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

By Jani Ziedins | End of Day Analysis

Apr 27

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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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.