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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 another -0.3% Wednesday as the index continues struggling with 4,100 resistance.
While everyone is busy arguing about the latest headlines, what’s on the front pages doesn’t impact the economy and thus, is not important to the stock market. Instead, this latest bout of selling is simply an exhale following last week’s big run to multi-month highs.
Lucky for readers, we were ready for this stalling. As I wrote Monday night:
Stocks move in waves; they always have and always will. After a nice run like that, rather than pat myself on the back for profiting from March’s reversal, I’m getting nervous that too much of a good thing can end poorly for anyone that holds too long.
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Now, to be clear, I’m not calling Tuesday’s opening highs a top, but there always comes the point where we have to decide that good enough is good enough.
Risk is a function of height, meaning these are the riskiest levels since early February. And more than that, March’s 300-point rebound consumed a whole lot of near-term upside. Less reward and higher risk equal an unfavorable time to be buying or holding stocks.
Sure, momentum is higher and that means prices can continue drifting to even higher levels, but all good things must come to an end, and the odds are working against March’s rebound at these prices.
Until proven otherwise, this is a choppy, sideways market and we are currently near the upper end of the 3,800/4,200 trading range. Common sense makes this the place to take profits and prepare for the next trade.
And guess what? If the short squeeze continues next week, there is nothing that says we cannot buy back in and enjoy that ride higher. Just because we sell doesn’t mean we have to give up. We are always in the fight, but savvy traders are not naive enough to push their luck when the risk/reward is no longer working in their favor.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 added 0.4% Monday, extending last week’s big run above 4,100.
These gains leave the index near the highest levels of the year, a far cry from the banking crisis lows from a couple of weeks ago.
It is obvious now that buying the overblown fear was the right call; luckily, readers were ready for it. As I wrote last month, just before the market bottomed and bounced:
[I]f the market bounces following next week’s inflation data, I will be one of the first to jump aboard that bandwagon. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.If the selling resumes and I get dumped out again for a small loss again, it happens. For every bounce that works, there will be two or three that don’t. But as long as my losses are on partial positions and my wins are with full positions, I will come out ahead in the end.
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Now, to be clear, I wasn’t predicting a 300-point rally from those lows over the next few weeks, but I did recognize that the rubber band had stretched pretty far in one direction and the potential for a reversal was high. And that’s exactly what we got.
But now that we are 300 points higher and the crowd is far more comfortable, I’m worried about the opposite.
Stocks move in waves; they always have and always will. After a nice run like that, rather than pat myself on the back for profiting from March’s reversal, I’m getting nervous that too much of a good thing can end poorly for anyone that holds too long.
Don’t get me wrong, I’m not calling this a top. Momentum is far more likely to continue than it is to reverse, but with 300 points of upside in our rearview mirror, this is the wrong time to be getting greedy. Savvy traders are taking worthwhile profits and getting ready for the next opportunity.
That said, the other critical thing is to resist the urge to fall for “too far too fast.” No doubt this latest wave of buying will end in a wave of selling, but we want to see that wave start before we jump aboard the short bandwagon. There are few ways to lose money faster than shorting “too far too fast.” This is one of those times when it is better to be a little late than a lot early.
It’s been a good run, but now is the time to lock in profits and prepare for the next trade. (Which could include catching the next wave higher if the short squeeze keeps going.)
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Unsurprisingly, the S&P 500’s choppy behavior continued on Wednesday as Tuesday’s midday slump reversed and turned into the highest close in nearly a month. A similar misleading signal came out of last week’s big -1.6% retreat that turned into this week’s big gain.
As I’ve been saying for a while, anyone trading in the direction of these breakouts/breakdowns is getting chewed up by the inevitable reversal a handful of hours later.
Savvy traders are coming to this market as opportunists, not bulls or bears. Buy (or short) the reversal and take profits quickly because anyone bragging about their profits is watching those turn into losses a day or two later.
As soon as you feel good about a position, that is a clear sign it is time to get out while the getting is still good.
No doubt the market can rally for another day or two after finally clearing 4k resistance, but Thursday and Friday will be the time to take profits, not chase prices higher.
Until further notice, this is a choppy market. That means taking profits when you have them because if you don’t, you will be taking losses a few days later.
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What’s a good trade worth to you?
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Tuesday down little more than a tenth of a percent as the choppy, sideway trade continues.
Not much is going on in the headlines and like a kid with ants in his pants, the market can’t stop moving. But just because we’re moving doesn’t mean we are going somewhere. Every bit of up is followed by a bit of down and we continue consolidating in between 3,800 support and 4,200 resistance.
Headlines are fairly stable and that means few people are changing their minds. Nothing has convinced bulls to sell or bears to buy, which means we are stuck bouncing around current levels. No doubt this will change at some point, but it will take a significant and unexpected headline to break this stalemate. Until that happens, expect more of the same.
Until further notice, buy the bounces, sell the breakdowns, and most importantly, take profits quickly. This is the trade the market is giving us and that’s what we are stuck with. No doubt a bigger, directional move is coming, but it will take a fundamental driver to get us there.
That said, if nothing bad happens, expect the market to drift higher over the next few weeks on less-bad-than-feared relief.
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If you find these posts useful, help me out by liking and sharing them!
Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every evening.
What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, receive actionable analysis and a trading plan every day during market hours
Follow Jani on Twitter @crackedmarket
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