Monthly Archives: February 2023

Feb 16

Why bulls and bears keep getting their butts kicked

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday’s session was one of those days where both bulls and bears got their butts kicked and the market proved it is still the boss.

The session started poorly for the S&P 500 after January’s PPI report showed wholesale inflation remains stubbornly resilient. That headline sent the index tumbling 1.5% shortly after the opening. But just all hope was lost and bears were feeling their most confident, supply dried up and prices bounced hard, recovering a majority of those early losses by Thursday afternoon.

This bounce shouldn’t have surprised anyone. First, the PPI data wasn’t new or unexpected and it fell in line with recent Fed, consumer, employment, and economic data. If equity owners weren’t dumping stocks following last week’s headlines, why should we think this PPI report would suddenly change their minds?

That midday bounce send bears scrambling for cover as the index recovered a majority of those opening losses. But what’s good for the goose is good for the gander. Just when bulls were starting to feel good about themselves, the market pulled the rug out from underneath them and sent stocks tumbling back to the opening lows.

Just like the early bounce, Thursday’s late retreat shouldn’t have surprised anyone either. As I’ve been writing for weeks, this is a choppy market and that means lots of back-and-forth. In fact, Wednesday evening I reiterated that sentiment when I told readers:

No matter what the bulls and bears claim, this market is not going to explode higher and it is not going to crash lower. But that’s okay for the savvy and opportunistic trader. Buy the dip, sell the bounce, and repeat as many times as the market lets us. But remember, if we are not collecting profits early and often, the market will take back all of those profits and turn our trade into a loser. 

And for good measure, on Monday I said: 

Keep buying the dips and selling the pops because this market is going nowhere fast. This choppiness means we need to collect profits early and often because holding a few hours too long is the difference between worthwhile profits and watching a winning trade turn into a loser.

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I could go on and on with similar statements from previous posts because we’ve been in this sideways grind for a while. Anyone trying to trade the next breakout or breakout is getting chewed up by these reversals. But that doesn’t stop bulls and bears from making the same mistakes again the next day.

No one can trade these wild whipsaws perfectly, so don’t even try. But when you have a profit, you better be taking it because odds are good it will be gone in a few hours.

As for what comes next, expect more of the same. As bad as Thursday’s close looked, Wednesday’s close looked good. And we saw how that turned out. This is the “opposite market” and the smart trade is going against conventional trading signals instead of following them.

Maybe stocks open poorly Friday, but rather than jump aboard the selling bandwagon, be on the lookout for that next bounce because odds are good it will come hard and fast.

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Feb 15

Why bears are wrong and why bulls can’t get complacent

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Wednesday’s session up a modest 0.3%, but if you only looked at the finishing print, you’d miss everything the market was trying to tell us.

It’s not how you start, but how you finish that matters most. And while no one is getting excited by a 0.3% gain, the market started the session down 0.8% and finishing in the green is actually a noteworthy accomplishment.

The thing about Wednesday’s resilience is it mirrored Tuesday’s bounce back from the midday lows. Lucky for readers, everything I wrote in Tuesday evening’s blog post was fully on display during Wednesday’s session:

The reflexive selling Tuesday morning would have triggered a bigger follow-on wave of selling if this market was overbought and vulnerable. Instead, supply dried up as most equity owners shrugged and kept holding. That tells us the ground under our feet is far more solid than most people think.

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Wednesday was strike two bears, adding more proof to the idea that this market wants to go up not down. A market that refuses to go down will eventually go up and it is only a matter of time before we are challenging 4,200 support again.

That said, we don’t want to get too excited because this market is still consolidating January’s gains under 4,200 resistance. As much as I’d love to see the index explode higher, it simply doesn’t have the energy to do that right now. Instead, expect this back and forth under 4,200 to continue.

No matter what the bulls and bears claim, this market is not going to explode higher and it is not going to crash lower. But that’s okay for the savvy and opportunistic trader. Buy the dip, sell the bounce, and repeat as many times as the market lets us.

But remember, if we are not collecting profits early and often, the market will take back all of those profits and turn our trade into a loser. Don’t let that happen to you.

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Feb 14

Why the latest CPI data is still a win for Bulls

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

As expected, Tuesday morning’s release of the latest CPI data triggered a wave of impulsive volatility as bears and bulls argued over what these latest data points mean.

But also not a surprise, the CPI result gave both camps something to crow about, meaning this half-empty/half-full news didn’t change anyone’s mind. (i.e. bulls stayed bullish and bears stayed bearish)

When people don’t change their minds, stocks tread water, which explains Tuesday’s trivial -0.03% loss.

As I explained to readers Monday evening, I didn’t expect the CPI data to trigger a meaningful move in stock prices and that’s exactly what we got:

We get another inflation reading Tuesday. Expect volatility for the first 30 minutes as impulsive traders overreact to the headlines. But after that, the market will return to what it was doing previously, which is this choppy consolidation under 4,200 before the next push higher. Unless the inflation reading is truly shocking, don’t expect it to have a lasting impact on the market.

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While the result of Tuesday’s session was a draw, tie-breakers go to the prior trend, which was consolidating recent gains under 4,200 resistance.

The reflexive selling Tuesday morning would have triggered a bigger follow-on wave of selling if this market was overbought and vulnerable. Instead, supply dried up as most equity owners shrugged and kept holding. That tells us the ground under our feet is far more solid than most people think.

If this market was going to break down, it would have happened by now. While no one is excited about a 0.0% day, it counts as a win for bulls because it shows bears still don’t have any influence.

Keep buying the dips and selling the pops because this market is going nowhere fast. This choppiness means we need to collect profits early and often because holding a few hours too long is the difference between worthwhile profits and watching a winning trade turn into a loser.

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Feb 13

What to expect from Tuesday’s inflation readings and how to trade it

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added 1.1% Monday, continuing Friday’s bounce and putting the index back above 4,100 support.

Headlines haven’t changed in a meaningful way and that stability is allowing the market’s half-full mood to keep prices near multi-month highs.

I expected last week’s selling to stall and bounce fairly quickly because there wasn’t any real bite to last week’s selling. Which is exactly how it played out. As I wrote in Friday’s free blog post:

Friday’s session wasn’t all that bad…While no one is bragging about a 0.2% gain, bears had the perfect setup to send stocks tumbling for the third day in a row. But rather than trigger the next wave of defensive selling, supply dried up and prices bounce. As I said Thursday evening, this was the [buyable] setup I was looking for.

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While some people scoff at a 1.1% gain, make that trade in a 3x ETF and now we’re looking at a 3.3% profit in a single session. It only takes a handful of sessions like that to have a very good year.

As for what comes next, just like there wasn’t a reason for stocks to tumble last week, there isn’t a reason for them to pop this week either. As quickly as last week’s selling stalled, expect the same to happen to this week’s rebound.

This is a choppy market and that means taking profits when we have them because holding a few hours too long is the difference between collecting worthwhile profits and watching a winning trade turn into a loser.

We get another inflation reading Tuesday. Expect volatility for the first 30 minutes as impulsive traders overreact to the headlines. But after that, the market will return to what it was doing previously, which is this choppy consolidation under 4,200 before the next push higher. Unless the inflation reading is truly shocking, don’t expect it to have a lasting impact on the market.

Buy the dips, sell the bounces, and repeat as many times as the market keeps throwing us these softball pitches.

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Feb 10

Why the smart trade was buying Friday’s bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Friday was another back-and-for session for the S&P 500.

For as bad as this week looked, Friday’s session wasn’t all that bad. While we opened the day with losses, that was as bad as it got and it was all uphill from there. The index ultimately closed in the green and near the highest levels of the day. Not bad, not bad at all.

While no one is bragging about a 0.2% gain, bears had the perfect setup to send stocks tumbling for the third day in a row. But rather than trigger the next wave of defensive selling, supply dried up and prices bounce.

As I said Thursday evening, this was the setup I was looking for:

At this stage, only fools are expecting these wobbles to trigger the next big breakdown. The rest of us realize stocks spend most of the time going up and down for no real reason at all. Without a significant fundamental driver behind Thursday’s selling means I’m looking to buy the next bounce. Maybe it arrives Friday morning. Maybe Friday afternoon, or even early next week. But a bounce is coming because it always does.

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Because I arrived Friday morning with a plan to buy the next bounce, I was ready when Friday’s early weakness failed to trigger a bigger wave of defensive selling. When bears couldn’t deliver on that perfect setup, that meant they were already out of gas and it was time to start buying. I initiated a partial position and a stop under the early lows. And when the market continued to trade well in the afternoon, I added more.

To be clear, there are no guarantees in the market and the selling could resume Monday morning. In that case, my stops will keep me safe. But buying fear is never easy and it often means making a hard trade. As easy as it is to hate this latest pullback from 4,200 resistance and violation of 4,100 support, trades that start out feeling wrong often end up being right.

I have no idea what next week holds, but I saw a great buying opportunity and I jumped on it. If I get dumped out at my stops next week, no big deal, I step to the sidelines and wait for the next bounce, most likely closer to 4k support. In fact, being wrong here would actually be a better outcome for me because the further this falls now, the more money I make when it finally bounces back.

Plan your trade and trade your plan. As cliche as that sounds, there are few things more essential to trading successfully.

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Feb 09

Is it time to panic?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

It was another two-faced session for the S&P 500 as nice opening gains turned into big closing losses.

Luckily, this didn’t surprise readers of this blog. As I’ve been saying for a while, this is a choppy market and not a directional one. That means taking profits early and often because if we wait a few hours too long, those profits escape and turn into losses.

As I wrote Wednesday evening:

Long gone are the days of big, multi-day moves. Instead, we are stuck with this daily chop. But that’s not a problem because it can be just as profitable if we know how to trade it. Keep taking profits early and often because today’s winning trade will turn into tomorrow’s loser.

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Well, it seems I underestimated this market because instead of waiting a day between swings, we are now getting big changes in direction within a single session.

But as I said previously, this isn’t a problem for nimble traders that are willing to lock in profits when they have them and then get ready to go in the other direction.

It is the bulls and bears getting chewed up by this back-and-forth price action because instead of taking profits when the market moves in their direction, they start bragging about how smart they are and are doubling down. Bulls were doing it yesterday. Today it’s the bears’ turn.

As bad as Thursday’s price action looks, there weren’t any significant headlines driving this selling. As entrenched as bulls and bears have gotten over recent months, it will take big and undeniable changes in the fundamentals to get people to change their outlook. We didn’t get anything remotely close to that Thursday, meaning there is no real meat to Thursday’s selling, meaning it will most likely end in another reversal on Friday or early next week.

At this stage, only fools are expecting these wobbles to trigger the next big breakout or breakdown. The rest of realize stocks spend most of the time going up and down for no real reason at all.

Without a significant fundamental driver behind Thursday’s selling means I’m looking to buy the next bounce. Maybe it arrives Friday morning. Maybe Friday afternoon, or even early next week. But a bounce is coming because it always does.

Sell when other people are confident and buy when they are scared. Repeat as many times as the market lets us.

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Feb 08

The mistake bulls and bears keep making

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The back and forth continues in the S&P 500 as Tuesday’s big gains turn into Wednesday’s big losses.

But this doesn’t surprise readers of this blog. As I wrote Tuesday evening:

[T]he most important thing to realize is this market doesn’t have big move potential. We get these tradable daily swings…but every step forward is followed by a step back. That means we want to take profits early and often. Hold a few hours too long and the market will steal those profits back. I really like Tuesday’s gains and I’m sitting on a pile of profits, but this is the wrong time to be getting greedy. I already lifted my stops and am planning my exit.

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Well, here we are 24 hours later and the market stole back almost all of Tuesday’s profits. If your trading plan doesn’t include taking profits, you won’t have any profits left to take.

This is the kind of market where both bulls and bears are right, at least momentarily. Yesterday bulls were beating their chest. Today it’s the bears’ turn. The problem is neither of these groups are making money. Instead of bragging about their positions, they should be taking profits. That’s why savvy traders avoid biases and labels like bullish or bearish. We trade the market and it doesn’t matter which way it is going.

As for what comes next, expect more of the same. Headlines are not changing much. That means both bulls and bears can rationalize sticking with their positions. It takes people changing their minds to move markets and until we get some dramatic and unexpected headline that comes out of nowhere, expect this mindless sideways chop to continue.

Long gone are the days of big, multi-day moves. Instead, we are stuck with this daily chop. But that’s not a problem because it can be just as profitable if we know how to trade it. Keep taking profits early and often because today’s winning trade will turn into tomorrow’s loser.

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