Monthly Archives: December 2022

Dec 16

What smart money is doing with their short positions

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 fell another 1% on Friday, making this the third down day since Wednesday’s Fed meeting. But as dire as that sounds, the index only lost 2% this week. While not great, this is hardly free-fall material.

Powell did his best to rain on the market’s parade, but it is unlikely his comments changed many peoples’ minds. Those that were bearish Wednesday morning are just as bearish today and those that were bullish are just as bullish.

Obviously, the bulls didn’t get that warm and fuzzy feeling from Powell’s press conference, but that lack of comfort hasn’t translated into a panic on the streets yet.

Inflation is moderating, the labor market remains tight, the economy is chugging along, and the Fed promises to fight inflation to the end. So pretty much everything that we knew last week. And if this is what we were thinking last week, there is no reason for stock prices to deviate in a significant way from where they were last week. Find support near 3,800 and this week’s selloff is nothing more than a routine bit of down following a nice bit of up.

Having shorted the post-Fed crash on Wednesday, I’m sitting on a nice pile of profits. At this point, I’m far more paranoid about losing those profits than interested in pushing my luck to make a few more bucks. I took some partial profits Friday afternoon and I will sell even more Monday if prices bounce.

Maybe the reflexive selling extends into next week and I’m selling these partial positions too soon. But that’s okay because taking worthwhile profits is never a mistake. I know I can’t pick the bottom, so I’m not even going to try. If the selling continues, I will profit from the partial positions I’m still holding, so it really is a no-lose situation for me.

As for what comes next, if prices bounce Monday morning, I’m closing the remainder of my shorts and even going long if those early gains persist for an hour or two. Starting small and putting a stop under the early lows would be a great, low-risk entry.

But my perfect setup would be a sharp selloff Monday morning that falls over three percent before bouncing hard in a capitulation bottom. I don’t think we will be that lucky, but that is what I’m hoping for.

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

Dec 15

Who knew being wrong could be this profitable?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 extended Wednesday’s post-Fed selloff by crashing another 2.5% on Thursday.

The Fed did what everyone expected when it raised rates another 0.5%. What unnerved investors was the hard-line Powell took when answering questions about how high rates will eventually get and how long they will stay there. Long gone is the affable Uncle Jerome and he’s been replaced by the hard-edged Sergeant Powell.

But this isn’t totally unexpected since the bubbling relief felt in the market over the last few months is threatening to undo all the hard work the Fed has been doing by raising rates. If investors return to the punchbowl too soon, the Fed will have no choice but to raise rates even higher to break inflation. The Fed needs to keep a lid on the market’s optimism, and the last two sessions had the desired effect.

While I still count myself as one of the soft-landing optimists, I know better than to trade my opinion. As I wrote Tuesday night before the Fed’s policy statement:

Give the market a few minutes to process the news and be careful because the initial knee-jerk is often in the wrong direction, but after a handful of minutes, the market will no longer be able to hide its true intention and it will be a big move. Whether that is up or down is anyone’s guess, but as nimble traders, there is no need to guess. Follow the market’s lead and let the profits come to us.

Well, here we are down more than 4% from the Fed announcement. While my optimistic inclination was misplaced, my agnostic trading plan was spot on the money. No one likes being wrong, but a big pile of profits definitely cushions the ego blow. In fact, if I can make this much money being wrong, here’s to hoping I’m wrong a lot more often.

As for what comes next, shorting stocks is one of the hardest ways to make money because the windows of opportunity are so small and the inevitable bounce comes hard and fast.

Closing Thursday near the intraday lows means we can continue holding Wednesday’s short positions, but be sure to lower our trailing stops. By this point they should be even lower than our entry points, making this a very low-risk trade. But we’re not looking for low-risk, we are looking for profits and that means keeping a close eye on this one.

Maybe prices bounce Friday, but more likely the next bounce comes early next week. Lock in profits when it arrives and then get ready for the next trade.

As much as bears want to believe stocks are headed back to October’s lows, this will bounce long before then. Don’t get greedy and be sure to lock in worthwhile profits. Remember, we only make money when we cash in our winners.

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

Dec 14

The best way to trade the post-Fed letdown

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The Fed did what everyone expected Wednesday and raised interest rates by another 0.5%. That said, the stock market slipped from its midday highs when the Fed’s forward-looking guidance implied another 0.75% of hikes were headed our way in 2023. That was slightly more than investors were prepared for.

But as wild as the previous Fed meetings have been for the stock market, Wednesday’s 0.6% decline was fairly benign. No doubt it was rough getting to -0.6% as the index shed nearly 90 points in the hour after the announcement, but the selling found a bottom in afternoon trade and the market reclaimed 30 of those 90 points by the close.

While these are still big price swings, volatility is definitely coming down as traders get more used to our new reality. What could have triggered a multi-percent selloff months ago, this time market seemed content with little more than a half percent decline Wednesday.  That suggests the market is not as overextended as the critics claim. And that makes sense because nearly a year into 2022’s bear market, most overreactive traders have already left the building.

But a loss is a loss and when combined with Tuesday’s bearish intraday reversal, that suggests there is more selling pressure at these levels than interest in buying.

As I wrote Tuesday, weakness after the Fed statement was shortable with a stop above the pre-announcement highs, which is exactly how I traded it. (I came into Wednesday directionally agnostic and was just as willing to buy a pop following the Fed announcement.)

Any further weakness on Thursday or Friday is a clear invitation to add to our short positions with a stop above Wednesday’s intraday highs. If the selling continues, be sure to move our stops down to our entry points in order to turn this into a low-risk trade.

Limited risk and lots of profit potential, what’s not to like about this trade?

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

Dec 13

Why Tuesday’s bearish reversal doesn’t mean anything

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Tuesday was another wild ride for the S&P 500 as an encouraging monthly inflation report sent stocks flying at the open. Unfortunately, that was as good as it got and the index gave up a majority of those early gains when follow-on buyers failed to show up.

Usually, this kind of bearish reversal is well…bearish. But Tuesday’s price action doesn’t count because the market discounted those early gains. As I’ve been saying for days, the only thing this market cares about is the Fed’s policy outlook and we won’t know what that is until Wednesday afternoon. While Tuesday’s fizzle would ordinarily be a big red flag, given what is really important to this market, the lack of follow-on buying was expected because a modestly improved inflation report is not what is driving this market.

That said, Tuesday’s big pop does show what kind of potential there is to the upside if we get the right cocktail of encouraging news Wednesday. So as high as it feels like we are given inflation and a potential economic slowdown, high is far more likely to get even higher than it is to peak and reverse.

I count myself as an optimist and am looking for prices to continue rallying from the October lows over the near term, but I’m not married to that outlook and will grab on whichever direction the market wants to go Wednesday afternoon.

Give the market a few minutes to process the news and be careful because the initial knee-jerk is often in the wrong direction, but after a handful of minutes, the market will no longer be able to hide its true intention and it will be a big move. Whether that is up or down is anyone’s guess, but as nimble traders, there is no need to guess. Follow the market’s lead and let the profits come to us.

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

Dec 12

The safest way to get ready for the Fed

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Monday was a good session for the S&P 500 as it recovered all of Friday’s losses and then some on its way to a +1.4% gain.

As expected, the market is trading sideways ahead of the Fed’s interest rate policy announcement on Wednesday, and anyone overreacting to these daily gyrations is having a tough time. The catalyst for the next big move comes Wednesday afternoon. Until then, everything else is random noise.

The only thing that would interest me over the next 48 hours is if the selling or buying gets carried away ahead of the rate announcement and that’s only because it skews the risk/reward in the other direction. The higher (or lower) we go ahead of time, the less room there is to keep going higher (or lower), and conversely, there is a lot more free space to reverse and go the other direction if the news disappoints (or beats expectations).

I wasn’t expecting much and Monday’s gains erasing Friday’s losses confirms that the direction is sideways, not up or down.

As I’ve written many times since the October lows, I like this market and think the odds of a continuation higher is the most likely outcome. The offset is there is more risk to the downside if anything goes wrong.

Rather than put myself in a position where I could get run over by a freight train Wednesday afternoon if I was wrong, I’m happy being a little late to the party to make sure I get on the right side of this trade.

Until Wednesday afternoon, I’m mostly just watching and waiting. Once the next big directional move reveals itself, I’m grabbing on 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