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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 skidded -0.8% Thursday after the monthly ADP report showed robust hiring, sending us back into the “good is bad” paradox.
The thing about “good is bad” is it’s an idea embraced mainly by retail traders. If institutional investors feared strong economic numbers, the indexes would not be hovering near 52-week highs. But since this is a holiday-affected week and big money managers are on vacation, retail investors have oversized influence. That’s why we get things like Thursday morning’s reflexive 1.3% tumble at the day’s worst.
The silver lining is the index bounced decisively off those late-morning lows after running out of sellers. This is the slowest week of the already slow summer season. While that often leads to sleepy sessions, the low volumes also leave us vulnerable to elevated volatility because it doesn’t take much buying or selling to trigger oversized moves.
As dramatic as these moves feel in the heat of battle, the light volume also means these little traders run out of money quickly. And at this point, it looks like they could only keep up the selling for two hours before supply dried up and prices bounced.
Without big money’s guiding hand, anything could happen on Friday, but at this point, it looks like smaller retail traders ran out of things to sell and Friday should be better.
Following the crowd’s panicked moves is tempting, but it is often best to watch these gyrations from the sidelines, especially during these erratic holiday-affected sessions. I didn’t need to join Thursday’s selling and I didn’t need to join the afternoon buying either. Better and more reliable trades are coming our way and I’ll leave this chop to the impulsive gamblers.
At this point, I’m comfortable waiting and watching Friday’s trade unfold from the sidelines. If the selling accelerates, the best trading opportunity will be buying next week’s bounce after big money returns and undoes all the damage these impulsive retail traders did when left to their own devices.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 skidded 0.8% Friday, making this the fourth loss out of the last five sessions.
Nothing much changed in the headlines. Inflation remains higher than the Fed wants, but the economy is stubbornly resilient in the face of rising interest rates. A few months ago, investors were obsessed with the half-empty portion of the glass. Now all they see is half-full.
But with a massive amount of buying in the rearview mirror, we need to find new buyers to keep pushing prices even higher, which is getting increasingly difficult. That doesn’t mean it can’t happen, just that the odds of a near-term cooling off are growing with each passing day.
The rally paused this week, and the index remains stuck under 4,400 resistance. Get back above this key psychological level and it is full steam ahead. But until that happens, the smart move is trading this cooling off.
As I explained in Tuesday’s Free Analysis: “Why Tuesday’s step back still has room to run”
At this point, this violation of 4,400 is guilty until proven innocent. If we can’t get back above 4,400 Wednesday, position yourself for more selling. The most aggressive can keep holding their shorts with stops near [last] Friday’s close. For everyone else, keep waiting and watching for the real bounce because Tuesday afternoon probably wasn’t it.
No one knows what the future holds. The best we can do is trade what’s directly in front of us, and right now, that means trading this latest cool-down. We rallied hundreds of points over the last few weeks, and it takes more than 50 points and a few days to reset the clock.
Shorts can keep holding their shorts and those that want to buy the dip need to sit on their hands a little longer because this dip still has a ways to go before it is done.
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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 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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