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By Jani Ziedins | End of Day Analysis , Free CMU
Free After-Hours Analysis:
Thursday’s session for the S&P 500 was far more dreadful than the day’s 1.1% loss suggests.
The day started off well enough when the index popped nicely at the open and rallied all the way to 4,600 support by late morning. But rather than propping up the market, 4,600 turned into a ceiling and that was as good as it got. By the end of the session, the index shed 120-points from those intraday highs and crashed through recent lows. Ouch!
But if Thursday was such a dreadful session, why were savvy traders buying that morning bounce?
The answer is simple, it gave us a nice, low-risk entry and it would have been foolish to not take it.
All too often novice traders fixate on whether a trade worked or not. But what these rookies fail to realize is a good process is far more critical to long-term success than the result of any individual trade.
For example, if an eccentric trader bought far-out-of-the-money call options based on an astrology chart, just because the trade worked for him that single time doesn’t mean it was a good trading decision.
While people often claim it is better to be lucky than good, the problem with luck is it always runs out.
Stick with a good process and we don’t need luck, we just need to be smart enough to stick with it.
Even something with an incredible 80% win percentage will still fail one time out of every five. Does it make sense to throw out a highly reliable process simply because it didn’t work that one time? Of course not.
And the same goes for buying this Thursday morning’s bounce.
Now, don’t get me wrong, buying bounces doesn’t work 80% of the time. Not even close. In fact, it only works about 30% of the time. But the win percentage isn’t the genius of the trade. It’s the unbelievable risk/reward these setups give us.
Buy the bounce early with a partial position. When prices continue higher, as they usually do, move our stops up to our entry points. Bam, this just turned into nearly free trade.
If Thursday’s bounce returned to the highs, like every other dip has over the last 14-months, that’s 200 points of profit in our pocket. If the bounce stalls and retreats, like it did Thursday, we get out at our entry point for what we paid. No harm no foul.
So a trade with 200 points of upside and close to zero downside? Who cares if it only works 30% of the time, we should be buying it every chance we get.
This is why smart money was buying Thursday’s early bounce.
And you know what? I will do it again Friday if we get the same setup. Except this time there will be 300 points of potential upside if we return to the highs. Bring it on!
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NFLX got hammered after the close following disappointing subscriber growth. While the after-hours losses put the stock back to $400, that’s a long, long way from the $700 autumn highs.
But here’s the thing, savvy traders are not taking tonight’s 20% haircut. This stock has been in free-fall since failing to hold $600 support at the beginning of January. If a person didn’t sell the first $600 violation, there was no excuse to keep holding after it fell under December’s lows.
Big selloffs like this are many months in the making and while it feels like it hits us all of a sudden, anyone caught up in this ignored a lot of very obvious sell signals. I mean seriously, the stock gave us THREE chances to get out at $600!
And while it feels like this cannot possibly get any worse and it has to be close to a bottom, just ask a PTON owner how much lower these things can fall.
I like NFLX. They have a great product. But this is a momentum stock and the momentum is clearly in the wrong direction.
I’m more than happy to buy the next bounce, but it needs to bounce first.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday turned into another painful session for the S&P 500 as it shed an additional 1%. This leaves us 5% under recent highs of only a couple of weeks ago. Easy come easy go…
But Wednesday’s follow-on selling wasn’t a surprise. As I explained to readers Tuesday evening:
Emotional selloffs rarely kiss support and bounce cleanly. Get this close and a more painful violation is all but inevitable. While there are no guarantees in this business, the risk/reward is definitely stacked against us. As the prudent saying goes, “never try to catch a falling knife.”
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We got a modest bounce Wednesday morning, but the dip-buying barely lasted an hour before another wave of selling knocked us under 4,600 support for the remainder of the session.
While that early bounce was technically buyable, as soon as prices undercut yesterday’s lows, it was time to get out. As easy as it is for independent traders like us to get in and out of the market, there are no valid excuses to continue holding a falling market. That was true two weeks ago when this selloff first started and it remains just as valid today.
Now that most readers are safely in cash, we cannot allow ourselves to sit back and relax. Instead, we are always looking for that next buyable bounce.
Stocks bounce hard and fast from oversold levels. While only fools try to pick bottoms, if we wait more than a few hours after a bounce, we quickly find ourselves getting left behind.
Start small, get in early, keep a nearby stop, and only add to a position that is working. Follow those simple rules and you too will profit from the next big rebound.
And if the next bounce turns into another false start, no big deal. We simply get out at our nearby stop and wait for the next bounce.
By starting with partial positions and having clearly defined exits under recent lows, buying these bounces is a low-risk proposition. Compared to the potential upside of riding this 5% dip back to the highs (15% in a 3x ETF!), I’m more than willing to take a few small and calculated lumps along the way!
This is a numbers game. As long as we stick with our trading plan, we guarantee we will be standing in the right place at the right time when the real bounce finally takes hold.
This will only bounce after most people have given up. That means we need to be more persistent than most.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Tuesday was another painful session for the S&P 500 as the index shed 1.8% and failed to hold 4,600 support.
Low keeps getting lower and that’s never a good sign. While Tuesday’s selling didn’t spiral out of control after undercutting last week’s intraday lows, that’s a silver lining at best.
Emotional selloffs rarely kiss support and bounce cleanly. Get this close and a more painful violation is all but inevitable. While there are no guarantees in this business, the risk/reward is definitely stacked against us. As the prudent saying goes, “never try to catch a falling knife.”
I came into Tuesday’s session holding a small position I bought following Friday’s late bounce. I liked Friday’s setup and more often than not, those things work. But “most of the time” is not the same as always, so that’s why I only started with a partial position.
When the market gapped lower Tuesday morning, I took my lumps and got out. But doing it with a partial position wasn’t all that bad. Slippage like this is simply the cost of doing business in the market.
While critics will laugh at my “wrong” trade, in this case, being wrong is actually creating an even more profitable trading opportunity. Now that my trading account is 100% in cash, the lower this goes, the more money I make buying the inevitable bounce. So burn the house down for all I care. All I know is I will be there with a pile of cash to pick up the pieces. When the crowd is busy abandoning ship at the bottom of this dip and selling their favorite stocks at deep discounts, their loss will turn into my gain.
If the market bounces Wednesday, I will be there to buy it. If the bounce doesn’t come until next week, no big deal, I can wait.
Start small, get in early, keep a nearby stop, and only add to a position that is working. If the next bounce keeps going, great, I add more. If it turns into another false start, no big deal, I pull the plug at my stops and wait for the next one.
The most important thing is I keep at it. All of these small, partial position losses will be wiped out when I’m standing in the right place at the right time and catch the next big wave.
And the most important thing is you can do it too! Sign up for free email alerts so you can follow along.
A handful of weeks ago GME was challenging $250, now it is barely hanging on to $100.
When moment stocks fall, they fall hard. Unfortunately, there is no indication GME is anywhere near a bottom. It is down 80% from all-time highs and it is acting like it could fall another 80% from here.
If Christmas and NFTs couldn’t save this stock, I don’t know what is left to turn this around.
But remember, as bad as this looks, it can always get worse. There is no rational reason to ride this one all the way into the dirt. And you know what? If it bounces, you can always buy back in. A more nimble approach like that definitely beats hoping and praying for a turnaround.
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By Jani Ziedins | End of Day Analysis , Free CMU
Free After-Hours Analysis:
The S&P 500 went for another wild ride on Friday.
The index gapped lower at the open, but as is often the case with opening gaps, supply dried up within minutes and prices bounced back to breakeven. (I’ll get into the reasons why this happens so often in another post. Sign up for free email alerts so you don’t miss it.)
Unfortunately, the relief was short-lived and prices quickly slumped back near the opening lows when dip buyers failed to show up and support the early buying.
But rather than crash through the lows and trigger another wave of panic selling, supply dried up for a second time and the index actually bounced back to breakeven, even managing to eke out a small, 4-point gain by the end of the day.
Phew, that was a mouthful and it was definitely a topsy-turvy session. But what it wasn’t was another rout. Bears had the perfect setup to launch another big wave of panic selling, but they couldn’t get stock owners to play along. And that’s a pretty good indication bulls are still in control of this market.
As I often remind readers, it’s not how we start but how we finish that matters most. And while it is hard to get excited about a measly 4-point gain, that is actually a respectable win given where the index spent most of the session.
In fact, I was encouraged enough by this price action to start buying back in. If this market was fragile and vulnerable to a larger collapse, it would have happened Friday. The fact we closed well above early lows tells me this market wants to go higher, not lower.
To the untrained eye, it looks like I am chasing my tail these last two weeks because I keep getting in and out of the market. (And it definitely feels like I am chasing my tail!)
I sold the initial dip at my stops in the upper 4,700s. Then I bought the first bounce late last week but ended up getting dumped out during last Friday’s pathetic close. I tried again this Monday, buying that impressive bounce. That trade worked well until Thursday’s interest rate second-guessing told me it was time to get out again. And then as I wrote above, I bought back in Friday afternoon.
I hate buying and selling this often. But that’s what my trading plan tells me to do at each of these junctures and I know better than to question my trading plan. When done right, my trading plan A) keeps me safe and B) makes sure I am in the right place at the right time to take advantage of the next big move.
If that means I have to chase my tail every once in a while, so be it.
While I collected a small profit this week arbitraging these whipsaws, that’s not the reason I’m selling these dips and buying these bounces. I’m doing it to protect myself from a larger selloff.
I will be the first to admit I can’t predict the future and I don’t know if this pullback will bounce at 4,600, 4,400, or 4,200. What I do know is it doesn’t matter if this is a 200 point pullback or a 600 point pullback, I don’t want to hold through either of those pullbacks.
When I move to the safety of the sidelines, I no longer care if it is a 200 point or a 600 point pullback. And as soon as I’m in cash, the first thing I’m doing is looking for the next buying opportunity so I can get back in.
Maybe Friday’s buy will prove to be a mistake. And I’m okay with that. I simply get out and try again. Or maybe the market bounces nicely Tuesday and I add more.
Either way, it doesn’t matter to me as long as I’m standing in the right place at the right time.
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TSLA took a big hit Thursday, but more importantly, the stock held $1k support.
While it is more fun watching a stock go up every single day, we know that’s not realistic.
TSLA is trading well enough to stick with as long as it remains above $1k support. In fact, for those that missed the first bounce, this pullback is giving you a second chance to get in.
Buy the bounce with a stop just under support.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
Thursday started off well enough for the S&P as it opened with a 0.2% gain. Unfortunately, that was as good as it got and it was all downhill from there. By the end of the session, the index shed 1.4% and it closed at the daily lows. Ouch!
As the saying goes, easy come easy go. Luckily this drop didn’t surprise readers of this blog and we were ready for it.
As I reminded readers Tuesday evening:
First bounces have high failure rates. And this bounce is not any different. When everything starts feeling easy is when the market tends to pull the rug out from underneath us.
Now don’t get me wrong, I was not predicting a top Tuesday evening. I learned a long time ago trying to predict the market’s exact turning points is a fool’s game. But just because we are not predicting the market’s next move doesn’t mean we cannot prepare trades based on probabilities.
The market covered a huge amount of ground from Monday’s very nice (and very buyable) bounce. That does two things. First, the higher we go now, the less upside we have remaining in the move. And two, risk is a function of height, so the higher we are, the more room we have to fall.
Less upside and more risk? That is a poor buying environment and tells us we should be shifting away from offense and getting into a defensive mindset.
If I traders came into Thursday with a defensive game plan, they would have been perfectly positioned to protect this week’s nice profits.
Anyone playing defense Thursday is now we’re sitting on a pile of profits. But rather than pat ourselves on the back, it is time to start looking for the next buyable bounce. It could come as early as Friday so we need to be ready.
Maybe the selloff continues Friday and the index crashes through 4,600 support. Or maybe prices bounce off of this support level Friday morning. Either way, cash is the best place to be because we don’t have to worry about how big this selloff will be. Instead, we eagerly await the next trading opportunity. And the lower this goes now, the more money we make buying the next bounce.
If the market bounces Friday, remember, start small, get in early, and keep a nearby stop. And if the index closes at the upper end of the day’s range, add more.
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The meme stocks are getting killed. Sometimes things get so bad they become good. But in the case of GME, AMC, and HOOD, bad is just bad. These are momentum stocks and the momentum is most definitely negative.
Savvy traders abandoned these stocks when they violated support back in November. But if a person is still hanging on to these deadbeats, it isn’t too late to sell. Things will only get worse the longer you wait.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Wednesday nearly 150 points above Monday’s early lows. It is truly amazing how much ground the market can cover when it sets its mind to it.
But now that the crowd is finally breathing a sigh of relief because “the first selloff of 2022 is already over”, is it time for savvy traders to start getting nervous?
As I wrote earlier this week, first bounces have high failure rates. And this bounce is not any different. When everything starts feeling easy is when the market tends to pull the rug out from underneath us.
But just because this week’s bounce could fail doesn’t mean buying it was a mistake. Those of us that got in midday on Monday are sitting on a healthy profit cushion. That gives us a lot of margin to protect ourselves in case this rolls over. In fact, this trade has progressed to the point my trailing stops are already above my entry points. Even if this bounce fails, I could be “wrong” and still turn a profit. (Gotta love it when even your bad trades make money.)
Low risk, high reward. These are the setups we live for. By starting small, getting in early, and keeping a nearby stop, we were able to jump aboard this bounce in a low-risk way.
And if you missed Monday’s bounce, don’t worry, another one will be along soon enough, especially if Monday’s bounce fails. You just have to keep your eyes open and be willing to move when everyone is paralyzed by fear and indecision.
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TSLA’s latest bounce off of $1k support is also progressing nicely. Sell the pullback from $1,200 at our trailing stop and buy the next bounce off of support. What’s not to like about that?
Sure, most owners held through the dip and are just fine. But that’s only because prices bounced off of support. What happens when prices don’t bounce?
There is no reason to hold a pullback if we don’t have to. For independent traders like us, getting in and out is so easy, there is no excuse not to.
Because you know what? One of these dips won’t bounce and that will make all of the extra effort worthwhile. Just ask the long-term holders of GME, PTON, ZM, and DOCU what that feels like.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 recovered 100 points in little more than 24 hours. As I often write, markets bounce hard and fast from oversold levels and the last two sessions of buying frenzy definitely count as hard and fast.
While Powell and the Fed keep talking up near-term rate hikes to combat inflation, aside from this little wobble, the stock market doesn’t seem all that concerned. After five days of selling, supply already dried up and confident dip buyers have cut those losses in half. If this is the best bears can do, we don’t have much to worry about.
While both bulls and bears will tell you they know for certain what is going to happen next….in reality, both sides will probably be right. Prices will fall further, initially proving bears right. But inevitably, every selloff finds a bottom and prices bounce, proving bulls right.
The market fell another 100 points after I wrote that … and it has since reclaimed all 100 of those points.
While this up and down is a wash for most investors, for the nimble traders among us, selling high and buying low is the name of the game. Rather than sit through these dips, hoping and praying they bounce, I get out, wait for the bounce, and get back in at lower prices.
Cutting my risk and getting paid for the protection? Trades don’t get any better than that!
Now, I will be the first to admit there are no guarantees in the market and this bounce could fail. But by buying midday on Monday, our entry points are well underneath current levels and we have a huge profit cushion. My stops are already at or above my entry points, meaning this is already a profitable trade for me even if prices collapse.
And guess what? If I’m wrong and the market noses over later this week, even better. I get out above my entry points, collecting a small profit for my effort and then I get to buy even bigger discounts next week. Go up and I win. Go down and I win. Learn to trade proactively and this could be you too.
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TSLA bounced nicely off of $1k support Monday, giving us an attractive entry for this popular high-flying stock.
For those of us that bought TSLA’s last bounce off of $900 and followed it up to $1,200 with a trailing stop, we locked in some really nice profits. And a few days later, we are already buying back in, ready to do it all over again.
I don’t know if this bounce off of $1k support will stick or not. But by getting in early and keeping a nearby stop, the risks are low and the rewards high. These are the setups we dream of.
If it doesn’t work, no big deal, I get out and buy the next bounce.
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