Why Thursday’s fizzle could actually be bullish price action

By Jani Ziedins | End of Day Analysis

Apr 14

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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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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.