Why savvy traders are not worried about Thursday’s dreadful price action

By Jani Ziedins | End of Day Analysis

Mar 09

Free After-Hours Analysis: 

Thursday’s S&P 500 session started out innocently enough with the index showing a modest gain, unfortunately, it was all downhill from there as the index shed nearly 2% by the close.

As ugly as Thursday’s session looked, we can’t read too much into this price action because this wave of selling was nothing more than handwringing ahead of Friday’s employment report.

“Sell the rumor and buy the news” happens often enough that people have given it a name. All of this week’s bloodletting actually improved the odds of a bounce on Friday. Once a nervous owner sells all of his stocks, his opinion no longer matters. So for every nervous owner that bailed out on Thursday, they lost their ability to vote on what comes next.

And more than just taking away weak owners’ votes, these worrywarts have been replaced by confident dip-buyers. If these buyers were afraid of Friday’s employment report, they wouldn’t have been jumping in Thursday afternoon. Out with the weak and in with the strong. That doesn’t sound like a bad thing to me.

As for what happens Friday, I have zero idea what the employment report will say, and more than that, even if I knew the number, there is no telling how the market will react to it anyway.

Is good still bad, or have we switched back to good being good again? Maybe stocks rally on bad, but what if it’s really bad? How bad is too bad??? No one knows what Friday holds and it isn’t even worth the effort trying to figure it out.

Rather than guess about the employment numbers and then guess about the market’s reaction, I’ll wait for the market to tell me what it wants to do. This is one of those situations where I’d rather be a little late than a lot early.

Give the market 30ish minutes Friday morning to get the knee-jerk out of its system. After that, the market won’t be able to hide its true intentions and it’s time to jump aboard the resulting move.

That said, odds are good that this week’s selling priced in a lot of bad news and anything that meets expectations, or better yet, turns out less bad than feared, will lead to a nice pop.

I will let the gamblers place their bets ahead of the employment report. I’m more than happy to show up a little late to this party if it dramatically lowers my risk. If this really is the start of the next big, multi-day move, being 30 minutes late isn’t going to change much.

But as I’ve been saying for a while, I believe we are stuck in a trading range. All of the hype surrounding Friday’s employment numbers will most likely result in a letdown and this will be old news by Friday afternoon. If we really are stuck in a trading range, Thursday’s retreat to the lower end of the range means stocks are buyable and I will be more than happy to snap up these discounts once all of the dust clears later Friday morning.

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!

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


About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.