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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:
If a person only saw Tuesday’s S&P 500 closing print showing a 0.16% gain, it would be easy to assume it was just another boring, meaningless session. Oh, how wrong they would be.
Tuesday was another rollercoaster ride, with the index plunging more than 2% in early trade before a late morning rebound erased all of those losses and then some.
As I wrote last week, the bear market is transitioning from large, multi-day moves to more sideways chop. One day’s down is followed by the next day’s up. But this is pretty standard behavior as a correction matures and people adjust their expectations to our new reality.
There is still a lot of uncertainty causing this back-and-forth, but as emotion leaks out of the market, every violation of support no longer triggers waves of panicked owners selling stocks. In fact, we start getting days like Tuesday where an ugly open is met with buying, not follow-on selling.
What comes next? Well, Tuesday’s close leaves us pretty much in the middle of the 3,600(ish) to 4k(ish) trading range. That means the scales are not skewed more in one direction than another and this could easily go in either way. And in fact, that’s exactly what it’s been doing as it keeps dropping and bouncing from day to day.
As for how to trade this, Tuesday’s strong performance was a clear sign to close any shorts we might have been holding over the weekend. As easy as it is to re-short the market, there is no reason to stubbornly stick to a potion and hope it turns around and starts going our way. Instead, close, move to safety, and reassess. As the saying goes, it is better to be out of the market wishing you were in than in the market wishing you were out.
And an aggressive trader could have even bought Tuesday’s afternoon bounce. But because the market is getting choppy, factor that into your trading decisions by trading smaller and waiting for a trade to start working before adding more.
If prices retreat Wednesday, no big deal, we get out near our entry points and wait for the next trade. Maybe that’s buying the next bounce or shorting the next breakdown. But if Tuesday’s rebound keeps going, add more and see where it goes.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday was a quiet session for the S&P 500 as the index finished almost exactly where it started. That was a welcome relief following Tuesday’s massive bearish reversal.
Does Wednesday’s stability suggest the worst is already behind us? I wish the market was that easy. Unfortunately, these things are rarely one-day events and that means the ugliness will likely continue Thursday and/or Friday.
While last week’s 6.5% rebound was impressive and 4k seemed within reach, the further along we get into a selloff, the less energy these moves have.
Early in the correction, selloffs and rebounds crashed through support and resistance. But after a while, investors start getting used to our new reality and emotion starts coming out of the market. That’s when these swings start stalling and reversing before reaching key support and resistance levels.
Nearly six months into the 2022 bear market and it makes sense last week’s rebound stalled before reaching 4k resistance.
But if the rebound stalled under 4k, then that means we are already riding the next wave lower. Maybe prices slip to 3,700 and find support. Or maybe we need to retest the lows near 3,600. Either way, both of those down legs involve further declines from here.
Or maybe Tuesday really was a rare one-day event, we bounce off of 3,800 support, and finally get up to 4k resistance. While not the most likely outcome, it is still very much a possibility.
Lucky for us, we are nimble traders and don’t need to commit to anything. Buy the bounce off of 3,800 and short the breakdown under 3,800. No matter what the market does next, we will be ready for it.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Tuesday started off well enough with the S&P 500 popping nearly 50 points in early trade. But that opening bounce was as good as it got and it was all downhill from there. And when I say downhill, what I really mean is we fell off a cliff, dropping nearly 130-points from those intraday highs.
Consumer confidence is in the toilet and that was enough to bring the sellers back following last week’s impressive 6.5% bounce.
As I’ve been saying for a while, this is a volatile market and that means oversized moves in both directions. Every bit of up is inevitably followed by a bit of down. And what we got that in spades on Tuesday.
But Tuesday’s volatility shouldn’t surprise regular readers of this blog, as I wrote Monday evening:
Now that stocks are dramatically higher, a big chunk of the upside has been realized and the risks of a near-term pullback have increased. While we can stick with this bounce as long as it remains above our trailing stops, this is the time to be getting defensive and ensuring these nice profits don’t escape.
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I was hoping the rebound would take us closer to 4k resistance before running out of momentum, but the market’s never once asked what I thought, so I have no choice but to follow its lead. While I came into the day still holding last week’s nice bounce, the selling quickly forced me to lock in some really nice profits in the mid to upper 3,800s. While not as juicy as I wanted, I have no right to complain about the nice profits the market gave me. (Catching a big portion of a 6.5% pop in a 3x ETF pays really well.)
When Tuesday’s midday selling didn’t relent, that was our invitation to initiate a short position. Shorting a bull market is one of the hardest ways to make money in the market, so it’s a good thing we are not in a bull market. But that still means we need to be really careful. Shorting successfully takes impeccable timing, so don’t be afraid of taking profits early and often. Hold a little too long and those short profits will be gone.
As for what to do on Wednesday, easy, buy a bounce and short a breakdown. This is an emotional market and that means oversized moves in both directions. Grab on early and enjoy the ride.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Monday ever so slightly in the red. While a 0.3% loss isn’t trivial, it is fairly insignificant compared to last week’s staggering 6.5% gains.
While one day of support isn’t conclusive, the longer we hold last week’s gains, the more real they become. So by that measure, every hour further we get into this Tuesday and Wednesday, the better it looks.
Headlines haven’t changed in a meaningful way, but that’s kind of the point. This year’s 20% retreat from the highs priced in a whole lot of bad news. That means we are not deciding if the economy is good or bad, but if it is bad or really bad. And at least for the time being, our environment seems less bad than investors were fearing two weeks ago when stocks were testing multi-year lows.
But this isn’t a surprise. As I wrote the on the evening of June 16th, hours before last the latest big rebound kicked off:
Maybe we get a little more selling on Friday, but everyone knows markets moves in waves and after falling more than 500 points over a handful of days, the next near-term bounce is just around the corner.
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We don’t need to be psychic to know what the market is going to do because it always does the same things. In this case, emotional selloffs get carried away and go too far. And when that happens, it means an equally impressive rebound is coming up. And that’s exactly what we got.
Predicting the market is easy, the hard part, and where all of the money is made, is getting the timing right. And that’s where it pays to be a nimble trader. We don’t buy dips, we buy bounces. Start small. Get in early. Keep a nearby stop. And only add to a position that is working.
Catch part of last week’s 6.5% rebound in a 3x ETF and now we’re talking real money!
But now that stocks are dramatically higher, a big chunk of the upside has been realized and the risks of a near-term pullback have increased. While we can stick with this bounce as long as it remains above our trailing stops, this is the time to be getting defensive and ensuring these nice profits don’t escape.
If you find these posts useful, please return the favor 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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