Monthly Archives: August 2023

Aug 31

Successful trading isn’t rocket science

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped 0.15% Thursday, ending a four-day winning streak.

After rallying 150 points over a handful of days, it shouldn’t surprise anyone the market wanted to take a breather. And as far as breathers go, -0.15% doesn’t really count, so expect prices to slip a little further over the next few sessions.

Headlines remain benign, but a rebound that didn’t need a headline to kick it off doesn’t need a headline to take a step back. Stocks go up, and stocks go down; that’s all this is.

As I told readers on Wednesday:

[T]his is a better place to be collecting our 3x ETF profits than adding new money. By the time it looks safe, it is usually too late to buy…Now, don’t get me wrong, I’m not predicting a return to recent lows under 4,400. But everyone knows the markets move in waves, and after a nice bit of up, we need a little down.

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This isn’t rocket science, but apparently, Wednesday’s tardy buyers missed the memo. But without late money, we’d have no one to sell our stocks to and give us our profits. So thank them for that.

As for what comes next, expect a little more cooling off over the next few sessions. For the most aggressive, they can short any incremental weakness but keep positions small and profit targets close. Shorting an uptrend is one of the hardest ways to make money in the market, and it requires impeccable timing.

For everyone else, wait for the dip back to 4,450 support and see what happens. If prices bounce, buy that bounce with a stop under this level. If the selling continues, wait for a bounce off of 4,400. Rinse and repeat.

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Aug 30

When good enough is good enough

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added 0.4% on Wednesday, making it four winning sessions in a row.

Headlines haven’t changed in a meaningful way, and in fact, some weaker-than-expected economic news came out over the last few days, causing many investors to cheer because they assume the Fed is done hiking rates.

Is weaker-than-expected economic news good? I don’t buy into the bad-is-good trading philosophy, but if traders want to buy bad news, no one can stop them.

As for my personal trades, I really liked this market last week when the index was under 4,400. Now that we are above 4,500, the risk/reward flipped against us. A big chunk of the upside has been realized, and there is not a lot left in this move over the near term. On the other side, risk is a function of height, so by that measure, the index is 150 points riskier than it was last week.

Combine these two ideas, and this is a better place to be collecting our 3x ETF profits than adding new money. By the time it looks safe, it is usually too late to buy. No doubt, it won’t take long for many of Wednesday’s tardy buyers to regret that decision.

Now, don’t get me wrong, I’m not predicting a return to recent lows under 4,400. But everyone knows the markets move in waves, and after a nice bit of up, we need a little down. Anyone expecting another 150-point rally over the next few sessions doesn’t understand how markets work.

Smart traders buy when they don’t want to buy, and they sell when they don’t want to sell. This beautiful rebound above 4,500 makes it hard to pull the plug on a 3x ETF trade that is working this well. But collecting worthwhile profits is never a mistake. Remember, we only make money when we sell our favorite positions.

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Aug 29

Don’t make the same mistake bears just made

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 popped 1.5% on Tuesday as the index put the screws to the bears.

There were some minor economic headlines, but certainly nothing worthy of launching the index through the 50dma and 4,450 resistance. Instead, this was a massive short squeeze. Bears spent last week planning all of the things they were going to buy with their profits, and instead, found themselves dumped on their butts with a big pile of losses.

But that’s the way this goes. This is a volatile market, and if we are not taking worthwhile profits when we have them, we will be taking losses a few days later.

Luckily, Tuesday’s pop didn’t surprise readers of this free blog because we’ve been riding this rebound and collecting a big pile of 3x ETF profits along the way. As I wrote Monday evening:

As for what comes next, I like what I see. No one is talking about the Chinese economy anymore. If the market doesn’t care, then we don’t care. Powell’s speech last Friday couldn’t bring out the sellers either. And, we violated 4,400 support multiple times over the last two weeks without triggering another follow-on wave of defensive selling, telling us there is not much supply left under our feet.

A market that refuses to go down will eventually go up, and that’s the way this trade is coming together. Stick with what is working and keep lifting our stops.

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Now that the bears have been squeezed out, who is left to keep buying and pushing stocks higher? That’s a good question.

As good as the market looks right now, this is when smart traders are switching to defense. The market didn’t get surprised by amazing and unexpected news, so we shouldn’t expect a huge repricing of stocks. Instead, bears got their latest trade wrong, and this bounce is correcting that fairly minor mistake. Is there a reason to keep racing higher? No, probably not.

Now, don’t get me wrong. Stocks could easily continue racing back to the highs. But that’s not the most likely outcome, and we shouldn’t base our next trade on hope of the unlikely.

We collect worthwhile profits when we have them because if we hold too long, this volatile market will steal them back. Just ask the bears what that feels like.

We don’t need to dump everything, but we should lift our trailing stops to protect our profits and even consider locking in some worthwhile profits proactively. Remember, we only make money when we sell our favorite positions.

Keep holding, lifting stops, and even taking some profits off the table proactively. And once we are out, start looking for that next trade, which could include buying a continuation higher if that’s what the market wants to do.

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Aug 28

Why the path of least resistance is higher, not lower

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added a respectable 0.6% on Monday, extending Friday’s 0.7% bounce, and the index is setting up for another run at 4,450 resistance.

Lucky for readers of this free blog, we saw this rebound coming last week when I wrote on Friday:

The market’s natural inclination is to go up, and breakdowns are breathtakingly fast. Combine those two concepts, and Friday’s rebound definitely favors the bulls. If we were going to break down, prices would have taken another tumble on Friday.

It doesn’t take much to trigger the next wave of selling, but so far, this [rebound] is acting well enough to keep giving it the benefit of the doubt. At this point, I’m cautiously optimistic [last] Thursday’s tumble was the fluke, not [September 18th’s] rebound. For the time being, I’m a buyer of Friday’s bounce, with stops not far behind.

If the bounce continues on Monday, I let those profits come to me. If the selling resumes, I get out for a minor loss and try again next time. Lots of upside and limited downside. What’s not to like about this trade?

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As expected, the index rallied on Monday, and I was able to move my stops up to my entry point, turning this into a low-risk trade. If the selling resumes on Tuesday, I get out near my entry points, no big deal. If the bounce continues, I let all of those 3x ETF profits come to me.

Low-risk/high-reward trades are what we dream of. But these setups are only possible when we have the courage to jump aboard a rebound early.

As for what comes next, I like what I see. No one is talking about the Chinese economy anymore. If the market doesn’t care, then we don’t care. Powell’s speech last Friday couldn’t bring out the sellers either. And, we violated 4,400 support multiple times over the last two weeks without triggering another follow-on wave of defensive selling, telling us there is not much supply left under our feet.

A market that refuses to go down will eventually go up, and that’s the way this trade is coming together. Stick with what is working and keep lifting our stops.

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Aug 25

Why I’m already buying Friday’s bounce

By Jani Ziedins | End of Day Analysis

Free After-hours Analysis: 

Friday’s session took the S&P 500 on another wild ride. The index opened up 20 points, then fell 40 points from those early highs, before finally rebounding and closing with a respectable +0.7% gain. Watch that price action too closely, and one is bound to get whiplash.

The big economic headline was Powell’s speech from Jackson Hole, where he stressed a cautious approach to further rate hikes. That was enough to keep the market from tumbling into another tailspin, but it wasn’t enough to get buyers to start chasing prices higher with reckless abandon. In the end, we recovered half of Thursday’s tumble, which was a fairly decent showing, all things considered.

Lucky for us, this performance is exactly what I was looking for. As I wrote Thursday evening:

As for what comes next, last Friday’s bounce is still alive, even if it is on life support. If we trade well Friday afternoon, Thursday’s selling will be nothing more than the herd getting spooked and panic selling. On the other hand, if the index falls under Friday’s lows, anything is possible.

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The index held above Friday’s lows and closed decently well, making this a buying opportunity.

The market’s natural inclination is to go up, and breakdowns are breathtakingly fast. Combine those two concepts, and Friday’s modest rebound definitely favors the bulls. If we were going to break down, prices should have taken another tumble on Friday.

We are still in the early stages, and any stability near the lows is fragile. It doesn’t take much to trigger the next wave of selling, but so far, this is acting well enough to keep giving it the benefit of the doubt.

At this point, I’m cautiously optimistic this Thursday’s tumble was a fluke, not last Friday’s rebound. For the time being, I’m a buyer of Friday’s bounce, with stops not far behind.

If the bounce continues on Monday, I let those profits come to me. If the selling resumes, I get out for a minor loss and try again next time. Lots of upside and limited downside. What’s not to like about this trade?

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Aug 24

Why smart money was not surprised by Thursday’s aggressive selloff

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 opened Thursday morning above 4,450 as investors cheered NVDA’s AI-fueled earnings results. Unfortunately, the enthusiasm was short-lived. Not only did the index give back all of those opening gains, but it lost all of Wednesday’s pop, too.

Rising interest rates and the index running into overhead resistance at 4,450 and the 50dma were too much for the index to handle. Once the cracks started showing, skittish owners scrambled for the exits.

Lucky for us, running into resistance at these key technical levels doesn’t surprise regular readers. As I wrote in Wednesday’s free post titled: “Why smart money is already eyeing the exits”

Capturing a big portion of a 100-point move in a 3x ETF is real money! That’s why we are already shifting our mindset from offense to defense. Start looking for an opportunity to harvest profits. 4,450 is coming up quickly, which will bring prior support/resistance and the 50dma into play. At the very least, these levels will be a minor speed bump. At worst, we could hit hour heads and tumble back to the lows, so we need to be watching how the market behaves at these levels over the next couple of days.

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I will be honest; I was fairly certain I was collecting profits too soon when I pulled the plug Wednesday afternoon, and I never would have guessed the index would tumble as aggressively as it did on Thursday. But at the same time, I’ve been doing this long enough that nothing surprises me, and that’s why I was happy to sell “too early” Wednesday afternoon when I had a nice pile of profits.

This is a choppy market, and if we’re not taking worthwhile profits when we have them, the market will take all of those profits back.

As for what comes next, last Friday’s bounce is still alive, even if it is on life support. If we trade well Friday afternoon, Thursday’s selling will be nothing more than the herd getting spooked and panic selling. On the other hand, if the index falls under Friday’s lows, anything is possible. Lucky for us, we pulled the plug long before that can happen.

Buy a nice bounce on Friday and sell a continuation of Thursday’s selloff. As jumpy as traders are, something is going to happen, and all we need to do is hop on and enjoy the ride.

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Aug 23

Why smart money is already eyeing the exits

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

What a difference a day makes. Tuesday’s second thoughts were smashed by Wednesday’s 1.1% rally that surged through 4,400 and kept going.

As I wrote in Tuesday’s free analysis:

Keep holding Friday’s purchases with stops already moved up to at least our entry points. If the rebound continues, we let the profits roll in. If the selling resumes, we get out near our entry points and try again next time. Lots of upside and very little downside, what’s not to like about this trade?

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The market loves to make us second-guess our trades. If it wasn’t trying to get us to abandon our positions, it wouldn’t be doing its job. And as we all know, the market is very, very good at its job. But at this point, routine second-guessing is all that last week’s selloff appears to be. Headlines remain stable, and this rebound is simply the realization that last week’s Chinese fears were overblown, at least as far as U.S. equities go.

Capturing a big portion of a 100-point move in a 3x ETF is real money! That’s why we are already shifting our mindset from offense to defense. Start looking for an opportunity to harvest profits. 4,450 is coming up quickly, which will bring prior support/resistance and the 50dma into play. At the very least, these levels will be a minor speed bump. At worst, we could hit hour heads and tumble back to the lows, so we need to be watching how the market behaves at these levels over the next couple of days.

Remember, taking profits too early is always better than holding too long and letting all of these profits escape. Just because we lifted our stops above our entry points doesn’t mean we should let the index fall back to our stops before locking in profits. And remember, buying and selling are not binary decisions. We can always take some profits and let the remaining portion of our position ride, hedging our bets by taking the best from both approaches.

Keep holding, lifting stops, and start moving toward the exits.

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