Monthly Archives: January 2023

Jan 31

Why Tuesday’s nice rebound doesn’t matter

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Tuesday nicely higher, bouncing back from Monday’s retreat from 4,100 resistance.

As I wrote previously, I started locking in worthwhile profits last Friday:

Now, to be clear, I am in no way calling this a top. But the risk/reward has shifted against us after 300 points of upside has been realized and the air underneath our feet gets higher by the day. Markets move in waves, that’s what they do. And we shouldn’t be surprised when the next routine and healthy wave lower arrives.

But as soon as I get out, I always start looking for the next opportunity to get back and I put on a partial position Tuesday morning, exactly as I said I would in Monday evening’s free post:

[M]aybe prices don’t fall any further than Monday’s lows and it is all uphill from here. But as easy as it is to buy back in, I would rather lock in January’s worthwhile profits when I have them rather than risk letting them get away by getting greedy and holding too long. Maybe I end up buying the next bounce Tuesday morning, but that’s the case, no harm no foul.

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Under normal circumstances, I would have added even more Tuesday afternoon given how well the market rallied. And believe me, I was definitely tempted to leverage up, but given the Fed’s looming policy statement headed our way Wednesday afternoon, I knew Tuesday’s price action didn’t really matter to the big picture.

I’m happy to hold a position ahead of the Fed’s policy statement, especially one sitting on a nice profit cushion, but I’m not interested in gambling on the outcome with a full position. As easy as it is for nimble independent traders like us to get into the market, I don’t mind waiting for the market to make up its mind before I put my hard-earned money at risk.

While other people are gambling on the market’s reaction to the Fed’s latest policy statement, I will be over here waiting to hitch my wagon onto whichever direction this wants to go. No doubt I will be a little late jumping on the next big move, but during times like this, I would much rather be a little late than risk getting run over if I’m wrong.

As for what comes next, recent gains leave the market vulnerable to a slip if the Fed doesn’t say all of the right things. But once we work our way through that volatility over the next few sessions, I expect the “less bad than feared” rebound from the October lows to continue. The only question is if it continues from 4,100, 4k, 3,900, or 3,800. And while I count consider myself bullish, the trader in me would love to see this fall to the lower end of that range before bouncing.

Don’t jump on the first knee-jerk reaction Wednesday afternoon because it often goes in the wrong direction, but it won’t be long before the market can no longer hide its true intentions and it starts the next multi-day move. If it’s up, buy it. If it’s down, get out of the way and wait for the next bounce, which could come along as soon as a few days later.

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Jan 30

Why Monday’s selling shouldn’t have surprised anyone

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

On Monday the S&P 500 retreated 1.3% and gave back a big chunk of last week’s gains.

Easy come easy go. But this shouldn’t surprise readers because we knew something like this was coming. As I wrote last Friday:

Markets move in waves and after a nice bit of up, it is time to get ready for the next bit of down. It’s been a nice run since the December lows and that means we are sitting on a pile of profits. But rather than get greedy, this is when we need to shift to a defensive mindset. There are few things more humbling than watching a leak in our bucket rob us of all of these hard-earned profits.

Remember, we only make money when we sell our winners. As easy as it is to buy back in, there is no reason to stubbornly hold on to a winning position as it moves away from us.

Now, to be clear, I am in no way calling this a top. But the risk/reward has shifted against us after 300 points of upside has been realized and the air underneath our feet gets higher by the day. Markets move in waves, that’s what they do. And we shouldn’t be surprised when the next routine and healthy wave lower arrives.

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There is no reason to overreact to one day of selling, but it was fairly obvious the index was going to run into some resistance near the November and December highs. This is as basic as technical analysis gets and it shouldn’t surprise anyone when swing traders start locking in profits at these obvious technical levels.

As I wrote on Friday, I am in no way bearish and actually think this rebound still has room to go over the medium and longer term. But I also recognize markets move in waves. As I wrote on Friday, we only make money when we sell our winners, so challenging 4,100 resistance looked like a really good place to start locking in some very worthwhile profits.

Now, maybe prices don’t fall any further than Monday’s lows and it is all uphill from here. But as easy as it is to buy back in, I would rather lock in January’s worthwhile profits when I have them rather than risk letting them get away by getting greedy and holding too long.

Maybe I end up buying the next bounce Tuesday morning. But if that’s the case, no harm no foul. But maybe it takes a few more days for this down wave to bottom, in which case I will be getting in at even better prices. But no matter what happens next, the profits from my last trade are guaranteed and I will be in a great position to jump aboard the next trade no matter where and when it starts.

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Jan 27

The critical adjustment savvy bulls are making at these levels

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added a modest 0.2% Friday after challenging the highest levels in months earlier in the session.

I’m not sure where all of the bears have gone, but everyone crowing about a larger breakdown back in December has suspiciously gone MIA. But January’s strength shouldn’t surprise anyone. As I wrote back in December before the Christmas break:

The S&P 500 crashed more than 100 points Thursday morning [December 22nd] after someone yelled “Fire” and impulsive traders climbed over each other trying to get out.

What was the catalyst for Thursday’s selling? Easy, there wasn’t one. This panic was nothing more than impulsive traders getting spooked by their own shadows and then the herd following them out the door.

But this isn’t a surprise. This was the second to last trading session before the Christmas holiday and institutional investors are already at their vacation chalets. Without big money’s guiding hand, there was no one to keep impulsive retail traders in check, and like irresponsible teenagers given too much responsibility, these retail traders made poor decisions.

Lucky for us, these retail traders have small accounts and quickly ran out of things to sell. By early afternoon, supply dried up and the index rebounded 60 points from those oversold levels, easily reclaiming 3,800 support.

As Forest Gump famously said, “Stupid is as stupid does.” And on Thursday, retail traders proved why they have such a poor reputation.

Well, here we are a little more than a month later and the market is up 300 points and challenging recent highs. Not bad for the baby that was almost thrown out with December’s bathwater.

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Of course, now we find ourselves on the other side of the pendulum. In December, we were challenging multi-month lows. Now we find ourselves challenging multi-month highs.

Did anything material change over the last several weeks other than the market’s price levels? No, not really. Inflation is moderating, just like it was in December. The economy is cooling, but only slightly and is still growing at a good clip, just like in December. And the Fed is poised to raise interest rates next week, but at a slower clip than previous raises, also like December.

So by a lot of measures, January’s rallied on “less bad than feared.” Unfortunately, this new-found half-full interpretation of headlines means we have a lot less room left to rally if headlines remain the same. At some point, “less bad than feared” is not enough and we actually need “better than expected” to keep pushing to fresh highs.

Will next week bring us the “better than expected” outlook from the Fed that we need to keep rallying? Or will the Fed rain on this parade like they have every other time the market got a little too far ahead of itself during this tightening cycle?

Markets move in waves and after a nice bit of up, it is time to get ready for the next bit of down. It’s been a nice run since the December lows and that means we are sitting on a pile of profits. But rather than get greedy, this is when we need to shift to a defensive mindset. There are few things more humbling than watching a leak in our bucket rob us of all of these hard-earned profits.

Remember, we only make money when we sell our winners. As easy as it is to buy back in, there is no reason to stubbornly hold on to a winning position as it moves away from us.

Now, to be clear, I am in no way calling this a top. But the risk/reward has shifted against us after 300 points of upside has been realized and the air underneath our feet gets higher by the day. Markets move in waves, that’s what they do. And we shouldn’t be surprised when the next routine and healthy wave lower arrives.

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Jan 25

Why smart money was buying Wednesday’s rebound

By Jani Ziedins | End of Day Analysis

 Free After-Hours Analysis: 

Unsurprisingly, the S&P 500 tumbled back under 4k support Wednesday morning.

While the market looked good Tuesday, as I’ve been writing over the last few weeks, the market is currently in a back-and-forth mood and that means every bit of up is followed by a bit of down. That’s why I told readers I was proactively pulling some profits off the table Monday and again on Tuesday:

At points like this, it makes sense to lock in some of our really nice profits because we don’t make money until we sell our winners. But at the same time, the market is still behaving well, so it is equally worth holding on to some of our positions too. With one foot in and one foot out of the market, we will be in good shape no matter what happens next.

If I had known Wednesday’s open would crash through 4k support, I would have sold everything, but tradng is a game of probabilities and the odds of a continuation versus a retest of support were 50/50. In cases like this, it is good to have some money in the market and some profits safely on the sidelines, that way no matter what happens, part of my trade is in the perfect position.

Wednesday morning it turned out that the part I sold was the better half, but it just as easily could have been the part I was still holding.

As for the rest of my trade, Wednesday morning’s givebacks undercut my stops, so I locked in those profits too. But rather than give up on this trade, as soon as I get out, I start looking for the next bounce, which is a good thing because it arrived an hour later.

As it turned out, most owners shrugged at Wednesday morning’s selling and kept holding. That reluctance to sell put a floor under prices and this turned into yet another piece of evidence that this market wants to go higher, not lower.

Red days are a healthy and normal part of every move higher, and so far I don’t see anything in this test of 4k support that says this is anything other than one of those normal and healthy step-backs on our way higher.

While holding through these gyrations would be easier than trying to trade around them, if we don’t pull the plug when prices fall, that means we are trading without a safety net. And while that might turn out okay most of the time, it only takes a few times of getting it wrong to erase all of those profits we made on the way up.

As much as I don’t like darting in and out of the market, it is a small price to pay for the safety of knowing I will never be caught on the wrong side of a big move. And many times it works out like it did on Wednesday where I end up getting back in at lower prices than where I sold on Monday and Tuesday. The difference doesn’t add up to a lot of money, but getting paid to reduce my risk is about as good of a deal as it gets.

I bought Wednesday morning’s bounce with a stop under the mid-morning lows. I added more around lunchtime, and even more when the index got back above 4k.

Act well Thursday and all of my stops will get moved above my entry points, making this a free trade. Not bad for a market that by most accounts should be going down. Good thing I trade the market and not other people’s opinions.
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Jan 24

What savvy traders are doing with all of these profits

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 retreated half a percent Tuesday morning before recovering almost all of those early losses, finishing the session down a trivial amount.

Stocks retreat quickly from unsustainable levels, so the longer we hold Monday’s 4k breakout, the more real it becomes. We tested support early Tuesday and the market passed that first exam with flying colors.

While one or two days don’t make a breakout, every sustained breakout starts with those first two days. At this point, headlines remain benign and this continues the less-bad-than-feared rebound from the October lows. As always, everything could get flipped on its head at a moment’s notice, but so far things look good.

Greedy when other people are fearful and fearful when other people are greedy. That simple strategy works more often than not, and now that the market is at multi-month highs, we have to tread carefully.

4k is an important level and so far it is holding steady. But as I wrote previously, this market is more choppy and sideways than up or down. And that means even if the trend higher remains intact, we should expect lots of back and forth along the way.

At points like this, it makes sense to lock in some of our really nice profits because we don’t make money until we sell our winners. But at the same time, the market is still behaving well, so it is equally worth holding on to some of our positions too.

With one foot in and one foot out of the market, we will be in good shape no matter what happens next. If the market gets rejected 4k yet again, we pull the plug at our recently lifted trailing stops. But on the other hand, if the breakout continues, we benefit through what we are still holding and then we put he accelerator down by buying back what we sold.

This is the highly enviable “no lose” position. The only reason we are here is because we had the courage to buy when everyone else was busy forecasting the market’s imminent demise.

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Jan 23

Why this rebound was inevitable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 smashed through 4k resistance on Monday and powered its way to fresh 2023 highs. That’s a long way from last week’s fearful selling that challenged 3,900 support.

Just as last week’s tumble was not fueled by meaningful headlines, this latest rebound didn’t need a fundamental justification to blow up in bears’ faces either. If we can fall on no news, then we can also rally on no news.

This continues to be a sentiment-driven market and sentiment by itself can only push prices so far, meaning these swings are prone to snapping back, which is exactly what happened on Friday and Monday.

Stocks can’t stay in one place, and that means wobbling back and forth for no real reason at all. Last week it was down, this week it is back up. But this shouldn’t surprise readers of this blog, as I wrote last Wednesday:

I’m itching to get back in and will be looking for a bounce to buy Thursday morning or afternoon. And if not Thursday, then Friday. A bounce is coming, the only question is when.

and Thursday:

[N]othing has changed and that means this is most likely just another routine buyable dip on our way higher. At least that’s how I’m approaching it

Here we are, four days later and 120 points higher.

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As for what comes next, the 2023 up-trend is still intact, and that means higher prices over the medium term. Another wave of selling and profit-taking could push us back to 4k, but at this point, the market wants to go up, not down, so any near-term weakness is just another buying opportunity.

Monday’s nice pop shows why smart money was buying when everyone else was selling for no good reason. As independent traders, we don’t buy dips, but as soon as prices find a bottom and start bouncing, it is full speed ahead.

But now that the market is 120 points above Friday’s lows, we have to be more careful. We buy early and we get out early. That means it is already time to start thinking about an exit.

Move trailing stops up and even consider locking in some profits proactively. At this point, there is more risk underneath us than reward above us. Plan your next trades accordingly.

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