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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 crashed 2.8% Friday after the monthly employment report showed robust hiring.
Solid employment and a strongly negative reaction means we are back in the bizarro world of “good news is bad”. Obviously, investors are far more concerned about interest rates than unemployment, so anything that hints at the Fed continuing to raise rates sends traders scrambling for cover.
I will be the first to admit that I came into this week bullish. As I wrote last Friday:
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.
Two sessions later and the S&P 500 added 5%. But a few days after that and almost all of those gains had been wiped out. (Sign up for my FREE email alerts so you don’t miss the market’s next big move)
Does that mean buying Monday’s rebound was a mistake? Absolutely not. As independent traders, our greatest strength is the nimbleness of our size. That means we can buy one day’s bounce, collect those profits a few days later, and even switch direction and short the next drop.
While this week’s 5% rebound proved fleeting, it was still a very profitable trade for those of us that had the courage to jump aboard. As I wrote Thursday evening:
Thursday’s weak close convinced me to peel off some of those profits to reduce my risk headed into the employment report. As much as I think the next move will be higher, there are no guarantees in the market and we only make money when we sell our winners. As easy as it is to buy back in, it felt foolish to wager all of my recent profits on the outcome of Friday’s employment report.
As soon as stocks pop Friday morning, I’m more than happy to jump back in. And if the market goes in the other direction, that’s fine too, I lock in my remaining profits and go short.
As luck would have it, the bears won the day. I dumped my remaining longs for a still respectable profit and went short Friday morning. (Sign up for my FREE email alerts so you don’t miss the market’s next big move)
Sure, it would have been nicer to lock in all of my profits Thursday, but what I missed selling Friday morning, I more than made up shorting Friday’s tumble lower.
While Bulls and Bears are busy arguing about who is right, I’m over here following the market’s lead and making money no matter which way we go.
As for next week, expect the selloff to continue and even exceed the 2022 lows. But as is always the case, as soon as I get out, the first thing I’m doing is looking for the next buyable bounce. Just because this week’s bounce didn’t work doesn’t mean the next one won’t.
A bounce off of 3,500 would be a great entry point. And if that one doesn’t work, no big deal, I collect some quick profits and get to try again next time.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slipped 1% Thursday in a mirror image of Wednesday’s resilient price action.
Instead of opening weak and climbing all day, the index started Thursday strong and spent the rest of the session skidding lower. Wednesday was half-full and Thursday half-empty. And so continues the swinging pendulum of sentiment.
Friday morning we get the monthly employment report. While normally a big deal, this one is building up to be especially important as it decides what comes next, either extending this week’s rebound or resuming the September selloff.
As volatile as the market has been, whatever happens Friday morning, the resulting move will almost certainly be large and enduring.
Odds favor a rally since we’ve gotten a whole lot of down since the August highs and bearishness remains near all-time highs. That skew gives us a truckload of fuel to propel a rally higher. But as is always the case, selling begets selling and few things shatter confidence like screens filled with red, so another waterfall of selling is always possible.
While I have a natural bullish bias and think the latest wave of selling has taken us a little too low, I’m happy to ride the next wave in whichever direction it takes us.
I don’t trade the initial knee-jerk reaction to a big headline event, but 30 minutes later and the market cannot help but reveal its hand and there is nothing for us to do except jump aboard and hang on. Up or down, I’m game either way.
I’m still hanging on to a portion of my long positions from Monday’s rebound, but Thursday’s weak close convinced me to peel off some of those profits to reduce my risk headed into the employment report.
As much as I think the next move will be higher, there are no guarantees in the market and we only make money when we sell our winners. As easy as it is to buy back in, it felt foolish to wager all of my recent profits on the outcome of Friday’s employment report.
But as soon as stocks pop Friday morning, I’m more than happy to jump back in. And if the market goes in the other direction, that’s fine too, I lock in my remaining profits and go short.
Buying this week’s rebound early and sitting on a pile of profits makes this a win-win situation for me.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
While Wednesday’s session ended down a seemingly trivial -0.2%, that modest decline disguised a massively volatile session with the index gapping -1% lower at the open and early selling pushing the index all the way down to -1.8%. But just before all hope was lost, a one-way wave of buying erased nearly all of those losses by the close.
Following the biggest two-day gain in years, it wasn’t a surprise to see some profit-taking and bears reentering their short positions Wednesday morning. More important than the fairly vanilla step back from Tuesday’s close was how the market reacted to those early losses. Was this week’s rebound built on bedrock, or a foundation of sand? Well, it didn’t take long to find out.
Nearly as quickly as that wave of selling arrived, it vanished and the index spent the rest of the session rallying back to breakeven. That’s not the behavior you expect from a fragile and vulnerable rebound. If this really was a foundation built on sand, Wednesday morning’s selloff was more than enough to send us tumbling back to the lows.
As difficult as it is to keep holding after a 5% surge in two days, especially given the complete lack of improvement in economic headlines, the market is clearly telling us it wants to go higher, not lower. If we were going to crash, Wednesday morning’s bloodbath was the perfect invitation. The fact we escaped with hardly a scratch is all the proof I need to keep holding my long positions for higher prices.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 exploded 3% higher Tuesday, adding to Monday’s huge 2.6% gains.
Economic headlines remain the same, which is to say awful. But after seven weeks of non-stop selling, a near-term bounce was inevitable.
As I often remind readers, the market loves symmetry and that means this rebound will be nearly as impressive as the preceding selloff. And boy has it gotten off to a banger of a start!
Unfortunately for bears, the rebound’s foundation is built on their corpses, with a short squeeze providing a majority of the lift over the last two days. But bears only have themselves to blame for their lost profits. As I wrote last week:
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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Bears ignored all of the warnings and they are paying the price today. And things will probably get worse for them before they get better because this rebound isn’t showing any signs of letting up.
As for those of us that are on the profitable side of the rebound, there is nothing for us to do except keep holding and lifting our stops, now spread around Tuesday’s opening levels.
This really isn’t that hard when we know what to pay attention to.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 bounced back violently Monday, adding 2.7% and easily erasing all of Friday’s losses. The index even got close to reclaiming Thursday’s losses as well.
Not bad for a market many had left for dead a few days ago. But that’s the way this usually goes. The S&P 500 only had a single up day out of the previous nine sessions. The crowd largely came to the conclusion the U.S. economy is doomed and they were selling stocks ahead of the inevitable collapse.
But as is usually the case when too many investors find themselves on one side of a boat, it capsizes. No matter what someone believes is coming next, everyone knows the market moves in waves, and after six weeks of brutal selling, even bears should have been expecting a bounce.
And this is exactly what I wrote in Friday evening’s post titled, “The worse this looks, the more I like it!“:
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.
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While Monday’s bounce was a great start, the other important factor to keep in mind is the market loves symmetry, meaning as dramatic as the autumn selloff has been, we should expect a similarly impressive bounce off of the lows.
I’m not here to say the bear market is over, and in fact, we could see lower prices over the coming months. But as far as the near-term prognosis goes, remember, the biggest and sharpest rallies occur during bear markets. So even if bears are right, we should still be bracing for further waves of buying and short covering.
I really liked Monday’s rebound, and this bounce has the best odds of succeeding yet. But there are no guarantees in the market and this bounce could fail like the others that came before it. But rather than give up, we pull the plug at our stops and as soon as we are out, we start looking for the next buyable bounce. Sometimes they arrive as soon as a few hours later.
I was looking for the bounce and loaded up early Monday. By getting in early, I’m already sitting on a pile of profits, allowing me to move my stops above my entry points, making this a low-risk trade. If it works, great! If it doesn’t, no big deal, I pull the plug, collect some profits, and try this again next time.
But at this point, this feels like the real deal.
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