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

By Jani Ziedins | End of Day Analysis

Aug 24

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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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.