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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 0.4% Tuesday.
While a small loss usually isn’t something worth worrying about, these are not usual times. The lack of a meaningful bounce following Monday’s nearly 4% crash suggests the selling hasn’t capitulated yet and lower prices are still ahead of us.
I typically have a bullish bias when it comes to the market because stocks spend far more time going up than down. That means I’m always on the lookout for a bounce to buy, but Tuesday’s price action didn’t check my boxes.
As I often write, the market loves symmetry and this crash will almost certainly capitulate in a “V” bottom. Unfortunately, Tuesday’s modest slip lower doesn’t look anything like the start of a “V” bottom.
While this latest tumble was largely spurred by expectations shifting to a 0.75% Fed rate hike this week, this could very easily turn into a “sell the rumor, buy the news” event. This latest wave of selling priced in most, if not all of the widely expected rate hike, so when the news becomes official Wednesday afternoon, there might not be much selling left to do. And when a large wave of follow-on selling fails to materialize, we often see prices rally in relief that things weren’t worse.
The most likely scenario is the index reflexively crashes immediately following the Fed’s announcement of a 0.75% rate hike, but not long after, the selling capitulates and prices bounce, giving us that oh-so-beautiful “V” bottom.
And of course, another real possibility is the Fed is the one that capitulates and sticks to its previously telegraphed 0.5% move. That would also trigger a nice pop in the market. (Or counterintuitively, the market freaks out and stocks crash because investors start fearing the Fed lacks the courage to combat inflation.)
Will any of these things happen Wednesday afternoon? Only time will tell, but they are definitely scenarios we need to incorporate into our trading plan. If we can’t map out our responses ahead of time, how in the world are we going to do it in the heat of battle?
While we will likely see further selling before reaching the capitulation bottom, once that bounce takes hold, shorts need to get out of the way and everyone else needs to grab ahold because the move will be fast and hard. Maybe the rebound stalls at 4k resistance, but a 300-point rally in 3x ETF is enough to put a pile of cash in your trading account. You like cash, right?
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By Jani Ziedins | End of Day Analysis
Down 1%. Down 2.4%. Down 2.9%. Down 3.9%. In case anyone hasn’t been paying attention, it’s been a very painful several sessions for the S&P 500.
Luckily for readers of this blog, we were pulling the plug not long after this selloff first got started. As I wrote last Tuesday evening when the index closed at 4,160:
The best part about being a nimble trader is we can both stay safe and still be in a position to profit from the upside. As easy as buying back in is, there is no reason to stubbornly hold a dip. For as many times as being stubborn works, there are a dozen times it bites us in the ass. I would much rather sell and buy back in hours later than I would watch the losses pile up as I keep waiting for a bounce that never comes.
Now that the index is back above 4,150, I can spread my stops across the lower 4,100s. If we retest support again this week, there is no coming back from that and lower prices are ahead.
Little did I know that four sessions later, the S&P 500 would close at 3,750 after shedding more than 400 points along the way. But here’s the thing, I didn’t need to know how far this was going to fall in order to know it was a good idea to get out of the way. When the market violated my trailing stops above 4,100, I got out, no questions asked.
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We can pin this weakness on last week’s higher than expected inflation reading. Or bond futures predicting the Fed juicing interest rates 0.75% this week. Or maybe it’s $120/bbl oil and $5/gal gas. Or mortgage lenders quoting 6% interest rates. Or most likely, all of the above.
But as a trader, does it really matter? Stocks are falling and disciplined traders have no choice but to get out. Our trading accounts don’t care about the fundamental reasons.
And for the more aggressive trader, violating 4,100 support was the perfect invitation to throw on a short trade. Falling 10% over four sessions sounds shocking. But catch that wave in a 3x inverse ETF and now other people’s pain is our gain.
But avoiding losses and profiting from big declines takes discipline and a willingness to act. Savvy traders were pulling the plug before anyone realized something was wrong and we were putting our foot on the accelerator when the panic first started setting in. While most people are lying awake at night fearing the selloff will get worse, I’m wondering how much longer I should ride this wave before locking in my short profits. Which side of the coin would you rather be on?
As for what comes next, the selling has been brutal. But as I often write, the market loves symmetry, so the most likely outcome is a rip-your-face-off rebound from grossly oversold levels. Maybe the selloff ends in a dramatic “V” bottom after the Fed “only” raises rates by 0.5%. Or maybe we get another leg lower after they raise rates 0.75%. But either way, this is going to bounce hard and fast when it finally bounces, so be ready.
For the short trader, that means locking in profits quickly because a bounce back to 4k resistance will erase almost all of these really juicy profits. And for the nimble swing trader, buying the next bounce to 4k in a 3x ETF will put another wad of profits in our pocket.
Profiting from volatile markets isn’t hard as long as we have the confidence and discipline to trade proactively.
There is nothing positive to say about Bitcoin after this cryptocurrency plunged nearly 30% over the weekend. The best this can hope for is that it is getting so ugly it’s good. But we’re not there yet.
This cryptocurrency will bounce alongside the equity market, whenever that happens, but expect $30k to be a ceiling and any dip buyers should be locking in profits long before then. As attractive as these prices seem, it will be a long time before Bitcoin is investment-grade again.
Buy the bounce for a quick buck but nothing more.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Oof, that was an ugly week. The S&P 500 shed 5% over the last five sessions, with most of that coming during Thursday and Friday’s multi-percent bloodbaths.
The week started off well enough with the index challenging multi-month highs on Tuesday. But that turned out to be the high point of the week and it was all downhill from there. That said, the mad dash for the exits didn’t really begin until Thursday afternoon when 4,100 support failed. And as fast as things got moving, 4k didn’t stand a chance and that fell before the market even opened Friday morning.
With Friday’s close leaving us directly on top of 3,900 support, does anyone actually think this level stands a better chance of holding? I sure don’t…
As regular readers know, I’ve been a big proponent of buying and holding May’s bounce the last few weeks. And it was a great trade, with the index rallying nearly 10% from May’s intraday lows. (Catch that wave in a 3x ETF and we’re talking real money!)
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The rebound was acting well and 4,300 seemed within reach. But every seasoned trader always shows up to battle with an escape plan. No one is ever right all the time. In fact, most of us are wrong far more often than we care to admit. But if we want to succeed at this game, we always have a plan for being wrong.
For me, that safety net was my trailing stops near 4,100. I was confidently holding for higher prices but my trading plan wouldn’t allow me to get caught flatfooted under 4,100. By now, everyone knows all too well just how costly holding a little too long can get.
I locked in profits near 4,100 and when things really started falling apart, I flipped around and went short. It’s not the trade I was looking for, but it’s the trade the market gave me and I’m not one to look a gift horse in the mouth.
As for what comes next, this has been an emotional selloff and that means oversized moves…in both directions. This week’s tumble will most likely keep falling early next week, but once the selling capitulates, the bounce from oversold levels will be hard and fast.
Shorts need to be nimble and take profits quickly because the bounce will lop off a big chunk of their profits if they hold even a few hours too long. For those in cash, wait for the bounce, start small, get in early, and keep a stop under the lows. Pull the plug if the bounce fizzles and add more if it keeps working.
Monday will most likely be ugly. And Tuesday too. But a sharp bounce from oversold levels is coming, make sure your trading plan keeps you on the right side of it.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 proved again on Thursday that a lot can change in a few hours.
As I wrote Tuesday evening, everything looked great. An early 1% loss ran out of sellers and turned into an impressive 1% gain. Weak markets don’t do those things and I was content holding for the largely expected continuation to 4,300 resistance.
But hidden at the bottom of Tuesday’s overwhelmingly positive post, I had one small nugget that proved to be all too relevant on Thursday:
Now that the index is back above 4,150, I can spread my stops across the lower 4,100s. If we retest support again this week, there is no coming back from that and lower prices are ahead.
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Every good offensive plan starts with defense. If we don’t define our limits up front, we are trading without any and few things are more dangerous to our trading accounts.
As much as I liked Tuesday’s price action, I wasn’t willing to sit there unprotected. If Tuesday’s bounce was the real deal, it wouldn’t retest 4,100. Slipping back to support so soon after bouncing off of it means something is wrong. And as we found out Thursday, when things go wrong, they can go really wrong.
While everyone saw the market split wide open Thursday, most people missed the cracks that were already starting to show Wednesday afternoon. I didn’t like Wednesday’s fizzle and late retreat to 4,100 support. That convinced me to lock in some profits proactively. And Thursday morning’s stumble under 4,100 told me it was a better time to be safe than sorry.
I had no idea the market was going to shed nearly 100 points that afternoon. All I knew is the risk/reward was no longer in my favor. I liked the market and still thought 4,300 was the most likely outcome. But as easy as buying back in is, there is no reason to stick with a trade when it is flashing yellow. Because you know what? Flashing yellow turns into flashing red in the blink of an eye.
While most people were riding Thursday’s waterfall selloff lower, I was in cash and wondering if I should short the market. I was clearly wrong about 4,300, but as a nimble trader, I don’t mind being wrong. In fact, being wrong can be highly profitable if we are savvy enough to recognize it early and flip the script.
If I was wrong about 4,300 and 4,100 support, maybe I should be going the other way because if this breaks down, there is a lot of air underneath current prices. Rather than stubbornly stick to my prior position, I admitted defeat, pulled the plug, and joined the other side. No one likes being wrong, but I like making money a lot more than being right.
As for what comes next, it doesn’t look good. In fact, it looks dreadful. If the market doesn’t bounce hard at Friday’s open, get ready for more blood letting. Maybe the selling only lasts a few hours before capitulating. Or maybe we shed another 100+ points and challenge May’s lows. Either way, I don’t want to be standing in the way.
But as bad as this looks, the other thing I know is when this bounces, it is going to bounce hard. I don’t if that will happen, Friday or sometime next week, all I know is when this bounces, I’m covering my short and going long.
Either we ride this market or it rides us. You decide.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 tumbled at Tuesday’s open, easily undercutting 4,100 support. But within 10 minutes, the storm passed and it was all uphill from there. By the close, the morning’s 1% loss turned into a very respectable 1% gain.
If trading were easy, everyone would be rich. Sometimes the market needs to convince us we’re wrong moments before proving us right. It appears that’s all Tuesday’s momentary violation of 4,100 was, a little head fake before resuming May’s rebound.
The encouraging thing about the dip under support is it didn’t find many sellers. In fact, within minutes supply dried up and prices bounced. While I’d love to see the index charge higher every single day, the market doesn’t work that way. Sometimes we need to go through a few stepbacks before we can start the next leg higher.
As I wrote in Monday evening’s free post, I pulled the plug on a portion of my position Monday afternoon when early strength fizzled and the index closed at the intraday lows. While that weakness didn’t cross my stops, it was enough of a warning flag to convince me to take some risk off the table.
That caution appeared to be the right call when the index tumbled Tuesday morning. In fact, that gap jumped over some of my stops. But an opening gap is the single exception to my stop loss rule. Rather than reflexively sell the open, I give the market 15ish minutes to find its footing because more often than not, opening gaps bounce. Since I already took the biggest lump at the open, holding for a few more minutes to see if prices bounce doesn’t add a lot to my risk. If the selling continues, I get out a few points lower. If prices bounce, the early lows become my new stops and I keep holding.
As luck would have it, Tuesday’s early weakness bounced and I didn’t have to sell. And more impressively, when the index retook 4,100, I started adding back in what I sold the previous afternoon.
The market has a nasty habit of knowing exactly where our stops are and it loves violating them. But the best part about being a nimble trader is we can both stay safe and still be in a position to profit from the upside. As easy as buying back in is, there is no reason to stubbornly hold a dip. For as many times as being stubborn works, there are a dozen times it bites us in the ass. I would much rather sell and buy back in hours later than I would watch the losses pile up as I keep waiting for a bounce that never comes.
That sounds like a lot of effort for what amounted to an unnecessary trade, but protection against larger losses doesn’t come free. Just because holding worked this time doesn’t mean it will work next time. (Just ask all the people waiting for the market to bounce back above 4,500.)
Now that the index is back above 4,150, I can spread my stops across the lower 4,100s. If we retest support again this week, there is no coming back from that and lower prices are ahead. But since four tests of 4,100 support over the last five trading sessions failed to break the dam, it appears we are standing on solid ground and a continuation to 4,300 is the most likely outcome.
Keep holding for higher prices and continue lifting our trailing stops.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Monday 0.3% higher and remains above 4,100 support for the sixth session in a row.
While that sounds like a decent result, open the intraday chart and the situation looks a lot less encouraging. This is the second day in a row the index finished at the intraday lows and the fourth time that’s happened out of the last five sessions.
As I often remind readers, it’s not how we start but how we finish that matters most. While Monday finished in the green, that 0.3% close was well under the morning’s highs. The index popped 1.3% in early trade, buyers disappeared, and we finished at the intraday lows. That’s as ugly as it gets for a day that technically finishes green.
The index is still a handful of points above 4,100 support, but at this rate, a violation is all but inevitable.
I still think May’s rebound has the potential to challenge 4,300 over the next few weeks, but we need to tread carefully over the next few days. The market is far stronger than any of us and it doesn’t care what we think. If it wants to dip under 4,100 and retest 4k support, who am I to argue with it? I will gladly take profits near 4,100 and wait to buy the next bounce.
While my stops are spread under 4,100 support and they didn’t get violated by Monday’s late retreat, the weak closing price action convinced me to start peeling off some profits proactively. Buying back in is always a lot easier than praying the market bounces back to the levels I wish I sold at.
I shifted to a defensive posture and took some profits but I only peeled off a partial position. Rather than lurch all-in and all-out of the market, I like hedging my bets by moving in partial positions. If the index tumbles Tuesday, I took some profits at higher prices and have those funds safely in my pocket. On the other hand, if the index bounces back Tuesday, I’m still holding a partial position and can put the rest of my money back in. That’s a win-win in my book.
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What’s a good trade worth to you?
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Follow Jani on Twitter @crackedmarket
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