Monthly Archives: April 2022

Apr 29

Why smart money is getting ready to buy the bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The market giveth, and the market taketh away. The S&P 500’s huge rebound on Thursday was swallowed by an even larger collapse Friday.

Friday’s -3.6% implosion was the biggest single-day loss since the depths of the Covid crisis. But as bad as that sounds, if you net Thursday’s gain with Friday’s loss, we are only down -1.1% from Wednesday’s close. Not great, but not set-your-hair-on-fire bad either.

This time it wasn’t Covid, inflation, interest rates, oil, or even the war in Ukraine. Instead, it was yet another tech highflier fumbling the ball. This time, the offense was committed by AMZN, falling -14% on disappointing earnings. Combine that with NFLX and TSLA and many of the highflying pillars that propelled the market to record highs in 2021 have come crashing down.

When the biggest and most important companies let us down, it hurts everyone and last year’s unflappable half-full mood has given way to this year’s half-empty outlook. Actually, it’s more like three-quarters empty at this point.

But as dramatic as these whipsaws have been, they have been amazingly easy to trade and avoid.

The hardest whipsaws to trade are the ones that happen when the market is closed. Those are the ones that jump our stops and leave us with a smoking pile of wreckage the next morning. But this market hasn’t been doing that to us. Instead, the majority of these huge swings happened during market hours, meaning nimble traders had plenty of opportunities to get in and out before the serious damage happened.

Anyone that’s been reading this blog knows I like buying bounces. Sometimes they work amazingly well, like March’s hugely profitable 10% surge over a couple of weeks. (Ride that wave in a 3x ETF and now we’re talking real money!)

But April has been far more stingy. Lucky for me, the bounces have been large enough that after jumping aboard early, I’ve been able to quickly move my stops up to my entry points, giving myself a free trade. When the bounce collapses the next day, I get out at my entry points for a breakeven trade, no harm no foul. Which is exactly what I did Friday morning.

Without a doubt, I would rather be making money. But when my “bad” trades don’t lose money, it is hard to complain too loudly about that.

Making money in the market is easy (everyone has good trades), the hard part is keeping it (giving back all of those profits in the next bad trade). But as long as we follow a sensible trading plan, we make big bucks when the wind is at our backs and we sidestep the losses when it isn’t blowing our way.

We don’t need to know what the market will do next if we are nimble enough to follow its lead. That means starting small, getting in early, keeping a nearby stop, and only adding to a trade that is working. Follow those simple rules and making money (and keeping it) gets a lot easier.

As for what comes next, markets rarely kiss the lows and bounce. Instead, they tend to crash through them, scare the hell out of everyone, and then bounce. While fear is really high following Friday’s collapse under 4,200 support, it will probably get even worse before the next bounce.

4,200 failed and 2022’s intraday lows near 4,100 are up next. Maybe after tagging that level, we will finally run out of fearful sellers and bounce.

Even if this is a bear market, buying bounces is still a very profitable strategy. The biggest and most powerful bounces happen in bear markets, so I’m definitely not giving up on buying bounces. As bad as April was, odds are good May will give us another tradable 30% rally in a 3x ETF. I sure wouldn’t want to miss that huge trade because I got discouraged and gave up too early.

Remember, savvy traders sell highs and buy lows. And right now we are a lot closer to the lows that the highs, meaning the next good trade is going to be a buy.

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Apr 28

Is the index finally buyable? Plus what to do with NFLX, TSLA, and AMZN

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Keeping the theme consistent, Thursday’s session was another wild seesaw day. An opening pop fizzled and retreated back to 4,200 support before bouncing hard and launching 100 points higher by the close.

As I’ve said previously, this remains an emotional and volatile market, meaning big moves in both directions. But after four days of testing 4,200 support, it is still holding. That’s no small feat. Now the question is if bulls can do something with Thursday’s monster rebound.

Sell the breakdown and buy the rebound. While that approach lead to a lot of tail-chasing lately, the daily moves have been large enough that if we get in early, we build up a nice profit cushion relatively quickly, making all of these low-risk trades.

While I haven’t been making money from these whipsaws, that was never the intent. The only goal is to be in the game with the lowest risk possible. While the first few trades didn’t work, one of them is going to. And that’s the one that makes all of this effort worthwhile. (March’s rebound covered 10% in a few weeks. Catch that in a 3x ETF and no one even remembers the first few failed bounces.)

Will buying Thursday’s bounce turn into our next mega trade? Maybe. Maybe not. But we can’t profit if we don’t try. By getting in early, we already have a nice profit cushion, making this yet another low-risk/high-reward setup.

Maybe it works, maybe it doesn’t. But if the worst thing that happens is I get dumped out at my entry point, why not give it a shot?

This is turning into an ugly month for expensive stocks. First, it was NFLX. Then TSLA. And now AMZN.

While the index looks like it wants to bounce, all of these falling highfliers are making it difficult. It will take NFLX and AMZN a while to dig out of these holes, but TSLA could be interesting since the volatility in the stock has nothing to do with the underlying fundamentals. Buy Thursday’s bounce with a stop under the intraday lows and see where this goes.

As for NFLX and AMZN, they could be good for a quick, dead-cat bounce trade, but it will be months before these are investable again. Expect both of these to carve out a series of lower lows and lower highs over the net six months. And then they will probably be dead money for another six months before finally recovering.

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Apr 27

Finding support before the next bounce or pausing before the next crash?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday was another back-and-forth session for the S&P 500.

This half-full/half-empty session gave both Bulls and Bears something to crow about. Bulls are excited the early violation of support ran out of sellers and bounced. Bears see a rebound that couldn’t find buyers and slumped back near the intraday lows. And as is usually the case, one side’s half-full is the other side’s half-empty.

For me, Wednesday was largely a push, meaning the market was not willing to commit one way or the other, forcing us to wait for Thursday.

To be honest, both the Bears’ and the Bulls’ arguments are equally valid. A clear violation of support that fails to attract follow-on selling suggests we are running out of supply. But on the other side, bounces from oversold levels take off and they don’t look back. Slumping back near the intraday lows tells us there are just as few interested buyers.

What this really confirms is neither side has the strength to press their position and that is why moves in both directions failed. Wednesday’s indecisive price action was more about each side’s weakness than either side’s strengths.

This remains a volatile market and that means this standoff will eventually end in a big move. The problem is we don’t know which direction yet. But for nimble traders, that’s not a problem. We could be like everyone else and try to predict the market’s next move with a 50% chance of being wrong, or we could simply follow the market’s lead and have a 100% chance of making money.

Personally, I like the sound of that second strategy a lot more than the first one. And that’s the way I’m trading this. I’m ready to buy the next bounce and I will be ready to sell the next breakdown. (Start small, get in early, keep a nearby stop, and only add to a position that’s working.)

If I know this will eventually resolve with a big move in one direction or the other, all I need to do is be patient, wait for that move to start, and then grab hold. I’m happy to let everyone else argue over what should be happening. Don’t mind me, I will be over here profiting from what is happening.

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Apr 26

Why even bulls should expect lower prices. Plus what the market is trying to tell Elon.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Bad gets worse for the S&P 500 as Monday’s rebound gives up the ghost and the index tumbles under 4,200 support.

While not quite the lowest levels of the year, we are not far away and the market rarely gets this close without shattering such widely watched levels.

I’m still looking for a buyable bounce, but this one is quickly shaping up as a double bottom, meaning the second bottom undercuts the previous low, usually by a meaningful amount. It’s gotta be shocking enough to convince all the fence-sitters to sell.

But not to despair, once those weak holders abandon ship, supply dries up and prices bounce. Hence why double bottoms are such reliable trading patterns.

(Or you know, the market could fall another 2,000 points in the biggest bloodbath since 2008. Either way, my trading plan is ready. Is yours?)

As I wrote yesterday, I bought the beautiful bounce off of 4,200 support. Obviously, that bounce didn’t work, but since I got in early, I was able to move my stops up to my entry points and that meant I didn’t lose anything when prices retreated Tuesday.

Free lottery tickets? Only a fool would turn his nose up at those and that is why I don’t mind buying failed bounces. For every two or three failed ones, I catch something spectacular, like March’s 10% surge, which produced some truly eye-popping profits when traded in a 3x ETF like I do.

But yeah, Monday’s buy failed, I got out at my entry points, and now I’m looking for the next bounce. Maybe it arrives Wednesday. Or maybe Thursday, Friday, or even next week. It doesn’t really matter to me. All I know is I will be standing in the right place at the right time when this thing finally pops and those profits will taste oh so sweet.

TSLA got murdered when it was revealed Elon plans on using his TSLA stock as collateral to buy TWTR. For anyone that’s been doing this for a while, they know collateral means margin calls. If TSLA falls into a slump, that gives the banks the right to dump Elon’s stock, adding fuel to an already falling stock price. That’s a recipe for disaster and is why TSLA fell 12% Tuesday. Luckily, my subscribers pulled the plug when the stock couldn’t hold $1k support.

If there is a silver lining to this story, it’s that TSLA’s tumble puts the entire TWTR deal in jeopardy. Hence why TWTR is trading so far underneath Elon’s offer prices. That tells us the market doesn’t believe this deal is going to happen.

Maybe the situation will change over the next few days, but at this point, neither stock is in favor of this deal. Maybe Musk will get the hint.

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Apr 25

Did you buy the bounce off of support? If not, why not?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Monday presented us with another boomerang session as the S&P 500 swung from -1.5% midday losses to finishing up +0.6%.

There were not any new headlines driving this whiplash and instead these gyrations were propelled by the market’s ongoing tug-of-war between bulls and bears.

Fear the collapse or buy the discounts? That’s the million-dollar question.

While lower prices could very easily be ahead of us, the midday bounce off of 4,200 support gave us the perfect bounce entry. No matter how this trade turns out, it will be hard to go wrong buying this bounce. Start small, get in early, keep a nearby bounce and add to a position that’s working.

Anyone following these simple rules is already sitting on a comfortable pile of profits and can move their stops up to their entry points, giving themselves a free trade. Even if the selloff resumes Tuesday, we get out near our entry points, no harm no foul. And if the rebound continues, move our stops up and let those sweet, sweet profits come to us.

While bulls and bears are busy arguing over what’s coming next, I’m over here minding my own business and collecting profits. When it comes to partisanship, I’m an equal opportunity capitalist.

If the rebound continues Tuesday, lift our stops. If the selling resumes, get out near our entry points and wait for the next bounce. Simple as that.

This isn’t my first bounce buy and it probably won’t be my last bounce buy, but as long as I keep getting out near my entry points when these bounces fizzle and fail, I’m in great shape. The most important thing keeping at it so I guarantee I will be standing in the right place at the right time when this thing finally pops. Just like back in mid-March when I caught that 450-point rebound in a 3x ETF and was printing money.

And even if we are falling into a bear market, that’s okay too, because bear markets have the biggest bounces.

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Apr 22

Why this was actually a good week for nimble dip buyers

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

What a difference two days make. The S&P 500 was well on its way to recovering from April’s intermediate step back when the index popped above the 200dma Thursday morning. Unfortunately, that was as good as it got and it was all downhill from there, with the index shedding nearly 250 points by Friday’s close.

To be honest, I really liked Tuesday’s bounce back above 4,400 support and I welcomed that rebound with open arms. Things looked even better Thursday morning following that opening gap higher. It really felt like this trade was firing on all cylinders. Nice!

Then Powell opened his mouth. From that moment on, the index did nothing but skid lower. Aa my dad loved to remind me when I was younger, easy come easy go…

While this late-week reversal sounds painful for a dip buyer like myself, it was actually an easy (and profitable) trade for myself.

By getting in early Tuesday, I was already sitting on a pile of profits by that afternoon and was able to move my stops up to my entry points. Then Thursday’s opening gap allowed me to nudge those stops even higher.

And that’s when the bottom fell out. But that’s not a bad thing. In fact, that’s exactly why we use stops. By that point, my stops were already spread around 4,450.

But the thing to remember is stops are only our last line of defense. There is nothing that says we cannot sell before they get hit. In fact, many trades are obviously broken before our stops get hit. And that was definitely the case with Thursday’s meltdown.

From the moment Powell opened his mouth, the market started skidding and it didn’t stop. That’s not what a good trade looks like. Anyone looking at that chart knew the market was broken and there was no reason to stick around waiting for our stops to get hit. Pull the plug and get out of the way.

Buy the lower 4,400s, sell the upper 4,400s, and watch the carnage from the sidelines. That was the story of my week.

Now that the index crashed through 4,400 support, things get a lot more interesting. Either the selling continues next week or it stalls and bounces.

From the safety of the sidelines, I’m fine with either outcome. If we bounce Monday, great, I’m a buyer. If that bounce doesn’t happen until Tuesday, Wednesday, or Thursday, that’s fine too. In fact, that’s even better because the lower we go now, the more money I make when this bounces back.

Never forget, we cannot buy the bounce if we are fully invested. That means always be willing to pull the plug on trades that are not working.

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Apr 21

Turning lemons into lemonade

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday was a truly dreadful session for the S&P 500 as an early 1% gain disintegrated into a 1.5% loss. It doesn’t get more ominous than a strong open turning into a weak close.

We can blame this intraday reversal on Powell when he was very direct in saying a 0.5% interest rate hike is coming next month and we should expect more of the same in subsequent months.

It’s been two decades years since the Fed raised rates in half-percent increments and while most investors knew this was possible given our absurd 8% inflationary environment, some people were hoping for a more measured runup in rates.

But to be honest, simply falling back to 4,400 support is not horrible. It was definitely a dramatic reversal, but the bottom hasn’t fallen out from under us…yet.

As bad as Thursday looks on a daily chart, it was actually a very tradable decline for those of us that were paying attention. We started high and then skidded in a methodical way through the day. We weren’t caught off guard by a huge opening gap. There wasn’t a nearly instantaneous selloff. Instead, prices simply ground their way lower. And lucky for us, these slow-motion declines are the easiest to trade because they make it super easy to get out at our stops.

And to be honest, with something as telegraphed as this selloff, there was no reason to wait until our stops got hit. It was fairly obvious early in the session something was wrong. And when a trade isn’t working, there is no reason to ride it all the way back to our stops. Never be afraid of pulling the plug early. Buying back in is a heck of a lot easier than wishing prices would go back to the levels we regret not selling at.

Tuesday was a great buying opportunity and Thursday sent us scrambling for cover. But that’s the way this goes sometimes. If trading was easy, everyone would be rich.

While obnoxious bears will taunt me for being foolish enough to buy Tuesday’s bounce. I got in early Tuesday and then I got out early Thursday. While this bounce didn’t work and I was “obviously wrong”, buying in the lower 4,400s and selling in the upper 4,400s isn’t that bad of a deal. If that’s what being wrong looks like, then I definitely don’t mind being wrong.

And guess what? Now that I’m out, I’m already looking for that next bounce. If I’m lucky, my next trade will be just as “wrong” as this trade.

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