces Monday. Or maybe it happens Tuesday. Either way, nothing is going to keep me from jumping aboard that next big rebound.

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The best part of using trailing stops means we sold at much higher levels and were sitting on a giant pile of cash coming into Monday. While everyone else was losing their mind over this selloff, we were eagerly eying those huge discounts. Rather than get sucked into the herd’s panicking selling, those of us with cash were waiting for the capitulation bounce. And you better believe I was scooping up those crazy discounts Monday afternoon. (A critical note: Fools buy dips. Savvy traders buy bounces. Don’t be a fool.)

Maybe Monday’s capitulation bottom is the end of this correction. Or maybe it is just another false bottom on our way lower. Either way, it doesn’t really matter to me. I picked up some attractively priced stocks Monday afternoon and those positions are already sitting on a healthy profit cushion. If the correction resumes, no big deal, I get out at or above my entry points and try again next time. But if this is the real bounce, I will be counting my profits while all of Monday’s emotional sellers are left wondering what just ran over them.

I’m not a big fan of Bitcoin, but I know a trade when I see one. Bitcoin has been mirroring the equity indexes lately and if stocks are bouncing, expect that resilience to carry over to cryptocurrency. Bitcoin’s latest buy is buyable as long as it remains above Monday’s intraday lows.

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Jan 21

What happened the last time the index fell nearly 6% in one week and what does it tell us about what comes next?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 crashed another 1.9% on Friday, leaving the index down nearly 6% for the week.

It’s hard to believe we were sleepily notching record highs little more than two weeks ago. But that’s the way this usually goes. Few things sour faster than the market’s mood.

This rout in the equity market was initially triggered by an “unexpected” jump in interest rates. (I put unexpected in quotes because seriously, who didn’t see this coming??? Anyway…)

Since the market doesn’t do things in half measures, rather than respond to these changes in the bond market thoughtfully and deliberately, the crowd started impulsively rushing for the exits. Not because they thought a few basis points increase in Treasuries was going to wreck the economy, but because they assumed other people were going to panic. And logically, the only thing to do in those situations is panic first! Or at least that’s what happens when we let our lizard brains take over.

Now we find ourselves down 9% from those highs two weeks ago and the question becomes, what comes next?

Well, if we pull up a weekly chart and look back a little more than a year, we see a similar weekly plunge in the stock market (-5.64%) back in late October 2020.

That was the week leading up to the election and traders were afraid of what a President Biden would do to their taxes and regulations. Given how big the “Trump Rally” was, it makes sense the business environment could swing the other way if a Democrat took over.

Sell first, ask questions later was the name of the game back then, just as it was this week. And you know what happened next? Yeah, the market rallied 7.3%, easily erasing all of those prior losses and adding an extra couple of percent just to further humiliate all of the prior week’s impulsive sellers. Ouch!

But that’s the way this usually works. Emotional sellers panic, get out, and prices bounce hard not long after. This story is as old as trading itself.

With the index already down 9% from recent highs, is that low enough? Probably. While I don’t expect a repeat of 2020’s 7.3% snapback, odds are good next week will enjoy a meaningful bounce. Selloffs that go too far in one direction inevitably end with a snapback that goes too far in the other.

Maybe next week’s bounce isn’t the real bounce and panicked sellers are correct that this couple tenth’s rise in Treasury yields will lay waste to the US economy. But odds are good they overreacted just a tad this week.

Now for how I will trade this. I never, ever buy dips. That’s a fool’s game. But bounces? Yes please!

Maybe the market bounces Monday. Or maybe it happens Tuesday. Either way, nothing is going to keep me from jumping aboard that next big rebound.

And now for a quick rant: anyone selling on Friday is an idiot! There are only two ways to handle these situations. Either we sell early or we hold through it. Only fools wait until they get too scared and then impulsively dump everything near the bottom.

The really isn’t that hard! Back on January 5th, I warned readers that smart money was selling:

Sell and see what happens from the safety of the sidelines is how I’m approaching this. If prices bounce Thursday, great, I’m getting back in. No harm, no foul. But if the selloff continues, even better, I wait for the next bounce and buy at even lower prices. That’s a win-win in my book.

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Well, here we are two weeks later and 350 points lower and I’m sitting on a big pile of cash itching to get back in the market.

I tested the water with a couple of small buys since then, but every time selloff started making new lows, I got out and waited for the next bounce. And the lower we go, the more excited I get. We’re going to make some good money next week. I can’t wait!

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