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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 lost 0.9% Thursday after the index slipped under 4,300 support for the first time in nearly two weeks.
Powell said rates are not too high and the Fed could continue raising rates if economic activity is too strong to allow inflation to continue cooling.
This week’s selling is another attempt at the “good is bad” trade. Somehow, people think a strong economy is bad for stocks because it means the Fed will keep hiking rates. But here’s the thing: stock prices are primarily based on corporate profits, not 10-year yields. And when it comes to corporate profits, a robust economy matters far more than 5% interest rates. In fact, one interpretation of the recent increase in Treasury yields is the bond market expects the economy to be strong next year. Does that sound like a good reason to dump stocks?
Regardless, I trade the market, not my opinion. That means I got dumped out of my long trade early Wednesday when the market slipped under my trailing stops near last week’s lows.
Sure, this wasn’t the trade I was looking for, but the market rarely gives us what we want, so I had to make do with what I got. This week, that meant getting dumped out of a partial position for a small loss after buying Monday’s bounce that didn’t work.
But this isn’t a surprise. Bounces fail twice as often as they work. While that doesn’t sound like good odds, if we lose money on partial positions with nearby stops and we make money on full positions with further away price targets, the math works very nicely in our favor.
Monday’s partial trade didn’t work, and now I’m left watching prices fall from the safety of the sidelines.
As I alluded to above, I don’t believe in the “good is bad” trade, and I will keep buying bounces as long as this stubbornly robust economy keeps defying the skeptics. Maybe the market gives me a very tradable bounce on Friday. Maybe the bounce won’t arrive until next week. Either way, I know it’s been forever since the “good is bad” trade worked, and the odds are good this instance will blow up in the cynics’ faces, too.
Until further notice, I’m looking at these dips as buying opportunities, not an excuse to run and hide. The sky is not falling.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Tuesday’s session unchanged, but that flat result hides some important psychology hiding in the intraday price action.
The index slipped Tuesday morning after retail sales smashed expectations and the “good is bad” crowd hit the panic button. But as I’ve written many times before, the “good is bad” trade is as dumb as it gets. It hasn’t worked for a long time, yet that doesn’t stop people from rushing to sell every time we get a piece of good economic news.
Stock prices are ultimately based on corporate profits. Interest rates and everything else are just noise. As long as corporate profits are strong, stocks will be strong—end of story. Forget all this, “But that means the Fed will keep raising interest rate nonsense.” Strong earnings = strong stock prices Q.E.D.
And no surprise, it didn’t take long before more sophisticated buyers jumped in and bought Tuesday morning’s discounts. There are plenty of reasons for stocks to fall, but stronger-than-expected retail sales are not one of them.
Of course, I shouldn’t complain too loudly because it would be much harder to make money without all of these dumb traders giving it away. Their loss is my gain.
At this point, I don’t see anything that concerns me about this market. Last week’s selling gave bears a golden opportunity to take control and send prices much lower. Instead, prices bounced in their face. That’s a sign of strength, not weakness.
Until we fall under recent lows, this market deserves the benefit of the doubt. Keep holding and lifting stops if/when we get through 4,400. Let those 3x ETF profits come to us.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Monday’s session with nice 1% gains after none of the market’s big worries got worse over the weekend.
I was looking for the index to make a move this week, either continuing last week’s bounce or resuming the September selloff. It only took a few minutes on Monday for the price action to tell us investors are still in a buying mood.
I locked in some very nice 3x ETF profits early last week and spent the weekend in the safety of cash because I wasn’t sure what the market wanted to do next. Following Monday’s positive open, I started buying this early strength because that’s what my trading plan told me to do.
I treated this like a new position and stepped into the market with a partial position and a nearby stop. That way if Monday’s early strength proved to be a false bottom, I could get out with minimal damage.
When the index kept acting well through the afternoon, I added more. While not a zero-risk trade yet, trading in partial positions with nearby stops manages my exposure and is a low-risk way to trade.
Nothing really changed since Friday, but that’s the point. 2023 has been the year of “less bad than feared,” and nothing got worse over the weekend, so stocks are rallying in relief. 4,400 still looms large over us, but the longer we hold these levels, the more likely we will continue through them. If we are going to break down, it will happen soon.
Sometimes the contrarian trade is buying high when the crowd thinks prices are too high. We are not in the clear yet, but stay up here for another day or two, and higher it is.
There are risks in buying these levels, and that’s why we are smart about it, but more often than not, high gets even higher. If stocks don’t tumble on Tuesday or Wednesday, that’s where we are headed. Something that refuses to go down will eventually go up.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday was another volatile session for the S&P 500 as early gains gave way to midday losses that were then recovered by the close. After it was all said and done, the index finished up a respectable 0.4%. Not bad for a day’s work.
Aside from the developing situation in the Middle East, economic headlines haven’t changed in a meaningful way over the last few weeks. Wednesday’s gains make this four up-sessions in a row, and the index continues bouncing back nicely from September’s oversold levels.
As is often the case, sometimes we have to look like idiots before we can be geniuses. That was definitely the case buying last week’s lows. Lucky for me, I don’t I don’t have a problem looking like an idiot. In fact, the more people disagree with me, the better I feel about my position.
As I wrote in last week’s free analysis:
I have no idea if 4,200 support will hold up next week, but it is holding right now, and that is good enough for me. I bought [last week’s] bounce and already lifted my stops up to my entry points, turning this into another low-risk trade.
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Without a doubt, ending like a genius is far better than ending like an idiot. Just ask all of the greedy bears that watched nearly 200 points of profits evaporate in front of their eyes. Nothing is wrose than watching a nice profit turn into a painful loss.
But rather than get cocky and gloat, these 3x profits are making me nervous. Everyone knows stocks move in waves, and that means after a nice bit of up, it is time to collect our worthwhile profits and get ready for the next trade.
Without a doubt, I’m selling too early, but we only make money when we sell our winners, and I really like these 3x profits. It would be criminal to allow greed and hubris to make me join the bears by holding too long and watching all of my profits disappear.
The 50dma and 4,400 resistance is just above our heads, making this a good place to collect our 3x profits. If the rally wants to smash through 4,400 next week, it is easy enough to buy back in. Until then, I nothing beats the calm and clarity that comes from sitting on a pile of profits while enjoying the safety of the sidelines.
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