Monthly Archives: October 2023

Oct 31

Why smart money is buying this bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 rallied another 0.6% Tuesday, extending this week’s rebound.

Nothing meaningful changed in the headlines to justify this bounce, but after a certain amount of selling, we always run out of sellers. This time, it took eight days to exhaust the supply of near-term sellers.

As I wrote last week, and again on Monday, this is the bounce I was waiting for:

I have no idea if Monday’s bounce will stick, but it was a good start, and that’s all I needed to put on a partial position. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.

If the index retreats on Tuesday, I will pull the plug for a small loss and try again next time. If the rebound keeps going, I will add more and lift my initial stops to near my entry points, greatly reducing my risk.

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I still have no idea how long this rebound will stick around, but now that prices are comfortably above my entry points, I lifted my stops to my purchase prices, making this nearly a risk-free trade. If the index retreats on Wednesday, I get out near breakeven. If the rebound continues, I will let those profits keep rolling in. These low-risk/high-reward trades are what I dream of.

The odds are still good this bounce will fail because two bounces fail for every one that works, but if this rallies just a little further, expect bears to start scrambling for covers as they get squeezed.

Maybe this week’s bounce is nothing more than a false bottom on our way lower, but as a nimble swing trader, I’m okay with that. I plan on collecting profits long before the next down wave hits.

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Oct 30

Another obvious bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 bounced 1.2% Monday.

We didn’t get a meaningful improvement in headlines over the weekend, but after eight of the previous nine trading sessions ended in the red, a green day was inevitable.

As everyone knows, stocks don’t move in straight lines. After a bit of down, it was finally time for a bit of up. It doesn’t matter why. Running out of sellers is just one of those things that happens naturally. And Monday was that day.

Last week, I said I was looking for a bounce, and Monday’s price action definitely qualifies:

Remember, stocks top when everything looks great, and they bottom when everything looks terrible. By that measure, this is definitely a good time to be bottom-fishing. To be clear, I am 100% opposed to buying on the way down. But every time we bounce, you will find me jumping in. Start small, get in early, keep a nearby stop, and only add to a position that’s working. Follow those simple rules, and bottom-fishing is extremely profitable.

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I have no idea if Monday’s bounce will stick, but it was a good start, and that’s all I needed to put on a partial position. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.

If the index retreats on Tuesday, I will pull the plug for a small loss and try again next time. If the rebound keeps going, I will add more and lift my initial stops to near my entry points, greatly reducing my risk.

As I frequently remind readers, buying bounces is hard because two-thirds of them fail. But if we limit our losses on the false starts by entering with partial positions and keeping stops nearby, riding a winner higher with a full position will more than offset any previous losses.

I have no idea if Monday’s bounce is the real deal, but it gave me a low-risk entry, and I took it. If this one doesn’t work, no big deal, I take a small loss and try again next time. But if the index bounces a little further on Tuesday, I will lift my stops near my entry points, turning this into a nearly free trade. It is hard to complain about that.

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Oct 25

I made a mistake this week, but you better believe I’m willing to do it again

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

This week’s bounce is already toast as the tech sector melted down on Wednesday, dragging the index under 4,200 support. Rising Treasury yields and political gridlock in D.C. dominate financial headlines, but it was GOOGL’s poor results that became one straw too many, and the index shed another 1.4%.

As I wrote Tuesday, I was a buyer of Monday’s early rebound. While getting dumped out at my stops wasn’t the outcome I wanted, it was the one I expected. As I’ve written many times before, two bounces fail for every one that succeeds. That means the odds of Monday’s bounce failing were high.

No doubt there are traders out there who think they have to win every single time, but anyone who’s been doing this for a while knows this is a game of numbers. Approach this with a trading plan that limits our losses and maximizes our gains, it will always work out for us in the end.

In this instance, I was clearly wrong, but since I bout the bounce early, started with a partial position, and kept a nearby stop, the cost of being wrong was trivial compared to the potential profits from locking in a 100-point move in a full 3x position.

As my critics will be happy to point out, I was wrong this week, but you know what? I will happily do it again next week and the week after. It didn’t work this week, but it will work one of these weeks, and that’s when the profits will come rolling in.

Remember, stocks top when everything looks great, and they bottom when everything looks terrible. By that measure, this is definitely a good time to be bottom-fishing. To be clear, I am 100% opposed to buying on the way down. But every time we bounce, you will find me jumping in. Start small, get in early, keep a nearby stop, and only add to a position that’s working. Follow those simple rules, and bottom-fishing is extremely profitable.

I took a small loss this week, but you better believe I will be buying the next time stocks bounce. Maybe that’s Thursday or Friday. Or maybe it won’t happen until next week, or the week after. But one of these bounces is going to work, and that will make it all worthwhile.

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Oct 24

The obvious, yet counterintuitive trade smart money is making

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished 0.7% in the green on Tuesday as the index continued Monday morning’s rebound off of 4,200 support.

As obvious as this sounds, either 4,200 support holds, or it doesn’t. But sometimes, it is worth stating the obvious because a binary condition like this sets up a really nice trade. Buy the bounce early with a nearby stop and see what happens.

If prices rally back up to the 50dma, we rake in a pile of cash in a 3x ETF. If the selling resumes, we get dumped out near our entry points for a small loss. Big rewards and small risks, what’s not to like about this trade?

Of course, my critics will complain that I’m bringing this up after the bounce. But if they read Monday’s post, I was saying the same thing hours after this opportunity landed in our lap:

I liked Monday’s early bounce, and I bought it. But as a new position, I started small and kept a nearby stop under Monday’s lows. If the rebound continues on Tuesday, I add more. If the selling resumes, I get out and wait for the next bounce.

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I have no idea if this trade will work, but I will never turn down a low-risk/high-reward trade. And so far, it looks promising. Squeeze the bears on Wednesday or Thursday, and I will already be looking to cash in some of these 3x ETF profits.

Remember, some of the best buying opportunities happen in down markets when the bounces come hard and fast. Look at all the profits savvy bounce buyers collected a few weeks ago when the index rallied nearly 200 points from the October lows.

And if I get dumped out near my entry points on Wednesday, it’s no big deal. I wait for the next bounce and then try again.

As my dad always told me when I was a teenager, “You snooze, you lose.”

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Oct 23

Why even bears should expect a near-term bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Monday’s session 0.2% in the red.

Unfortunately, the 0.6% midday gains didn’t stick into the close, but the modest loss was still comfortably above the opening lows that undercut 4,200 support.

This was one of those half-full/half-empty days that gave both sides something to crow about. Bulls saw a nice test of 4,200 support that held. Bears saw a skid into the close that keeps 4,200 support under pressure.

Which side will win? There are tons of opinions, but only time will tell.

I really liked the midday bounce because the violation of 4,200 support failed to trigger wider waves of defensive selling. We broke support, and most owners shrugged and kept holding. That tells us there is not much supply under current prices. If there were, it would have shown up as waves of selling early Monday morning.

On the other side of the argument, it takes a lot more than a lack of selling to prop up a struggling market.

I’m an optimist by nature because stocks spend far more time going up than down. In addition, everyone knows stocks move in waves, so it makes sense that after a bit of down, it is time to expect a bit of up. In fact, the biggest and fastest gains occur during bear markets.

Taken together, both of these things mean the odds of some near-term relief are actually working in our favor. In fact, even bears should be expecting a modest bounce near 4,200 support.

Of course, I’m not a buy-and-close-my-eyes kind of guy. I liked Monday’s early bounce, and I bought it. But as a new position, I started small and kept a nearby stop under Monday’s lows. If the rebound continues on Tuesday, I add more. If the selling resumes, I get out and wait for the next bounce.

As the saying goes, stocks climb a wall of worry, and by that measure, there are plenty of things to worry about. That’s good for stocks because things almost always turn out less bad than feared. Investors should fear the things no one is talking about, not the stuff that has been on the front pages for weeks, if not months.

I’m a buyer as long as 4,200 holds, but violate support, and I’m out of here.

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