Monthly Archives: May 2022

May 31

Why it was so easy to see the bounce coming

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 experienced only its second down day out of the last seven trading sessions on Tuesday. Not bad for a market that many people had written off as dead.

A 350-point rebound over a handful of sessions is downright impressive, but my readers always knew this was coming. As I wrote in last week’s free post titled, “Why smart money is buying this bounce“:

As bad as every stock chart looks right now, that is exactly why we should be prepared for a near-term bounce. Everyone knows markets move in waves, yet most people forget this simple fact in the heat of battle. While a 70-year losing streak is impressive, savvy traders are anticipating a vicious snapback, not another seven weeks of selling.

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While no one is excited about Tuesday’s 0.6% giveback, everyone knows we cannot go up every single day and down days are part of every move higher.

More important than one day’s plus or minus is how the market responded to the first meaningful bit of selling in a week. And if we look under Tuesday’s hood, the early wave of selling stalled and bounced from those early lows. That is the kind of price action I like to see from down days.

As I wrote last week, I bought the bounce and my stops are already well above my entry points. There is nothing for me to do here other than keep holding for higher prices and lifting my trailing stops.

Maybe bears are right and this bounce fails and heads back to the lows, but at this point, I’m already sitting on a nice pile of profits in my 3x ETF trade and it doesn’t matter to me. Keep going higher and I make even more money. Stumble back to the lows and I lock in some nice profits at my stops and get ready to buy the next bounce.

Buying early means I’m protected no matter what happens next. But at this point, it looks like this market wants to keep heading higher and 4,300 resistance is very much on the menu.

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May 23

Why smart money is buying this bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 started the week off well enough, notching a 1.9% gain following the longest weekly losing streak in 70 years.

As bad as every stock chart looks right now, that is exactly why we should be prepared for a near-term bounce. Everyone knows markets move in waves, yet most people forget this simple fact in the heat of battle. While a 70-year losing streak is impressive, savvy traders are anticipating a vicious snapback, not another seven weeks of selling.

As I’ve been warning readers, the market likes to go where people are looking and 3,840 was a widely followed level simply because that represents a 20% pullback from January’s highs.  Well, as luck would have it, Friday’s session touched the magical -20%. But rather than trigger a follow-on wave of reactionary selling, supply dried up and prices bounced nicely into the close. Funny how that works.

As much as I expect lower prices over the medium-term, Friday’s late rebound was the perfect invitation to jump aboard a near-term bounce that could travel as high as 4,300 resistance. 400 points of upside is nothing to sneeze at!

This is the trade we’ve been waiting for and hopefully, most readers were able to take advantage of it. Buy Friday’s late bounce, add more Monday morning, and move stops up to our entry points. It doesn’t get much more straightforward than that.

Hundreds of points of potential upside and by getting in early, we already have a nice profit cushion and next to no downside. Trades don’t get any better than this.

If the bounce fizzles, we get out near our entry points, no harm no foul. If the rebound continues to 4,300, we make a pile of money. Gotta love that risk/reward!

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May 18

Another profitable mistake

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 crashed 4% Wednesday in the biggest loss since 2020.

The weekly losses were partially offset by Tuesday’s nice 2% pop, but no matter how we try to rationalize it, -4% is a horrific day any way you cut it.

As most readers know, I bought last Thursday’s late bounce and that trade was working well enough that I was able to lift my stops above my entry points this week. And good thing I did because that allowed me to lock in a modest profit Wednesday morning before the selling really got carried away.

While no one is getting rich arbitraging these small swings, the good news is I could be wrong about the bounce but still make money on the trade. It is hard to beat that risk/reward! If I’m right, I make a big pile of money. If I’m wrong, I make a small pile of money. I will take those trades every day of the week!

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Now, it doesn’t always work out this way, but for people that are willing to jump aboard these bounces early, it happens more often than you think.

Now, compare my modestly profitable trade to the more conventional approach of waiting for confirmation before buying. Those people bought Tuesday’s 2% bounce, and unfortunately, almost every single one of them got dumped out for a loss Wednesday.

Getting in early is scary, but it is usually the safest time to be buying.

As for what comes next, there is no silver lining to a 4% loss. Dip buyers had the opportunity to jump aboard this latest bounce, instead, they sold it with everything they had. If this market was oversold, it would have bounced and not looked back. Instead, we were left with this bloodbath.

At this point, I can’t see any way around crashing through last week’s lows near 3,850 and making the bear market official. And from there, only one bear market over the last 70 years bottomed at -20%, meaning odds are good once we hit -20%, the selling keeps going.

I’m still waiting for that next bounce, and it is coming, but lower prices are ahead of us first. Lucky, I’m watching this carnage from the safety of the sidelines. (Aggressive traders can short this weakness but be ready to take profits quickly because these things bounce hard and fast.)

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