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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Traders hit the sell button Tuesday when an echo of last month’s bank crisis reverberated through the market and the S&P 500 tumbled -1.6%. And so continues the swinging pendulum of sentiment.
The thing about Tuesday’s banking headlines is these reports of massive outflows are old news. This isn’t what is happening now, but an autopsy of what occurred last month. If someone is freaking out over these headlines today, they are waaaaaaay late to the party.
We need new and unexpected headlines to break this market and as we learned last month, trouble at regional banks isn’t enough. If it was going to happen, it would have happened.
The market loves to convince us we are wrong moments before proving us right. As paradoxical as it seems, Tuesday’s bloodbath could actually turn out to be very bullish if the market bounces over the next few days. That’s because this reflexive selling is purging the last of the dead weight and clearing the way for the next leg higher.
The key is we need to bounce. Without that bounce, the selling could feed on itself for a few more days and go further. But without new and meaningful headlines to convert confident bulls into fearful bears, the selling will stall, and this dip won’t turn into anything more than a routine step back on our way higher. At this point, 4,200 resistance is still very much on the table.
While I remain optimistic, this wave of selling demonstrates why it is better to be a little late than a lot early. 4,200 is still very much in the cards, but there are zero reasons to commit early and hold a dip under 4,100. Savvy traders don’t buy dips, they buy bounces. This is a small but critical distinction.
As I wrote in Monday night’s free blog post:
While Bulls and bears love to place their bets ahead of time, I like waiting for the move to start first. A nice bounce Tuesday will be the green light to give this trade a shot.
As it turned out, Tuesday’s bounce never arrived and I was left watching the bloodbath from the sidelines. Which wasn’t a bad place to be. In fact, Tuesday’s selling works to my advantage because it lets me get in at even lower prices when the inevitable bounce finally arrives.
Maybe we bounce Wednesday. Maybe it doesn’t happen until Thursday, Friday, or even next week. But a bounce is coming because it always does. But until then, the lower we go now, the better it is for me.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 wavered between modest losses and small gains through Monday’s sessions.
While sideways is not as much fun as up, the fact most owners ignored every dip over the last few weeks tells us a lot about the market’s mood. If this market was going to crack, it would have happened by now. Instead, most owners shrug and keep holding.
It was wise to get cautious and lock in worthwhile profits a couple of weeks ago when we first got to these levels, as I wrote back on April 3rd:
Stocks move in waves; they always have and always will. After a nice run like that, rather than pat myself on the back for profiting from March’s reversal, I’m getting nervous that too much of a good thing can end poorly for anyone that holds too long.
Don’t get me wrong, I’m not calling this a top. Momentum is far more likely to continue than it is to reverse, but with 300 points of upside in our rearview mirror, this is the wrong time to be getting greedy. Savvy traders are taking worthwhile profits and getting ready for the next opportunity.
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But after the typical step-back failed to materialize, we have to start considering the next move will be “high getting even higher.”
As I’ve said countless times before, something that refuses to go down will eventually go up. At this point, this looks like up is only a matter of time. While it isn’t hard to figure out what the market is going to do next, the challenge is always getting the timing right. More often than not, the key isn’t what trade to make, but when to make it.
As I wrote last week, this sideways grind could start moving at any time and that means we need to be ready for it. While Bulls and bears love to place their bets ahead of time, I like waiting for the move to start first. A nice bounce Tuesday will be the green light to give this trade a shot.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 started Wednesday’s session -0.5% in the red as the index continues struggling for a direction under 4,200 resistance.
For all the naysayers attacking this “overbought” market, Wednesday morning’s weakness failed to trigger a wider wave of selling and it only took a few hours before prices bounced back to breakeven.
While the index finished flat for the day, that’s actually a resilient performance for stocks. If this market were as fragile and vulnerable as the critics claim, the selling would have accelerated, not stalled and bounced.
Lucky for readers, we recognized the market’s indecisiveness a while ago and used that insight to our advantage. As I wrote last week:
The lack of a breakout or a breakdown is frustrating the people who are trading in anticipation of these things. As I’ve been saying for a while, this is a range-bound market and that means lots and lots of reversals. If a person has profits and they are not collecting them, those profits will be gone in days, if not hours. Savvy traders know this is the environment to stay nimble and take profits early and often.
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Novice traders love to claim the market is rigged when it doesn’t do what they want. The thing I never understand about this argument is if these traders know the market is rigged, why don’t they use that insight to follow the rigging and print money???
Don’t fall for lame excuses. If you lose money, it means your trading thesis is wrong, plain and simple. Rather than accuse banks or the Fed of cheating, recognize your mistake and change your approach. That’s the only way to survive the market over the long haul.
As for what comes next, last week I was wary of a near-term step back following March’s big run. But holding near the highs for a few weeks suggests these levels are real. As I often remind readers, a market that refuses to go down will eventually go up.
As high as stocks seem, it wouldn’t surprise me to see the index break through 4,200 over the next few days or weeks. I don’t expect a big breakout, but poking our heads above this key resistance level seems all but inevitable. If we were going to crash, it would have happened by now.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 poked its head above multi-month highs moments after Friday’s open, but those early gains were as good as it got and the index skidded into the red minutes later.
That said, Friday’s -0.2% loss was fairly trivial and hardly describes panic selling, especially considering the index was down nearly -1% in midday trade.
March’s rebound is running out of momentum near 4,200 resistance. But this shouldn’t surprise readers of this blog because I’ve been saying stocks have been rangebound for months. As I wrote Thursday evening:
While [Thursday’s] short squeeze produces quick profits for those of us lucky enough to be positioned on the right side of the reversal, the downside of short squeezes is they don’t have much staying power. As nice as riding Thursday’s wave higher was, savvy traders are standing next to the exits if they are not already locking in worthwhile profits.
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Well, it didn’t take long for the air to start coming out of Thursday’s short squeeze. One day’s up becomes the next day’s down. If a person isn’t taking profits when they have them, they will be sitting on losses a few hours later.
Savvy traders adopted an anti-bear and anti-bull outlook toward this market. March’s dip to the lower end of the 3,800 trading range wasn’t a prelude to a huge crash to multi-year lows, it was a buying opportunity to ride the next wave higher. And this rally to the upper end of the trading range doesn’t foretell of huge gains for as far as the eye can see. Instead, we are running out of buyers and on the verge of slipping back into the heart of the trading range.
A breakout is coming, but we need buyers to start feeling more greedy than fearful at these heights. It will happen, just not right now. Until then, keep taking profits early and often because if we don’t, the market will snatch all of those profits back.
At this point, look out for further cooling next week and ambitious traders can short that weakness. For everyone else, wait for the next bounce. Don’t worry, it will come along much quicker than most people expect.
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