Monthly Archives: September 2022

Sep 30

The worse this looks, the more I like it!

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 attempted another bounce Friday morning. Unfortunately, that late morning buying proved fleeting and the index slipped into the red by the close, setting yet another fresh 52-week low.

Friday’s loss makes it -2.9% for the week and the sixth weekly decline out of the last seven. That hurts, but it definitely feels like the selling is losing momentum near the old lows.

Monday’s close was the first fresh 52-week low since this summer. Following Monday, we set a further three 52-week lows. But as dire as four 52-week lows in a week sound, the market dropped less than half a percent on average since Monday’s close. While not good, this is far from panic territory.

There are two ways to interpret this. Either the market is finally running out of sellers after six weeks of exhaustive selling. Or this week’s reasonably stable trade was nothing more than the calm before the next storm.

If stocks were a lot higher, I would be far more worried about further selling. But after the market shed more than 700 points in seven weeks, we have a lot less to worry about because it can’t give back those 700 points again.

Sure, anything is possible and we could fall again next week, but the next bounce is a lot closer than most people think. The AAII sentiment survey is over 60% bearish and at a 12-month high, while the historical average is all the way back at 30%. If a person believes in trading against the crowd, sentiments has rarely been this skewed in the bearish direction.

As always, no matter how overdone the selling has gotten, the market can always get even more oversold. But it is getting harder and harder to scratch out those last few points to the downside and when this pops, boy is it going to pop.

At the very least, we should be lightening up our short positions because greed never pays. But more than that, this thing is a tightly compressed spring poised to rip. Wait for that bounce to start and then jump aboard.

As I often remind readers, the biggest and fastest rallies occur during bear markets. And the last time I checked, we are still in a bear market.

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Sep 29

Why I’m glad I was wrong about Wednesday’s bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 tumbled 2% Thursday, giving back all of Wednesday’s gains.

As they say, easy come, easy go. This remains a volatile market and that means oversized moves in both directions.

The nice thing about Thursday’s selling is it didn’t crash through recent lows. The bad thing about Thursday’s selling is…it didn’t crash through recent lows.

As disappointing as Thursday’s implosion felt following Wednesday’s super encouraging bounce, this still doesn’t count as real capitulatory selling because we didn’t crash through support and fall in one of the biggest losing sessions of the entire pullback.

Now, that doesn’t mean we don’t need capitulation to bounce, but it sure helps.

As for my latest trade, as I wrote Wednesday evening, I liked that bounce and bought it. While that sounds like a huge mistake given how Thursday turned out, it really wasn’t all that bad.

A big part of my trading strategy is buying bounces early and that meant jumping aboard Wednesday’s bounce not long after the open. And it’s a good thing I got in early because Thursday’s poor open was still above my initial entry points, meaning those positions hadn’t even turned red yet.

And just because I bought Wednesday’s bounce doesn’t mean I was naive to the possibility it could fail. In fact, I was fully prepared for Thursday’s retreat. As I wrote Wednesday evening:

Odds are good this bounce will fizzle and we will get to do this all over again in a few days, but since I have no way of knowing if the first, second, or third bounce attempt will turn into the real one, the only thing I can do is buy all of them. Start small, get in early, keep a nearby stop, and only add to a trade that is working and our risks are actually quite low. If this doesn’t work, no big deal, I pull the plug and try again next time, but so far so good.

Hope for the best, prepare for the worst. There is no better way to navigate markets.

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As for what comes next, well, as I alluded to above, I would love to see one last dramatic wave of capitulation selling before bouncing. That will confirm the bottom is in and set up a fantastic buying opportunity.

Barring that capitulation, the only thing we can do is simply wait for the next bounce and try again. (Start small, get in early, keep a nearby stop, and only add to a position that’s working.)

As much as it seems like Thursday’s decline was bad for me, I actually don’t mind. In fact, I revel in the opportunity to buy stocks at even lower prices. Only amateurs get discouraged and give up. Savvy traders pull the plug and get right back after it.

If we don’t bounce Friday, then look for one on Monday. And if not Monday, then Tuesday or Wednesday. As dramatic as the selling has been, the market loves symmetry and the inevitable rebound will be equally impressive.

Make sure you don’t miss out because it will be some of the easiest and fastest money you make all year.

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Sep 28

Stocks bounce after all hope is gone

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 popped 2% Wednesday, snapping a six-day losing streak.

Even in this overwhelmingly bearish environment, seven down days was a little too much and a bounce was inevitable. But this isn’t a surprise for readers of this blog. As I wrote Tuesday:

When the market doesn’t do what it is supposed to do, in this case, devolving into a panicked dash for the exits, we have to sit up and take notice. As bad as things feel near the lows, maybe we really are finally running out of fearful sellers and are on the verge of bouncing on the resulting lack of supply.

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Markets go up and markets go down, that’s what they do. After a month and a half of falling, we are due for some up. How much up is anyone’s guess and we won’t know until after it is all over, but in the meantime, Wednesday was the start of the buyable bounce we’ve been waiting for and the earlier we jump aboard these bounces, the less risky they become.

Economic data has been mostly stable even if coming on the disappointing side of what some investors were hoping for. The lack of meaningful fundamental changes means this remains a sentiment-driven trade and as quickly as sentiment sours, it can bounce back once stocks stop falling.

While Wednesday might not be the real bounce, by starting small and getting in early, we quickly build up a profit cushion to protect our backside. By Wednesday afternoon, we savvy traders were already adding more and nudging their trailing stops closer to their entry points. While not a free trade yet, it is looking pretty good.

Odds are good this bounce will fizzle and we will get to do this all over again in a few days, but since I have no way of knowing if the first, second, or third bounce attempt will turn into the real one, the only thing I can do is buy all of them.

Start small, get in early, keep a nearby stop, and only add to a trade that is working and our risks are actually quite low. If this doesn’t work, no big deal, I pull the plug and try again next time., but so far so good.

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Sep 27

Why violating the 2022 lows could be a good thing

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped another quarter percent Tuesday, making this six losing sessions in a row.

Compared to the size of losses we’ve been experiencing lately, a quarter-percent decline almost feels like an up day, especially for a session that violated the 2022 lows.

Undercutting a widely watched level typically unleashes a big wave of reactionary selling, but this time the selling stalled and prices drifted sideways through the afternoon. This was not the price action we’d expect for such a monumental day, but the market has a nasty habit of doing the least expected.

This muted selling is most likely due to the majority of fearful owners bailing out ahead of the widely expected violation of the 2022 lows. If everyone sells in anticipation of an event, there is no one left to sell when it actually happens.

When the market doesn’t do what it is supposed to do, in this case, devolving into a panicked dash for the exits, we have to sit up and take notice. As bad as things feel near the lows, maybe we really are finally running out of fearful sellers and are on the verge of bouncing on the resulting lack of supply.

As volatile as this market has been, there is no way this falls asleep and simply drifts sideways into year-end. Instead, we are standing on a tipping point. Either the selloff continues, prices bounce, or the most likely option, a little more selling before bouncing hard.

But either way, it is hard for bears to explain Tuesday’s refusal to crash through the 2022 lows. Maybe the panic selling is a few hours delayed and will show up in force Wednesday. But if it doesn’t, we have to wonder how much selling is left in this latest down wave.

I’m happy to ride my short position lower, but at the same time, I’m paranoid and ready to lock in these profits because I know when this bounces, it will happen hard and fast. Holding a few hours too long will get very expensive very quickly.

As for how to trade this, hold the short as long as the selloff keeps going, but be ready to cover and even go long the moment the market starts rallying. The next bounce is close, we just don’t know if it will arrive Wednesday,  later this week, or early next week. But it is coming.

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Sep 26

Why this market is not as risky as most people believe

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 skidded on Monday for the fifth session in a row and the eighth time out of the last ten.

Needless to say, it’s been a rough couple of weeks as the index shed nearly 500 points and is now challenging the summer lows.

Economic headlines remain mostly the same and nothing shocking or even unexpected happened over the last two weeks. Instead, sentiment simply swung from half-full to half-empty as investors looked down and developed a fear of heights. There is nothing more complicated about it than that. Owners lost their nerve and sold because they got scared.

But now that the market is retesting the 2022 lows, the most important thing to remember is that risk is actually at the lowest levels of the year. It sure doesn’t feel that way as waves of panic selling hit the market, but risk is a function of height and these are the lowest prices all year.

Undoubtedly prices can fall further, but this latest 500-point retreat can no longer hurt us because it already happened and we don’t need to be afraid of it.

We always give the edge to momentum and the trend, which is clearly lower. But at some point we are going to run out of sellers and the market is going to bounce because it always does.

We could tumble in one last dramatic violation of support before this latest round of selling capitulates. But bounce off of the lows or violate them, either way, the end will be here soon. If not Tuesday or Wednesday, then later this week or early next week.

I’m currently short the market, but I’m paranoid and standing next to the exits When this finally bounces, it will be hard and fast and I don’t want to give back all of these nice profits.

And more than just short profits, when this bounces, I want to switch direction and grab ahold of the next rally. Remember, the biggest and fastest rallies occur during bear markets. (Start small, get in early, keep a nearby stop, and only add to a trade that’s working.)

Stocks look horrible and they feel even worse, but that tells us this wave of selling is getting close to exhausting itself and the bounce is just around the corner.

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Sep 21

I was wrong and it wasn’t so bad

By Jani Ziedins | Free CMU

Free After-Hours Analysis: 

Whelp, that didn’t work. Tuesday evening I wrote a post titled, “Why I’m holding stocks ahead of the Fed’s rate-hike.” And 24 hours later, everyone knows that was the exact wrong move to make. But that’s the way trading goes sometimes.

If a person’s trading plan requires them to be right 100% of the time, they’re not going to last very long. The hard truth is successful trading means being wrong…a lot. If a person can’t handle that, they better find something else to do because trading isn’t for them.

In fact, the number one difference between successful traders and unsuccessful traders is how they handle being wrong. (Everyone has good ideas, it’s how they handle their bad ideas that drags most people down.)

Successful traders take their losses quickly and move on. Unsuccessful traders argue with the market and stick with their losers. As overly simple as this sounds, that really is all that separates good traders from everyone else.

Take my wrong trade on Wednesday. As I wrote Tuesday evening, I came into the Fed announcement holding stocks. But lucky for me, this was a new position and I always start trades with partial positions until they prove themselves. If I’m going to be wrong, it is a lot easier being wrong on a third or half position. And when I’m right, I keep adding partial positions until I’m fully invested.

And more than starting small, it is just as important to get in early. I picked up those positions Tuesday afternoon. By the time the Fed selloff started Wednesday afternoon, I was already sitting on a decent profit cushion, giving me a reasonable amount of protection. Sure, the index crashed 1% after the Fed’s announcement, but starting from +0.7% mitigates a big chunk of that sting.

And most importantly, when my trading thesis blew up moments after 2pm, I had no choice but to admit defeat and pull the plug. There was no giving it a few more minutes. If something is going to work, it is going to work. When the market took off in the wrong direction, it meant I was wrong and the only thing to do is get out and minimize the damage.

Sure, the market bounced hard an hour later, but I resisted the temptation to chase because the market wasn’t acting the way I expected, so it meant I was missing something. Rather than try to desperately salvage a bad trade, I simply let it go. And that proved to be a good decision because that bounce fizzled and there was a lot more selling left to do.

I was wrong on Wednesday. But more importantly, I lived to tell the story and I’m not going to let one trade discourage me. Like a city bus, the next trading opportunity will be along any minute.

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