Turning lemons into lemonade

By Jani Ziedins | End of Day Analysis

Apr 21

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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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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.