Monthly Archives: February 2022

Feb 15

Why stocks could actually rally if Russia invades Ukraine

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Tuesday was a good session for the S&P 500. A 1.6% gain allowed the index to break a three-day losing streak and reclaim the 200dma and 4,450 support. While one day doesn’t establish a new trend, it was nice to see the market bounce back from the latest bout of selling.

Russia hasn’t invaded Ukraine and that situation is avoiding the worst-case scenario…so far. But the thing to keep in mind regarding this event is markets deal with bad news a lot better than uncertainty. That’s because traders can put a price on bad news and factor it into the market. Unknow outcomes are impossible to quantify and traders tend to let their imagination get the worst of them.

This phenomenon of uncertainty being worse for stocks than bad news is what allows stocks to actually rally once bullets start flying. While no one wants to see that happen, a hot war means we stop debating what could happen and instead focus on the actual impact of the conflict. And in most instances, reality turns out less bad than feared.

And more than just “less bad than feared”, the turnover in ownership leading up to a conflict also helps stabilize prices. Owners that fear these events sell during the build-up and the subsequent buyers demonstrate a willingness to hold this headline environment. Ownership churn eventually gets to the point where all of the fearful owners have gotten out and there is no one left to sell the next round of headlines. And that’s when the bad news is finally priced in.

Are we close to that point? Maybe. Maybe not. But we get closer with each passing day and stocks will bounce long before most people expect. Anyone waiting for the news to improve will be too late. That’s why smart money buys when most people are still afraid.

As I wrote last week:

I took profits Thursday morning and now I’m sitting in cash, waiting for the next bounce. Maybe it happens Monday morning. If so, great, I start buying back in and will add more as the rebound progresses. But if the selloff continues, no big deal, I sit on my hands and wait for the next trading opportunity on Tuesday or Wednesday.

Well, as it turns out, the index bounced in the final hours of Monday’s session, reclaiming 4,400. That late surge of buying was our signal to test the water with a partial position. And Tuesday’s early strength told us to add more. So far so good. Keep a stop near Monday’s close and see where this goes.

If the selling resumes on Wednesday, no big deal, our early positions already have a nice profit cushion and we simply bail out near our purchase price. Small risks from being wrong and large rewards from being right? Sign me up! These are the risk/reward setups we dream of.

And if the selloff resumes, that’s okay too. We get out and try again next time. In fact, the lower we go now, the more money we make buying the next bounce, so I say bring it on. Either way, I’m ready for what comes next. Are you?

Want profitable ideas like this delivered to your inbox every night? Sign up for free email alerts. 

If you find these posts useful, please return the favor by liking and sharing them!

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every evening.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, receive actionable analysis and a trading plan every day during market hours

Follow Jani on Twitter

Feb 11

What smart money will be doing Monday morning

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Following seven positive days out of the previous nine sessions, the S&P 500 stumbled hard on days ten and eleven. Luckily, we knew this was coming. As I wrote Wednesday evening:

Expecting this 10% rally to keep going is getting a tad greedy. Markets move in waves and it is worth remembering that at both the bottoms and the tops. It is time to shift to a defensive mindset and protect what we have. Move stops up and see where this goes, but no one should be surprised if this stalls near 4,600 resistance.

Well, here we are, 48 hours later and nearly 200 points lower.

Sign up for free email alerts so you don’t miss the market’s next big turn.

Some people blame this latest pullback on high inflation and looming rate hikes. Others point to the imminent Russian invasion of Ukraine.

While both of these reasons appear valid, the problem is the market rallied strongly under these same storm clouds two weeks ago. Inflation, rate hikes, and a Russian military build-up are not new. Are we supposed to believe these headlines didn’t matter for weeks and then all of a sudden traders woke up and started freaking out? I don’t think so.

In reality, the market pulled back Thursday and Friday simply because it was time. As I reminded readers two weeks ago near the lows, markets move in waves and we should be ready for a strong bounce. Well, here we are, two weeks later and 300 points higher. Rather than pat ourselves on the back for buying the bounce, smart traders were getting defensive and preparing for the step back.

Markest move in waves. Always have, always will. And now that we’ve fallen 200 points, rather than panic, it is time to start looking for the next bounce.

Buy the bounce, sell the breakdown, and repeat as many times as necessary.

I took profits Thursday morning and now I’m sitting in cash, waiting for the next bounce. Maybe it happens Monday morning. If so, great, I start buying back in and will add more as the rebound progresses. But if the selloff continues, no big deal, I sit on my hands and wait for the next trading opportunity on Tuesday or Wednesday.

Volatile markets like this are actually fairly easy to trade because once a move gets started, it keeps going. As long as we have the courage to jump aboard early, it is a fairly nice ride.

If you find these posts useful, please return the favor by liking and sharing them!

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every evening.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, receive actionable analysis and a trading plan every day during market hours

Follow Jani on Twitter

Feb 10

How savvy traders traded Thursday’s volatility. Plus what Bitcoin owners need to keep an eye on.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

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

Volatility kicked off when the consumer price index surged at the fastest rate in 40 years. That sent traders scrambling for cover and the index gapped 1.3% lower at the open. But as is often the case, the opening gap reversed within minutes and it wasn’t long before the index found itself back near breakeven.

Unfortunately, that early dip-buying proved fleeting and the index retested the early lows in midday trade. And when a bounce fizzles, the selling rarely stops at breakeven. By the close, the index found itself down nearly 2%. Ouch!

But this wasn’t unexpected. As I wrote Wednesday evening:

Expecting this 10% rally to keep going is getting a tad greedy. Markets move in waves and it is worth remembering that at both the bottoms and the tops.

While I still like this market and will keep holding a trade that is working, it is time to shift to a defensive mindset and protect what we have. Move stops up and see where this goes, but no one should be surprised if this stalls near 4,600 resistance and rests for a bit.

Sign up for free email alerts so you don’t miss the market’s next big turning point.

Thursday’s price action did more than pause and rest, but that’s the way this goes sometimes.

As I wrote Wednesday evening, I can into Thursday holding the latest bounce off the 200dma and had a decent profit cushion. While I obviously wasn’t happy with the opening gap lower, I knew better than to overreact to early weakness. Instead of punching out at the open, I gave the market a few minutes to find its footing and that’s exactly what it did.

That bounce was my signal to keep holding and move my stops up near the early lows. Unfortunately, that early bounce didn’t stick and I got dumped out near 4,450. But that’s the way trading goes sometimes. I collect my profits and get ready for the next trading opportunity.

Maybe prices bounce Friday and I get back in. If that’s the case, no harm, no foul. Or maybe the selling continues Friday. If that happens, I continue sitting on my hands and wait for the next bounce.

At this point, I don’t really care what happens next. The only thing that matters is that I’m standing in the right place at the right time when the next move takes hold.

While bulls and bears argue about whether this market is going a lot higher or a lot lower, I will continue playing both sides of the fence. IMO, there is too much money to be made riding these waves to get hung up on labels and who is right and who is wrong.

Bring on the volatility.

For the first time in a while, Bitcoin is actually outperforming the equity indexes. The breakout above $40k resistance was a buy signal for anyone that missed last month’s bounce off of the lows.

While Bitcoin is trading well for the moment, I am wary of a near-term sell-the-news event following this weekend’s Super Bowl.

There is no reason to sell prematurely based on something that could happen. Instead, we move our stops up and trade what is happening. And for the moment, Bitcoin is trading well.

Just don’t get complacent if we see weakness next week.

Feb 09

What the January rebound tells us about what’s coming next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 popped Wednesday, making this the seventh up day out of the last nine trading sessions. Not bad for a market that was written off for dead two weeks ago.

Headlines remain mostly the same, but that’s the point. The economic situation is not deteriorating and we avoided the worst-case scenario, meaning a big portion of January’s panic selling was an overreaction. But that’s the way this usually goes.

Overly pessimistic markets set up to rally on “less bad than feared” and that’s been the story of the last two weeks. As I wrote back then, markets love symmetry and that means the biggest selloffs have the biggest bounces. And what do you know, the index is up nearly 10% from the January lows. Funny how that works.

Buy this bounce in a 3x ETF and now we are talking about real money. Not bad for two weeks of “work”.

But that was then and this is now. Expecting this 10% rally to keep going is getting a tad greedy. Markets move in waves and it is worth remembering that at both the bottoms and the tops.

While I still like this market and will keep holding a trade that is working, it is time to shift to a defensive mindset and protect what we have. Move stops up and see where this goes, but no one should be surprised if this stalls near 4,600 resistance and rests for a bit.

Sign up for free email alerts so you don’t miss the market’s next big turning point. 

If you find these posts useful, please return the favor by liking and sharing them!

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every evening.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, receive actionable analysis and a trading plan every day during market hours

Follow Jani on Twitter

Feb 08

The secret that makes trading this volatility easy. Plus what this weekend means for Bitcoin and a FB freebie.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Tuesday in the green for the sixth time out of the last eight trading sessions and these gains leave us 7% above the intraday lows set barely two weeks ago.

Not bad for a bull market that was supposed to be dead. But this revival was always expected. As I’ve written many times before, the market loves symmetry and the biggest crashes are followed by the biggest bounces.

While no one can predict the exact moment when prices will stop falling and start bouncing, it doesn’t take a Ph.D. in Finance to identify the spot on a stock chart when prices stop falling and start climbing.

Emotional markets are as nimble as freight train trades. Once they get going, they tend to keep going and going and going. When we see that first bounce, all it takes is an hour or two to confirm the bounce and give us the green light to jump aboard. Wait any longer and we risk getting left behind.

And for anyone thinking this is nothing more than a case of hindsight bias, here’s what I wrote on January 24th when the January correction bottomed: 

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.

While we cannot go back in time and trade a missed opportunity, we can learn from this experience so we don’t make the same mistake again next time.

Sign up for free email alerts so you don’t miss the next big trade. 

As for where the market is going from here, this is the fourth session in a row the index tested the 200dma and 4,450 support. If this rebound was grossly overbought and vulnerable, it would have collapsed days ago. Instead, every time it challenges support, supply dries up and prices bounce.

And just as important, while volatility remains elevated, these swings are getting smaller and smaller. All of these are signs the market is coming to terms with imminent interest rate hikes and these headlines have largely been priced in. (i.e. Anyone that was afraid of these headlines already abandoned ship.)

While there are no guarantees and emotional selling can return at any moment for any reason, the first thing that needs to happen is for prices to actually start falling. Until that actually happens, this bounce is very much alive and well.

As for how to trade this, the index is buyable/holdable above 4,450. Anything under this level and it is time to get out and wait for the next bounce.

Bitcoin continues holding last week’s $40k breakout. While this is a good start, we will see a lot of crypto-related advertising thrown at the world during this weekend’s Super Bowl. But rather than propping Bitcoin up, this coming-out party could actually turn into a “sell the news” moment for Bitcoin.

The $40k breakout is holdable, but be ready with stops near $40k in case the “sell the news” crowd takes over this weekend.

Bonus: Look for a near-term bounce in FB. Start small, get in early, keep a nearby stop, and take profits quickly. As I said above, oversold moves tend to bounce hard.

If you find these posts useful, please return the favor by liking and sharing them!

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every evening.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, receive actionable analysis and a trading plan every day during market hours

Follow Jani on Twitter

1 2 3