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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.
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slipped 0.2% on this first Monday back from the Thanksgiving-affected week.
Not much is going on in the financial press, and a little give-back following last week’s modest 1% gains is not a surprise. Big money was not involved last week, and institutional investors often undo what the little guys did when they were on vacation.
The first few sessions after a major holiday are usually slow, and I’m not expecting anything interesting before the second half of the week…at the earliest.
That said, it is constructive to see the index hold the majority of recent gains. If this market skating were on thin ice, Monday’s selling would have accelerated, not stalled after a fairly inconsequential loss.
At this point, most owners are comfortable holding for higher prices, and the resulting tight supply is keeping a floor under the market. The longer we go without retreating, the more real these prices become. (But as always, we can’t take anything for granted, and the next wave of fearful selling is never more than one bad headline away.)
The market is behaving well near 4,600 resistance, and acting like it wants to test this level before doing anything else.
Calm markets are bullish, and the path of least resistance remains higher, but I’m not excited to hold all of the risk underneath us for another 20-40 points of upside. That means I will keep watching this develop from the sidelines after collecting big profits before the Thanksgiving break. But if this strength persists and we are setting up for another pop through in overhead resistance, I will be happy to jump back in. But we’re not there yet.
Smashing through 4,600 resistance or getting rejected by this level, it doesn’t matter what the market does next as long as it does something. We will learn a lot about the market’s mood in the second half of this week.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Tuesday’s session up a tenth of a percent as it continues to digest the huge rebound from the October lows.
Stocks fall quickly from overbought and unsustainable levels. While holding gains for two sessions is not conclusive, it demonstrates there is some support for these prices. And the longer we stay here, the more real they become.
That said, as good as the market looks, I’m not one to look a gift horse in the mouth. The market gave me huge profits over the last three weeks, and I won’t allow myself to get greedy by asking for even more. As I wrote Wednesday evening, I locked in some really nice profits:
I’m not calling this a top and the index’s momentum could easily push us higher for a few more days, but common sense tells us the rewards above our heads are far smaller than the risks underneath us.
This has been a great trade, but all good things come to an end. We only make money when we sell our best trades, and this is the time to be collecting some very well-earned profits.
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Next week is Thanksgiving, and most big money managers will be on vacation, so we shouldn’t expect a lot of buying. The junior associates manning the desks don’t have the authority to initiate new positions, so it should be a quiet week.
That said, without big money’s guiding hand, that does give emotional retail traders more influence. Lucky for us, these impulsive traders have small accounts and can’t drive the market very far, but they can inject some volatility if they get whipped up into a frenzy.
Limited upside and elevated risks for increased volatility mean this is a great time to watch from the sidelines. Spend next week with friends and family, not obsessing over whether ten points up or down is the start of the next big move. There will be plenty of trading opportunities in the final weeks of the year. Enjoy our recent run of good luck and take some time off.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 added another 0.2% Wednesday, making this 11th winning session out of the last 13.
Not bad, considering sentiment was in the toilet three weeks ago after the index fell into correction territory (-10%). Yet, here we are, a handful of sessions later, within 2% of 52-week highs. Funny how that works.
Luckily, loyal readers were well-positioned for this whipsaw. As I wrote in my free analysis three weeks ago when this 400-point rebound was only one day old:
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.
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I will be the first to admit I didn’t see a 400-point rebound coming, but we must be standing in the right place at the right time before we can get lucky. And that’s exactly what happened. I didn’t know how far and fast this rebound would run, but I knew a bounce was coming, and I grabbed hold.
But 400 points later, it is hard to be excited by the diminishing rewards left ahead of us versus the growing risks looming underneath us. Everyone knows stocks move in waves, and just as obvious as it was that a bounce was coming our way three weeks ago, it is equally obvious that this rate of gains cannot keep going.
Now, to be clear, I’m not calling this a top and the index’s momentum could easily push us higher for a few more days, but common sense tells us the rewards above our heads are far smaller than the risks underneath us.
This has been a great trade, but all good things come to an end. We only make money when we sell our best trades, and this is the time to be collecting some very well-earned profits.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 popped 1.9% Tuesday after the monthly inflation report continued moderating and is now at levels that make future Fed rate hikes unlikely.
As has been the case over the last twelve months, this continues to be a less-bad-than-feared market. Whether it is uncontrollable inflation or Fed rate hikes strangling the economy, reality has turned out far less bad than doom-sayers have been claiming.
The stock market still faces plenty of economic risks and uncertainty, but at this point, the bulls have been far more right about our economic trajectory than the bears.
Lucky for readers, we were positioned well for Tuesday’s latest run-up in prices. As I wrote Monday evening:
Last Friday’s rebound was buyable, and we could add more Monday with stops already lifted up near Monday’s lows. I don’t see a big pile of near-term upside ahead of us, but when we can enter a trade in a low-risk way, we don’t need a lot of profit potential to make it a trade worth making.
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Without a doubt, I underestimated the big wave of buying that would wash over us less than 24 hours later, but it definitely pays well to be caught on the right side of this trade.
But now that stocks are 400 points above recent lows and within 2% of 52-week highs, this is the time to be getting defensive, not greedy. We’ve been right in a huge way, but that only matters if we are willing to lock in worthwhile profits when we have them.
We don’t need to totally abandon a trade that’s working this well, but we need to be spending far more time thinking about protecting these profits. That means lifting stops and even considering locking in some profits proactively.
Remember, no one can consistently pick tops, so don’t try. That leaves us with two choices: selling too early or holding too long. I prefer selling too early because cash is the best place to be when the next trading opportunity comes knocking. Anyone who holds too long risks giving everything away. Just ask all of the bears that were boasting about their profits two weeks ago. Bears that collected profits early are sitting pretty, while bears that held too long watched a great trade turn into a painful loss.
Stocks move in waves, and as good as this rebound looks, that’s exactly what makes me nervous. We don’t need to sell everything, but lift trailing stops to protect the majority of our profits and consider locking in some partial profits proactively. It is amazing how much easier it is to ride the next wave when we have a pile of profits in our pockets and a lot less exposure to the next wave of selling.
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If you find these posts useful, help me out by liking and sharing them!
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What’s a good trade worth to you?
How about avoiding a loss?
For as little as $1.28/day, receive actionable analysis and a trading plan every day during market hours
Follow Jani on Twitter @crackedmarket
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