Monthly Archives: January 2024

Jan 31

Why I don’t mind being wrong

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 crashed 1.6% on Wednesday, ouch!

It was a perfect storm between “disappointing” earnings from GOOGL and MSFT and Powell telling investors the Fed doesn’t have plans to cut rates in March. None of these things were bad; in fact, GOOGL and MSFT earnings were actually good. Unfortunately, stocks have gotten so expensive that good is no longer good enough, and anything short of great leads to disappointment.

As I wrote Monday, I bought the 4,900 breakout, so this wave of selling wasn’t great for my position. Luckily, I bought it early Monday and had a nice profit cushion protecting my backside. As I wrote readers Monday evening:

I have no idea how long this rally will last, but given Monday afternoon’s nice gains, my stops have already been lifted to my entry points, turning this into a low-risk trade.

If this turns out to be a climax top and prices crash next week, no big deal. I pull the plug at my stops and follow the market in the other direction. But until that actually happens, I’m riding Monday’s wave higher.

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Sure, I will be the first to admit buying Monday’s breakout was a mistake. But since I entered that trade early and lifted my stops to my entry points, this mistake didn’t cost me anything. It’s like a free lottery ticket. If it works, great. If it doesn’t, no big deal, I get out near breakeven and try again next time.

If a person can’t handle being wrong, this is definitely the wrong game to be playing. For the rest of us, we come at this with a proactive trading plan that protects us when things don’t work out.

And to be honest, I don’t even like calling Monday’s buy a mistake because it was a good trade, and I’d do it again every chance I get. Sure, it didn’t work this time. But do it often enough, and several of those trades will bring in nice profits.

Coincidentally enough, this is exactly what I did at the 4,400, 4,600, and 4,800 breakouts. Batting 0.750 isn’t bad. If that’s what being wrong looks like, I’m happy to be wrong.

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Jan 29

Why I flipped last week’s short positions to long positions on Monday

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 popped 0.8% on Friday, smashing the 4,900 barrier and setting yet another record close.

It is amazing how far we’ve come since the October lows when everything seemed broken. Now, the stock market can’t do anything wrong.

As regular readers will know, I was cautious last week as we were running into resistance near 4,900. But as was the case at 4,800, 4,700, 4,600, and 4,500, 4,900 resistance turned out to be little more than a speed bump.

I put on a short position last week after it looked like the index was getting rejected by 4,900 resistance. But as I often warn readers, shorting an uptrend is one of the hardest ways to make money in the market.  That means I approached last week’s short trade with risk management first and foremost. I started small, got in early, and kept a nearby stop.

As is obvious by nw, it didn’t take long for the market to knock me out of my position for a small loss.

When a trade doesn’t work, that forces us to reevaluate our outlook. As I often write, a market that refuses to go down will eventually go up. After a couple of failed selloffs last week, it became increasingly obvious that if this market were going to fail, it would have failed by now.

Last week’s attempted waves of selling continued Monday morning as the index briefly flirted with losses in early trade. But when the selling failed to stick, that told us bears were losing their grip, and the afternoon surge above 4,900 became all but inevitable.

This isn’t the trade I was looking for last week, but as a nimble, flexible trader, I follow the market wherever it takes me, and that meant buying Monday’s 4,900 breakout.

I have no idea how long this rally will last, but given Monday afternoon’s nice gains, my stops have already been lifted to my entry points, turning this into a low-risk trade.

If this turns out to be a climax top and prices crash next week, no big deal. I pull the plug at my stops and follow the market in the other direction. But until that actually happens, I’m riding Monday’s wave higher.

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Jan 24

Could Wednesday finally be the day bears have been waiting for?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 started Wednesday’s session with nice gains and even poked its head above 4,900 for the first time in history. Unfortunately, the index couldn’t hold those gains and skidded all the way back near breakeven by the close.

As I  often write, how we finish is far more important than how we start, and by that measure, Wednesday was an ugly session. Far worse than the benign 0.1% gain suggests.

Headlines didn’t change anyone’s mind. Instead, supply dried up when many investors started realizing just how high prices were getting. Without people willing to throw new money at the market, the rally stalled and prices retreated.

Of course, this was expected, as I wrote earlier in the week:

As for what comes next, I haven’t seen anything that suggests we are breaking out of the recent consolidation. And Monday’s lethargic follow-on buying confirms that muted outlook. I’m not calling for a crash or anything like that, just that we need to keep our expectations in check and take our profits early and often. In markets like this, profits don’t last long.

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This rally is being driven by Fear Of Missing Out, and prices are going further than anyone thought possible. But no matter how impressive it looks, gravity always wins in the end.

Now, don’t get me wrong, I’m not calling this a top, and momentum can keep this rally going for weeks and even months. Just ask all of the cynics who have been shorting this rally since the lower 4,000s. But no matter how good this looks, all good things must come to an end.

I have no idea if Wednesday’s intraday reversal is the crack that finally breaks this thing. But it was ominous enough that any nimble trader needs to be paying attention. Anyone overcome by greed and predicting weeks and months of gains is going to end up disappointed. The rest of us are collecting our profits and getting ready for the next trade.

The market is acting really, really well. That’s why I’m getting nervous.

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Jan 22

Why the breakout is already struggling

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added 0.2% on Monday, notching yet another record close.

As good as that sounds, the intraday price action was fairly disappointing. The index was up over 0.5% in the first hour of trade before a wave of profit-taking knocked it off of those initial highs.

As regular readers know, it’s not how we start but how we finish that matters most. And by that standard, Monday was not a good day. Rather than trigger another short-squeeze and wave of follow-on buying, supply dried up and prices slid from those early highs.

It is way too premature to call Monday morning’s highs a top, but the lack of follow-on buying is a concern. But none of this surprised readers. As I wrote last week, even with Friday’s breakout to new highs, the market was still stuck in a sideways consolidation:

Just because the market broke out of an ultra-tight, 100-point trading range doesn’t mean the recent consolidation is over. Stocks spend 60% of their time chopping sideways, so the odds are good Friday’s breakout was nothing more than a somewhat wider continuation of the recent sideways chop.

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Well, here we are, one session later, and Friday’s breakout is already stumbling.

As I wrote last week, Friday’s breakout was expected and very tradable, but rather than get greedy and hold for more, nimble swing traders are already locking in profits and getting ready for the next trade.

We are only in this to make money, and that means selling our winners before we want to. If we don’t, the temptation to hold too long takes over and we watch all of our profits escape. Who hasn’t done this before? Just ask all of the bears that were sitting on nice short profits less than a week ago.

As for what comes next, I haven’t seen anything that suggests we are breaking out of the recent consolidation. And Monday’s lethargic follow-on buying confirms that muted outlook. I’m not calling for a crash or anything like that, just that we need to keep our expectations in check and take our profits early and often. In markets like this, profits don’t last long.

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Jan 19

Why bulls shouldn’t be getting cocky

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 smashed through 4,800 resistance on Friday, adding 1.2% and sending bears scrambling for cover.

Does this mean the 2024 consolidation is already over? Nope. As I wrote Thursday evening, this breakout was expected, and it doesn’t change anything:

This 4,700/4,800 trading range is too tight to contain for much longer, but that doesn’t mean the next directional move is coming. Instead, the first few times we break out of this range, that move will stall and reverse as the consolidation simply looks for more elbow room between its swings. Continue anticipating reversals until we have a compelling reason to do otherwise.

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Just because the market broke out of an ultra-tight, 100-point trading range doesn’t mean the recent consolidation is over. Stocks spend 60% of their time chopping sideways, so the odds are good Friday’s breakout was nothing more than a somewhat wider continuation of the recent sideways chop.

Friday’s breakout was definitely buyable because it was going to trigger a short squeeze, which is why I bought it, but savvy traders are already planning their exit, not pressing their luck. The odds are very good we are not done with 4,700 support yet, and we will be retesting that level over the next few weeks.

Just as has been the case since early December, anyone holding too long will watch their nice profits evaporate during the next swing. Don’t be that guy. Remember, we only make money when we sell our winners, and it won’t be long before savvy traders are collecting these 4,800 breakout profits.

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