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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 retreated 1.5% Tuesday after Powell threw cold water on last week’s rebound.
I’ve said it before and I will say it again, this is a choppy market and that means the only people making money are the ones locking in profits when they have them.
Both bulls and bears are too busy arguing with each other to make money. Bulls insist every bounce is the start of the next big move higher and bears gloat every time prices fall.
Unfortunately, this approach means both sides are making the exact wrong moves at the exact wrong time. Bulls are buying the highs when they feel the most confident and end up selling the lows a few days later when they get scared. And bears are doing the mirror image, gleefully shorting the lows and then getting spooked and covering after prices blow up in their face.
Buying strength and selling weakness works great in directional markets, but this is not a directional market, so everyone trading that way is getting killed.
Last week I told readers to buy the next bounce in my post titled, “Should we be worried about this test of the recent lows?” But equally important, I also warned readers to take profits quickly because they wouldn’t last.
I will be there to buy the next bounce and the one after that. But because I know this is a low-energy environment, I will be quick to take profits because it won’t be long before those profits are gone.
A bigger directional move is coming, but it is still a way out. Until then, keep taking profits early and often.
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Well, here we are a few days after stocks surged impressively from Thursday’s lows. Unfortunately, a big chunk of those profits have already been erased. This was an extremely profitable trade for everyone that treated it like a trade. For everyone else, they lost even more money reflexively buying Friday’s strength and selling Tuesday’s tumble.
Trading isn’t hard once we shed our bullish and bearish biases and start trading the market instead of our opinions.
As for what comes next, I will keep buying weakness and selling strength until the market tells me it is ready for the next big directional move. Until then, expect this volatile sideways chop to continue.
Powell will continue speaking to Congress on Wednesday, we have the monthly employment report coming Friday morning, and more inflation data next week. Expect these wild whipsaws to continue.
If you are not taking profits when you have them, then you will end up taking losses when the market inevitably swings in the other direction.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 popped to multi-week highs Monday morning as bears continued getting blown out of their short positions.
As has been the case for a while, this recent price action is not being driven by meaningful changes in the fundamentals. Instead, this is a sentiment trade and the latest wave of overwhelming bearishness made a bounce inevitable.
I wrote about this golden opportunity in last week’s post titled “Why savvy traders are getting greedy“:
[A]s far as contrarian trading signals go, the market’s pessimism suggests this is the time to be looking for buying opportunities. The last time the AAII sentiment survey had this few bulls was back in early January, which as it turned out, was a great time to buy stocks…
By now, everyone knows what happened next.
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Unfortunately, Monday’s early strength fizzled and prices retreated back to Friday’s close. But that shouldn’t surprise readers either, as I warned them Friday evening:
[W]e need to keep expectations in check. Just as there wasn’t a real reason to be crashing, there isn’t a real reason to be rallying. That means we shouldn’t expect a big rally and this rebound is simply a normal and routine gyration higher following a bit of down.
Rather than get cocky and complacent with my newfound success, I recognize this is still a choppy market and I don’t want to let this pile of profits escape, so I’m already lifting my trailing stops and getting ready to lock in worthwhile profits if the selling returns next week.
That outlook proved to be especially helpful Monday morning as all of those easy and early gains evaporated.
Stocks spend more time going sideways than up or down and that means we should be wary of predictions of an imminent crash or surge to record levels. Stock prices fluctuate, that’s what they do and we shouldn’t be surprised when prices bounce from the lows and stall after reclaiming a big chunk of lost ground.
Powell is testifying in front of Congress over the next couple of days and we have the monthly employment report due on Friday. Both of those have the potential to move the market, but if the headlines continue coming in near expectations, expect this sideways grind to continue. Buy weakness, sell strength, and repeat as many times as the market lets us.
As easy as it is to buy back in, we should never be afraid of taking worthwhile profits off of the table. Rather than make the same mistake overconfident bears made near the lows, we want to ensure we protect these profits and it is worth locking in some partial profits proactively. Sure, we are probably selling a little too early, but by putting some profits in our pocket and reducing our exposure, it gets a lot easier to ride through these inevitable whipsaws.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 exploded 1.6% higher Friday and easily reclaimed 4k support.
While I’m sure the financial press came up with a justification for this latest wave of buying, the simple truth is we ran out of sellers and a rebound was inevitable.
A month of selling is a long time and the lack of acceleration under 4k support told us supply was drying up. As scary as the last few weeks felt, we actually haven’t fallen all that far from recent highs.
As I reminded readers over the last few weeks, every routine dip feels like it is the start of something much bigger because if it didn’t, no one would sell and prices wouldn’t dip in the first place.
As expected, without a significant and unexpected fundamental driver changing a large number of peoples’ minds, this latest wave of selling petered out and this bounce was inevitable.
While it is easy to point out these things after the fact, I’ve been telling readers this wave of buying was just around the corner. Here is what I wrote four days ago in a post titled, “Why savvy traders are getting greedy“:
As far as contrarian trading signals go, the market’s pessimism suggests this is the time to be looking for buying opportunities. The last time the AAII sentiment survey had this few bulls was back in early January, which as it turned out, was a great time to buy stocks because the index rallied nearly 10% over the next few weeks.
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Now, some of my critics will point out that even a broken clock is right twice a day. And that’s true, I’ve been trying to buy this bounce for a while, and in the market, early is the same thing as wrong. But I knew the odds of failure were high and that’s why I was buying each of those previous bounces with a partial position and a nearby stop. When the previous bounces failed, I got out for a small loss on a partial position.
While I’d much rather be making money, small losses aren’t the end of the world. And Friday was when the patience and persistence finally paid off. After taking a few small losses on previous buys, I was in the right spot at the right time when Thursday’s selling stalled and prices bounced hard.
I got in early and when that trade kept working, I quickly scaled up my position. So yes, I was wrong and collected a couple of small losses along the way, but Friday was the day when it all came together and I made a pile of money on a full position.
Small losses and big wins are the way we beat this game.
That said, we need to keep expectations in check. Just as there wasn’t a real reason to be crashing, there isn’t a real reason to be rallying. That means we shouldn’t expect a big rally and this rebound is simply a normal and routine gyration higher following a bit of down.
Rather than get cocky and complacent with my newfound success, I recognize this is still a choppy market and I don’t want to let this pile of profits escape, so I’m already lifting my trailing stops and getting ready to lock in worthwhile profits if the selling returns next week.
Remember, we only make money when we sell our winners. We don’t have to look far to find bears who wish they were a little more proactive in locking in their profits.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 continues probing recent lows and is testing the 200dma.
Headlines haven’t changed in a meaningful way since January, but the market’s mood couldn’t be more different. The half-full outlook that 2023 started with has given way to this recent wave of hand-wringing. Is this the result of a fundamental change in the market’s outlook, or just part of the market’s routine mood swings? Good question.
The market rallied 700 points from the October lows, so this 250-point retreat from recent highs shouldn’t surprise anyone. Two steps forward, one step back has always been the name of the game, and at this point, this latest slip from recent highs doesn’t look any more severe than one of those routine steps back.
But as long as we continue testing the lows, we are always at risk of making new lows. But as long as most owners keep shrugging and holding, any selling will be contained. If this crop of owners was skittish and prone to impulsive selling, we would have seen the bottom fall out a long time ago.
I’d love to see a buyable rebound from these levels, but the market is in charge and it dictates the pace. If we need to consolidate for a few more weeks, then I have no choice but to keep waiting and watching.
I will be there to buy the next bounce and the one after that. But because I know this is a low-energy environment, I will be quick to take profits because it won’t be long before those profits are gone.
A bigger directional move is coming, but it is still a way out. Until then, keep taking profits early and often.
Sign up for my FREE email alerts so you don’t miss the market’s next big move
If you find these posts useful, help me out by liking and sharing them!
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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 @crackedmarket
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