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By Jani Ziedins | End of Day Analysis , Free CMU
Free After-Hours Analysis:
The S&P 500 added 2% Tuesday and finds itself more than 200 points above Thursday’s intraday lows. Not bad, not bad at all.
Blink and you missed a great trade. But that was always going to be the case. Stocks snap back from oversold levels quickly. Wait a day or two for confirmation and you missed a whole lot of gains. And more than just lost profits, buying this late leaves a person vulnerable to a routine intraday step back, like the 40-point retreat we saw Tuesday morning.
As risky as it feels, buying the bounce early is the safest place to jump aboard. Distilled to its core, risk is nothing more than a function of height. The higher we are, the more room we have to fall. And on the other end, the further we fall, the less room we have left to fall.
It never feels this way in the heat of the moment. Most people are most confident at the top and scared at the bottom. But savvy traders know real risk is the exact opposite of perceived risk.
Everything felt great in January, but with 20/20 hindsight, obviously, January was a terrible time to be buying and holding stocks.
Now that the index is nearly 900 points lower, everyone is terrified of stocks, but common sense tells us it is far safer to be buying stocks down here than it was back in January.
It never feels good buying stocks after big pullbacks and buying Thursday’s late bounce was anything but easy. But three sessions later and the index is dramatically higher. It’s gotten to the point where my stops are already comfortably above my entry points, making this mostly a free trade for myself.
Keep going and I make a pile of money. Retreat and I get out at my stops and collect a few bucks for my time. Not a bad way to be wrong. But the only reason this trade is working so well for me is because I had the courage to get in early.
But none of this will surprise readers of this blog. As I wrote last Thursday:
While I feel a little silly buying [Thursday’s] bounce given how many false bottoms we’ve had over the last several weeks, I did it anyway because that’s what my trading plan told me to do. I started with a small position and a stop under intraday lows.
Will Thursday’s late rebound stick? Probably not. But I buy all of the bounces because I’m not psychic and I don’t know which one will work. The only way to make sure I don’t get left behind is to buy all of them. And by starting small, getting in early, keeping a nearby stop, and only adding to a trade that is working, I can buy these bounces with very little risk.
Well, here we are a few days later and I’m sitting on a nice pile of profits.
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As for what comes next, most of the market’s failed bounces turned tail within days, so four days into this bounce and it already looks different than the ones that let us down.
There are no guarantees in the market and this one can fail at any moment too, but it looks good so far and that means I will continue giving it the benefit of doubt. Anything above 4k and we are doing well.
I’m lifting my stops and watching to see how far this rebound goes. Hopefully, you are right there with me.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
The S&P 500 finished Friday up 2.4%, the first meaningful gain in nearly two weeks and the first strong Friday close since March’s big rebound.
There were not any meaningful headlines driving Friday’s strength and instead, this is simply a routine bounce from oversold levels. Without any real meat behind this move, it could fizzle like all of the other failed bounces over the last several weeks. But as we know, markets move in waves and a bigger bounce is inevitable even if lower prices are still ahead of us. After falling 700 points over the last few weeks, even bears should be willing to admit a near-term bounce is imminent (at least the sensible bears).
Is this the start of a bigger bounce? It definitely feels like something changed, most notably the willingness to buy stocks ahead of the weekend. Rather than fear the weekend and get defensive, investors were finally willing to buy ahead of it.
But as is always the case, only time will tell and Monday’s price action will give us big clues about the market’s mood. Unfortunately, anyone waiting for Monday’s confirmation will be a couple of hundred points late to the party.
This remains a volatile market. While the risk of large swings feels scary, in reality, it actually makes this easier (and safer) to trade. That’s because once these things get going, they tend keep going. As we’ve seen over the last few weeks, violate support and the selling accelerates. But the same also applies in the other direction, once a rebound gets going, expect it to keep going as a wave of dip-buyers start chasing prices higher.
As long as we are decisive and make our moves early, it is easy to stay on the right side of a volatile market. Especially one like this that makes most of its big moves during trading hours (as opposed to large opening gaps).
I have no idea if Friday’s bounce will stick around next week, but it is acting well enough to give it the benefit of doubt. I bought Thursday afternoon’s bounce, added more Friday, and lifted all of my stops up to my entry points. Sitting on a nice profit cushion, even if this fizzles next week, I will get out near my entry points, no harm no foul.
One of these bounces is going to work, the problem is it will only happen after most people have given up. That simply means we need to be more persistent than most.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Thursday mostly where it started. While the final result sounds fairly innocuous, getting there was anything but a smooth ride. In mid-afternoon trade, the index was down as much as 2% before a late rebound came to our rescue and erased nearly all of those losses.
As has been the case for a while, not much new is going on in the headlines, ie everything that is broken has been broken for a while. Instead, traders are mostly arguing over how bad the looming US recession is going to be. And right now bears are winning.
As I wrote on Monday, if 4k failed, 3,840 was up next. Why 3,840? Because that represents a 20% pullback from recent highs and makes this officially a bear market.
Thursday’s pullback stalled at 3,858 before bouncing, but when it comes to the market, this isn’t hard science, and getting within a handful of points is close enough. At least that’s what Thursday afternoon’s dip buyers thought.
While I feel a little silly buying this bounce given how many false bottoms we’ve had over the last several weeks, I did it anyway because that’s what my trading plan told me to do. I started with a small position and a stop under intraday lows.
Will Thursday’s late rebound stick? Probably not. But I buy all of the bounces because I’m not psychic and I don’t know which one will work. The only way to make sure I don’t get left behind is to buy all of them. And by starting small, getting in early, keeping a nearby stop, and only adding to a trade that is working, I can buy these bounces with very little risk.
In fact, I’ve made more money over the last three weeks buying these quick bounces than I’ve lost. When the market gives us free trades, only a fool passes those up.
If this trade blows up Friday, I’m only on the hook for partial position and at worst, I take a small loss. But on the other hand, if this rebound takes us back to 4,300, that’s a whole lot of profits. Small losses versus large profits? Yeah, I’m taking that trade every time.
Buy Thursday’s bounce. If the index retreats in early trade Friday, I get out and wait for the next bounce. If the Thursday’s late bounce keeps going, then move my stops up and buy more.
Everyone knows markets move in waves and we’ve been going down for a while. Even bears should be willing to acknowledge we are setting up for a near-term bounce.
Did the cryptocurrency market just go pop? I don’t know. But 50% off the highs for Bitcoin is definitely not good. And unfortunately, most alt-coins wish they were only down 50%.
While I’m not a bitcoin fan, I do love bounces, and Bitcoin’s bounce back above $30k Thursday evening is interesting, especially if the equity indexes find a bottom Friday.
Start with a small position, a stop under $30k, and see where this goes. If the trade works, add more. If it doesn’t, pull the plug for a small loss.
Low-risk/high-reward? These are the trades we dream of.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AAPL $AMZN
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 crashed 3.2% Monday, closing under 4k for the first time in over a year. But this isn’t a surprise, as I wrote last week:
Failing to do anything with the biggest up-day in two years is not good. Not good at all. While I’m an optimist by nature, at this point, recent intraday lows near 4,130 are all but toast. And I doubt it will get any better once we get there. 4,400 didn’t hold. Neither did 4,200. And 4,000 is going to be the next victim.
Well, here we are a few days later and now we can cross 4k off the list.
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Now that 4k is a victim of 2022’s correction, the next big bogie is 3,840. While that number seems somewhat arbitrary, it is significant because that represents a 20% correction from recent highs and would turn this correction into a full-on bear market.
Markets tend to go where the crowd is looking and if we came this far, it wouldn’t be anything to see it take those last few steps to make this official.
The good news is once this becomes a bear market, we can finally stop talking about it. And once we stop talking about it, odds are good people will stop selling it too.
The silver lining is Monday’s 3% plunge was one of the largest down days of the year. As far as capitulation goes, the selling typically accelerates moments before the bounce. So a big tumble means we are getting really close.
The problem is we won’t know what is too far until after it happens. Maybe Monday was capitulation. Or maybe we have another 4% or 5% tumble coming Tuesday or Wednesday. As I said, we won’t know until after it happens.
But lucky for us, these things are super easy to trade because the resulting moves are large and in one direction. Once this thing gets moving on Tuesday or Wednesday (either up or down), expect it to keep going.
If that’s down, get out of the way and wait to pick up the pieces. If that’s up, grab ahold, keep adding, and moving our stops up.
If we can get past our fear, riding these swings is a fast and easy way to make money.
While we are setting up for a nice bounce in the indexes, be careful with NFLX and AMZN. These stocks will bounce alongside everything else, but don’t be fooled. These growth stocks broke their sacred contract with the market and stopped growing. (How dare they!) Any bounces in these stocks are nothing more than a quick trade. It will be six or twelve months before these are investment-grade again.
While TSLA isn’t in this boat just yet, nearly 40% off the highs and it will be a while before people trust this stock again. Maybe Musk is selling as aggressively as he is because he knows something we don’t know yet.
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What’s a good trade worth to you?
How about avoiding a loss?
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