Monthly Archives: November 2022

Nov 03

When to start looking for a bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 shed another 1% Thursday, adding to Wednesday’s Fed-fueled 2.5% losses and leaving the index down 4.6% for the week. Ouch!

As bad as this feels, unfortunately, it appears there are still more losses left in this “pain trade”.

Thursday was one of those tipping points where the market was telling us what it wants to do next. And the uninspiring price action told us dip buyers are not ready to bail us out yet.

The index opened Thursday down 1%, rallied from those early lows, and even spent a portion of the session threatening to turn green. Finishing green would have been a very bullish reversal, but instead, a wave of selling knocked us back from those midday highs. As long-time readers of this blog know, how we finish matters most. Big institutions place their trade at the end of the day and rather than buying these discounts, big money was selling and running for cover.

As I wrote Wednesday evening, even though I came into the Fed decision with a long position, as soon as that midday rally broke down, there was no arguing with the market and it was time to pull the plug. And when trading a binary outcome, if we find ourselves on the wrong side, it only makes sense to change sides. So I shorted Wednesday’s breakdown and held that position through Thursday.

But just as important, as soon as I’m out, I’m always on the lookout for the next bounce. While we’ve seen a lot of big selloffs this year, each echo gets weaker than the one that came before it. Meaning odds are good this week’s selloff will bounce a lot sooner than many people expect. For someone that’s short this weakness, that means standing near the exits and being ready to lock in profits as soon as the selling capitulates, which could come as early as Friday afternoon.

I will continue holding this short as long as the market keeps falling, but I’m already lowering my trailing stops and it won’t take much convincing to get me to lock in these profits.

Sign up for my FREE email alerts so you don’t miss the market’s next big move

If you find these posts useful, please return the favor by liking and sharing them!

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every evening.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, receive actionable analysis and a trading plan every day during market hours

Follow Jani on Twitter

Nov 02

Why bulls didn’t need to lose money on Wednesday

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday was Fed day and it didn’t disappoint.

After spending the morning in the red, the S&P 500 turned positive after the Fed raised interest rates by the widely expected 0.75% and said the rate of future hikes would slow. Unfortunately, the relief proved fleeting and an hour later stocks tumbled from those midday highs, ultimately finishing the day down 2.5%.

As I wrote yesterday, my guess was the index would rally if the Fed did what it said it was going to do, but after a few weeks of up, investors had higher expectations and that left stocks vulnerable to disappointment. When Powell’s comments suggested rates could peak higher than previously expected, investors started pulling the plug and once the wave of selling started, there was no stopping it.

Lucky for me, I’m not a stubborn trader. While I was pleased to see the initial push into the green, when the air started coming out of that rally less than an hour later, that was my signal something was off. And after falling into the red, the market’s disappointment became undeniable and all bets were off.

Buy strength and sell weakness was the plan coming into the day and we knew the odds of a head-fake were high. As it turned out, the initial strength was the head fake and the reversal into the red was our signal to get out and for the most aggressive to short the market.

While that sounds easy in hindsight, nothing in the market is ever easy. During that midday surge, bulls were beating their chest and bears were running for cover. And an hour later, the script flipped. Easy come easy go. But as nimble traders, we are perfectly suited to turn on a dime alongside the market.

When a trade stops working, we pull the plug, no excuses. And in volatile markets like this, a dramatic reversal becomes our invitation to throw on a trade in the opposite direction.

Being flexible enough to switch our outlook midstream is never easy, but it sure is a lot more profitable than sticking with a losing trade. With practice, you will be able to do it too.

Sign up for my FREE email alerts so you don’t miss the market’s next big move

If you find these posts useful, please return the favor by liking and sharing them!

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every evening.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, receive actionable analysis and a trading plan every day during market hours

Follow Jani on Twitter

Nov 01

The smart-money trade headed into the Fed’s rate-hike announcement

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 squandered a really nice +1% open Tuesday and finished -0.4% in the red. Ouch.

While this performance would normally give me pause near recent highs because this price action often suggests a near-term top, we can’t read the same into Tuesday’s fizzle simply because everyone is so fixated on Wednesday’s interest rate announcement. Rather than hint at what’s coming next, Tuesday’s fizzle was nothing more than the market entering a holding pattern as we wait for the Fed’s next big move.

A 0.75% rate hike on Wednesday is a virtual lock. What’s less certain is what happens in December with the Fed previously signaling a modest slowdown to more conventional 0.5% rate hikes. If the Fed maintains that outlook, expect stocks to rally in anticipation of rate hikes tapering off in the early part of 2023. On the other hand, if the Fed tells us they need to remain aggressive, ie another 0.75% hike is coming next month, expect stocks to tumble as the light at the end of the tunnel gets extinguished.

My best guess is the Fed will stick to their prior guidance and telegraph a 0.5% hike in December and a gradual slowing of hikes next year. But that’s just a guess. Good thing I’m a nimble trader and will trade the market as it comes at me. Regardless of what I think, I will be buying strength Wednesday afternoon or selling weakness.

From a purely selfish point of view, I’d actually like to see the market disappointed Wednesday because there is a lot more downside at these levels than upside. Shoring a selloff back to the October lows would be far more profitable than buying a continuation up to 4k resistance. But I don’t get to choose, which means I’m taking whatever the market gives me.

The market often throws off a head-fake or two following such a widely anticipated news event, but 30ish minutes after the announcement, the market won’t able to hide its true intentions and that’s when we buy strength or short the weakness. Smart money will be jumping aboard early and enjoying the ride.

Sign up for my FREE email alerts so you don’t miss the market’s next big move

If you find these posts useful, please return the favor by liking and sharing them!

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every evening.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, receive actionable analysis and a trading plan every day during market hours

Follow Jani on Twitter

1 2 3