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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Wednesday almost exactly where it started.
While flat is not as much fun as up, hanging on to all of Tuesday’s gains was a nice win for bulls.
As I’ve been saying since this latest test of 4,400 support started, real bounces take off and don’t look back. Last week’s failed bounces unwound their gains within hours. While Wednesday’s 24 hours of price stability isn’t enough to hang our hats on just yet, it is already doing better than last week’s fizzles.
As I wrote back on March 29th when the index hit multi-month highs:
Now that we’re at the highest point since the 2022 correction started and within 200 points of all-time highs, we should expect the rate of gains to stall, if not outright retrench in a very normal and healthy step-back. Retesting 4,400 wouldn’t be a surprise.
And wouldn’t you know it, here we are testing 4,400 several weeks later. Funny how that works.
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But rather than freak out and predict a much larger selloff like everyone else, to me, this looks like the “very normal and healthy step-back” I anticipated back in March.
Rather than freak out alongside the crowd, we should be buying these discounts fearful sellers are so graciously giving away.
I have no idea if this is the real bounce or not. But I do know Tuesday’s buys are sitting on a pile of profits and my stops are already above my entry points, making this a free trade. If I’m right, I make a pile of money. If I’m wrong, I get out near my entry points, no harm no foul. Boy do I love it when trades work out like this.
At this point, there is nothing for me to do other than keep holding and moving up my trailing stops. And if I get stopped out, no big deal, I collect some small profits and try again next time. Being “wrong” doesn’t get any better than that.
I could write a book about what’s going on with NFLX, but the Cliff Note’s version is it is setting up for a very tradable dead-cat bounce over the near-term before resuming the long-established down-trend.
Swing traders can buy the next bounce for a quick profit.
Anyone still holding NFLX needs to be looking for an exit because as bad as this looks, it is going to get even worse over the medium-term. Use any bounces as an opportunity to get out.
And for the most aggressive traders, shorting the dead-cat bounce is probably the best trade going here.
As for what comes next, expect a saw-tooth decline with plenty of fool’s bounces on our way down to $140ish over the next six months. From there, expect this to turn into dead money for the next six months as people give up and forget about this stock. And then, and only then, will this finally become buyable for a longer-term hold.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 shot up 1.6% Tuesday, easily retaking 4,400 support and reclaiming even more ground before the closing bell.
Monday’s violation of 4,400 support couldn’t go any further than 4,370 before it ran out of impulsive sellers and bounced. To be honest, that was a pathetic showing by the bears. If that was the best they could do, what are people so worried about? And now that the index is back above 4,400 support, all lights are flashing green.
Is this finally the real bounce? Maybe. Maybe not. But as a nimble trader, I don’t care. I jump aboard these things early and within hours, I was already lifting my stops up to my entry point, giving myself a free trade. If the bounce continues, great, I let those profits pile up. If the bounce fizzles and retreats, no big deal, I get out near my entry point and I get to try again next time. No harm no foul.
While critics claim I’m stupid for buying bounces that are so obviously destined to fail, I don’t mind. Any low-risk trade is worth taking no matter how unlikely it is to work. It’s like I found a pile of lottery tickets. Just because the first three didn’t payout doesn’t mean I give up and throw the rest in the trash. I will keep scratching until I find the one that makes it all worthwhile. And if they are all losers, no big deal, the only thing I lost was my time.
In March, I hit the jackpot, catching that 450-point surge in a 3x ETF. Will the next bounce payout like that? Most likely not. But since I like free money, I’m willing to give it a shot.
Buy the bounce above 4,400. Move stops up to our entry points. And if a person isn’t already fully invested, add more Wednesday if the index continues trading well. And if prices rollover, no big deal, get out near our entry points. Simple as that.
In fact, there is no reason to hold this all the way back to our stops. If this looks broken, then it is broken. Real bounces take off and don’t look back. If this retests support so soon after bouncing, it’s not the real deal. Get out and wait for the next bounce. Remember, buying back in is always easier than wishing stocks will go back to the levels we wish we sold at.
I love buying bounces, but I will never keep holding one that’s stopped working.
NFLX got murdered in after-hours trade after badly missing subscriber growth projections.
Growth stocks are great…until they stop growing. Down 25% after the close. Ouch!
But this is nothing new for NFLX. This stock is already down 50% from last year’s highs. Anyone still holding from those highs is just plain foolish. We only make money when we sell our winners and right now, anyone that bought NFXL over the last few years watched big piles of profits vanish. And worse than that, they let a great trade turn into a big loser.
It is impossible to make money in the market with a strategy like that.
As for nimble traders, I don’t mind buying bounces and Tuesday’s bounce was buyable with a stop under Monday’s lows. But every disciplined trader starts with a small position and lets a trade start working before adding more. While waking up tomorrow to a 25% haircut is painful, it hurts a lot less with a 1/3 or 1/2 position.
As for how to handle NFLX going forward, the stock will probably bounce early Wednesday. Owners can keep holding with a stop under the early lows and try to reclaim some of those losses, but don’t get greedy and be ready to lock in losses later Wednesday or Thursday.
As for opportunistic traders, can buy the bounce with a stop under those early lows.
This bounce will probably fail and if (when) it does, there is no excuse to continue holding under the opening lows. From there, the pain will only get worse.
But don’t take this stock out of your scan. In a few weeks, just when things look their most hopeless, there will be a very large bounce from those grossly oversold levels.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 stumbled into Thursday’s pre-holiday close, finishing the session under the all-important 4,400 support level.
Thursday’s dip wasn’t a make-or-break moment for the index, but it did reveal demand isn’t ready to power the next leg higher…yet.
It isn’t unusual for investors to be a little gunshy ahead of a three-day weekend. Big money is thinking, “Why take unnecessary risk here when I can just wait until next week to buy?” And given all of the headline uncertainty surrounding us, that cautious approach makes a lot of sense.
As poorly as the index acted Thursday, I don’t read much into holiday-affected sessions. In fact, I think the market could be setting up for a nice bounce next week. Slip to 4,350, squeeze out the last of the weak danglers, and then pop back above 4,400 support. (capitulation bottom) To my eye, that would be the perfect setup for a buyable entry.
Will we get it? Maybe. But there are no guarantees in the market and that is why I bailed on Wednesday’s bounce when the market retreated under my entry points.
While it feels like buying a failed bounce is a waste of time, getting out at the level I got in means the market gave me a free lottery ticket. If the bounce worked, great, I made money. If the bounce failed like it did, no big deal, I got out at my entry price and it didn’t cost me anything.
That’s about as good of a risk/reward as a person could ask for. (My favorite “bad” trades are when the bounce is a little bigger before fizzling and I actually make a profit by being “wrong”.)
Anyway, I’m out and looking to buy a bounce back above 4,400 support next week. (Start small, get in early, keep a nearby stop, and only add to a trade that is working.)
Maybe it happens, maybe it doesn’t. But either way, my trading plan is ready for the next opportunity.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday turned into another promising session for the S&P 500 as the index attempted a second bounce off of 4,400 support.
While it feels like we are chasing our tail when trying to catch the next bounce, that’s simply the cost of doing business. And I most definitely prefer tail chasing to the alternatives of holding a big tumble lower or missing the next big rebound higher. Compared to those alternatives, a little tail chasing isn’t bad at all.
I bought Tuesday morning’s bounce, sold when prices retreated back near my entry points Tuesday afternoon, and bought the next bounce Wednesday morning.
By starting small, getting in early, keeping a nearby stop, and only adding to a position that is working, getting in and out of the market hasn’t been a problem for me. And given Wednesday afternoon’s nice close, my stops are already near my entry points, making this another low-risk, high-reward trade. (That only happens when we are willing to act decisively.)
Maybe Wednesday’s bounce sticks. Maybe it doesn’t. But if I’m wrong and I get dumped out near my entry points, no big deal, I take my money and try again next time.
The most important thing is I stick with it because the real bounce is coming and I don’t want to miss it. (Every failed bounce brings us that much closer to the real one.)
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 popped Tuesday morning after inflation hit a new 40 year high.
While record-high inflation and rising stock prices don’t go together intuitively, that didn’t stop people from chasing that early wave higher. Apparently, a fair number of traders were relieved inflation was not even worse.
Unfortunately, that relief proved short-lived and stocks ultimately slumped under 4,400 support in late afternoon trade.
But as wild as the intraday ride felt, it was actually a fairly benign session with the index finishing down a modest 0.3% and just a hair under 4,400 support. Not exactly panic material.
As I wrote yesterday, I was out of the market and looking to buy the next bounce. Which I did Tuesday morning. But as always, I started small, got in early, and kept a nearby stop.
While that initial buy started working right out of the gate, by midday, it was pretty obvious the bounce was faltering and it was time to pull the plug on my small position.
The thing about bounces from oversold levels is they take off and don’t look back. Any kind of second-guessing like we saw Tuesday afternoon tells us stocks are not yet oversold and further weakness is likely.
While my initial stops were back at Monday’s close, there is no reason we need to wait until our stops are hit before we sell. When a trade isn’t working the way it is supposed to, don’t wait for the losses to pile up, get out and start looking for the next trade.
If Tuesday afternoon’s fizzle turned out to be a false alarm, no big deal, there is no reason I can’t jump back in. But most of the time when these things don’t stick, things are only going to get worse the longer we wait.
The greatest strength we have as independent traders is the nimbleness of our size. If we give that up because we are too scared to jump aboard an early bounce or we are too hesitant to pull the plug on a trade going wrong, then we have no chance at surviving this game against bigger, stronger, and more sophisticated opponents.
Big money has its strengths and we have ours. And we can both make money if we stick to our trading plan.
As for what comes next, I’m out and looking to get back in. If prices bounce Wednesday morning, then I get to do this all over again. The best thing about a failed bounce is it means we are that much closer to the real one.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Monday was another bad session for the S&P 500 as the latest step back continues and the index now finds itself just a few points above 4,400 support.
But this isn’t a surprise for readers of this blog. I warned readers to be careful back on March 29th when the index hit 4,631 following a stupifying 450 point rally from March’s lows in little more than two weeks:
Now that we’re at the highest point since the 2022 correction started and within 200 points of all-time highs, we should expect the rate of gains to stall, if not outright retrench in a very normal and healthy step-back. Retesting 4,400 wouldn’t be a surprise.
Well, wouldn’t you know it, here we are back at 4,400 support. Funny how that works.
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Now, I’m not claiming I predicted this. The rally’s momentum just as easily could have continued up to 4,800. But that wasn’t the most likely outcome and the risk/reward following a 450 point surge flipped against us. Rather than get greedy, that was the time to move to defense and make sure our trailing stops were snug up against current prices, ensuring our big pile of profits was well protected. (We only make money when we sell our favorite positions.)
March was a good month and it felt good to lock in all of those profits. (I rode that wave in a 3x ETF.) But as soon as I’m out, the first thing I start doing is looking for the next entry point.
While 4,400 support was the most obvious target, sometimes these things bounce above support and I didn’t want to be left behind if that happened this time. So I bought the bounce off of 4,450 last week and rode that for a little bit. (Start small, get in early, keep a nearby stop, and only add to a position that is working.) I was even fortunate enough to be able to move my stops up to my entry points as the bounce progressed a little.
While last week’s bounce didn’t work, it was a small position and I pulled the plug near my entry points, giving me a virtually free trade. Critics will make fun of last week’s buy because it obviously didn’t work, but by being nimble and getting in early, I had a free trade! If it made money, great. If it didn’t, I got out and it didn’t cost me anything. By that measure, it would be stupid to not jump on that ridiculously generous risk/reward. (If that’s considered one of our “bad trades”, then we are definitely doing something right!)
But now that I’m out, guess what, I’m already looking for that next entry point. And chances are good we will see a nice bounce off of 4,400 support Tuesday. Maybe it sticks. Maybe it doesn’t. But either way, I’m starting small and getting in early. If it works, great. If not, no big deal, I sell and try again next time.
TWTR popped 27% last week after Elon revealed he bought nearly 10% of the company. Unfortunately, the stock has retreated from those initial highs.
While we don’t need to give up on this trade, a savvy and nimble trader would cut bait when this undercut the pop’s lows. It’s not that we don’t believe in this trade, but every good trading plan always starts with defense. If we know ahead of time when we will get out, then a lot fewer bad things will happen to us. (Making money in the market is easy, the hard part is keeping it!)
In this case, TWTR is definitely buyable if it gets back above $50. But we need to be careful under $50 because these things have a nasty habit of closing the gap and there is no reason to ride this all the way back down to the lower $40s.
As I always remind my readers, buying back in is a lot easier than wishing prices would go back to the levels we wish we sold at.
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