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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:
Monday was another painful session for the S&P 500 with the index falling to the lowest closing level since early October.
Putin moved Russian troops into eastern Ukraine and the West responded with a small list of economic sanctions. In fact, the sanctions were so modest that stocks actually rallied on the news. (Investors cheered that Russian energy exports were excluded.)
Okay, so stocks are at the lowest levels in several months and a big chunk of the bad news is already out there. Does that make this a good time to be selling stocks “before things get worse”? Or is this a better time to be looking at these discounts as the next golden opportunity?
While it never feels this way in the heat of battle, risk is simply a function of height, meaning the lower we go, the lower the risks have actually become.
Go back a month and a half when stocks were setting record highs and everyone was “fat, dumb, and happy”. With hindsight as our guide, how risky were stocks at that point? Yeah…
Fast forward a few emotional selloffs later and how risky are stocks now that they’re down 10%? Hmmm…
At the very least, we can say stocks are 10% less risky simply because they can only fall another 90% before hitting zero.
But we know the index cannot fall to zero, so current risks are actually a lot lower than that. (If the index falls to zero, civilization has ended and money is worthless, so our portfolios don’t really matter anymore.)
If this selloff falls 15% before bottoming, that means nearly 70% of the risk has been removed from the market. Does that sound scary? No, not really.
And more than just figuring out the rapidly diminishing downside risk, are people actually worried about what’s going on in Ukraine? Are they selling stocks because they think this crisis on the other side of the world will wipe out the American economy? No, of course not. No one thinks that. Instead, they are selling for no other reason than they think other people are going to sell.
I’ve been doing this a long time and doing something simply because you think someone else is going to do something is a really bad trading strategy.
Savvy traders buy and sell based on what the market is doing, not what they think other people are going to do. And down 10% on news that really doesn’t affect US markets is a far better time to be eyeing these discounts than rushing for the exits.
I’m looking for the next bounce and you should be too. Stocks closed pretty well Monday afternoon and there is a good chance this strength will continue Tuesday. Hesitate and these buying opportunities will be gone before you know it.
Start small, get in early, keep a nearby stop, and only add to a trade that is working.
Follow those simple rules and buying bounces is a low-risk/high-reward trading strategy.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday was another choppy session for the S&P 500 with the index spending most of the day in the red before a late surge of buying pushed it above breakeven.
Stocks picked themselves up off of the intraday lows after the Fed’s meeting minutes revealed they still planned on a March rate hike. While this was consistent with previous Fed statements, some investors were relieved the minutes did not contain even more hawkish undertones.
While that explanation sounds plausible, the real truth is everyone who fears interest rate hikes has been abandoning ship since early January. And after six weeks of selling, we are running out of fearful owners that still have stocks left to sell.
At some point, everyone who wants to sell a headline will have gotten out. And all of those fearful sellers were replaced by buyers demonstrating an indifference to those same headlines when they bought despite them. And that is the magic point when those headlines stop mattering.
Six weeks is a long time and stocks have long since stopped falling on these same recycled “rate hike” headlines. That means it is safe to assume those headlines are priced-in and we no longer need to worry about more of the same. When the market doesn’t care, we don’t care.
No doubt headlines can get worse and the Fed can blindside the market with a more aggressive rate-hike schedule. But as long as the Fed sticks to their original plan, the worst of the selling is already behind us.
As for Wednesday’s price action, this was a bullish reversal. An opening gap lower failed to attract follow-on selling and prices closed the gap and finished just above breakeven. Bears had the perfect opportunity to break this rebound and they blew it.
If this market was truly overbought and vulnerable, prices would have fallen by now. A market that refuses to go down will eventually go up. That means January’s bounce is alive and well. Plan your trades accordingly.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Tuesday was a good session for the S&P 500. A 1.6% gain allowed the index to break a three-day losing streak and reclaim the 200dma and 4,450 support. While one day doesn’t establish a new trend, it was nice to see the market bounce back from the latest bout of selling.
Russia hasn’t invaded Ukraine and that situation is avoiding the worst-case scenario…so far. But the thing to keep in mind regarding this event is markets deal with bad news a lot better than uncertainty. That’s because traders can put a price on bad news and factor it into the market. Unknow outcomes are impossible to quantify and traders tend to let their imagination get the worst of them.
This phenomenon of uncertainty being worse for stocks than bad news is what allows stocks to actually rally once bullets start flying. While no one wants to see that happen, a hot war means we stop debating what could happen and instead focus on the actual impact of the conflict. And in most instances, reality turns out less bad than feared.
And more than just “less bad than feared”, the turnover in ownership leading up to a conflict also helps stabilize prices. Owners that fear these events sell during the build-up and the subsequent buyers demonstrate a willingness to hold this headline environment. Ownership churn eventually gets to the point where all of the fearful owners have gotten out and there is no one left to sell the next round of headlines. And that’s when the bad news is finally priced in.
Are we close to that point? Maybe. Maybe not. But we get closer with each passing day and stocks will bounce long before most people expect. Anyone waiting for the news to improve will be too late. That’s why smart money buys when most people are still afraid.
I took profits Thursday morning and now I’m sitting in cash, waiting for the next bounce. Maybe it happens Monday morning. If so, great, I start buying back in and will add more as the rebound progresses. But if the selloff continues, no big deal, I sit on my hands and wait for the next trading opportunity on Tuesday or Wednesday.
Well, as it turns out, the index bounced in the final hours of Monday’s session, reclaiming 4,400. That late surge of buying was our signal to test the water with a partial position. And Tuesday’s early strength told us to add more. So far so good. Keep a stop near Monday’s close and see where this goes.
If the selling resumes on Wednesday, no big deal, our early positions already have a nice profit cushion and we simply bail out near our purchase price. Small risks from being wrong and large rewards from being right? Sign me up! These are the risk/reward setups we dream of.
And if the selloff resumes, that’s okay too. We get out and try again next time. In fact, the lower we go now, the more money we make buying the next bounce, so I say bring it on. Either way, I’m ready for what comes next. Are you?
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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
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Following seven positive days out of the previous nine sessions, the S&P 500 stumbled hard on days ten and eleven. Luckily, we knew this was coming. As I wrote Wednesday evening:
Expecting this 10% rally to keep going is getting a tad greedy. Markets move in waves and it is worth remembering that at both the bottoms and the tops. It is time to shift to a defensive mindset and protect what we have. Move stops up and see where this goes, but no one should be surprised if this stalls near 4,600 resistance.
Well, here we are, 48 hours later and nearly 200 points lower.
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Some people blame this latest pullback on high inflation and looming rate hikes. Others point to the imminent Russian invasion of Ukraine.
While both of these reasons appear valid, the problem is the market rallied strongly under these same storm clouds two weeks ago. Inflation, rate hikes, and a Russian military build-up are not new. Are we supposed to believe these headlines didn’t matter for weeks and then all of a sudden traders woke up and started freaking out? I don’t think so.
In reality, the market pulled back Thursday and Friday simply because it was time. As I reminded readers two weeks ago near the lows, markets move in waves and we should be ready for a strong bounce. Well, here we are, two weeks later and 300 points higher. Rather than pat ourselves on the back for buying the bounce, smart traders were getting defensive and preparing for the step back.
Markest move in waves. Always have, always will. And now that we’ve fallen 200 points, rather than panic, it is time to start looking for the next bounce.
Buy the bounce, sell the breakdown, and repeat as many times as necessary.
I took profits Thursday morning and now I’m sitting in cash, waiting for the next bounce. Maybe it happens Monday morning. If so, great, I start buying back in and will add more as the rebound progresses. But if the selloff continues, no big deal, I sit on my hands and wait for the next trading opportunity on Tuesday or Wednesday.
Volatile markets like this are actually fairly easy to trade because once a move gets started, it keeps going. As long as we have the courage to jump aboard early, it is a fairly nice ride.
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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
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 took us on another wild ride Thursday.
Volatility kicked off when the consumer price index surged at the fastest rate in 40 years. That sent traders scrambling for cover and the index gapped 1.3% lower at the open. But as is often the case, the opening gap reversed within minutes and it wasn’t long before the index found itself back near breakeven.
Unfortunately, that early dip-buying proved fleeting and the index retested the early lows in midday trade. And when a bounce fizzles, the selling rarely stops at breakeven. By the close, the index found itself down nearly 2%. Ouch!
But this wasn’t unexpected. As I wrote Wednesday evening:
Expecting this 10% rally to keep going is getting a tad greedy. Markets move in waves and it is worth remembering that at both the bottoms and the tops.
While I still like this market and will keep holding a trade that is working, it is time to shift to a defensive mindset and protect what we have. Move stops up and see where this goes, but no one should be surprised if this stalls near 4,600 resistance and rests for a bit.
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Thursday’s price action did more than pause and rest, but that’s the way this goes sometimes.
As I wrote Wednesday evening, I can into Thursday holding the latest bounce off the 200dma and had a decent profit cushion. While I obviously wasn’t happy with the opening gap lower, I knew better than to overreact to early weakness. Instead of punching out at the open, I gave the market a few minutes to find its footing and that’s exactly what it did.
That bounce was my signal to keep holding and move my stops up near the early lows. Unfortunately, that early bounce didn’t stick and I got dumped out near 4,450. But that’s the way trading goes sometimes. I collect my profits and get ready for the next trading opportunity.
Maybe prices bounce Friday and I get back in. If that’s the case, no harm, no foul. Or maybe the selling continues Friday. If that happens, I continue sitting on my hands and wait for the next bounce.
At this point, I don’t really care what happens next. The only thing that matters is that I’m standing in the right place at the right time when the next move takes hold.
While bulls and bears argue about whether this market is going a lot higher or a lot lower, I will continue playing both sides of the fence. IMO, there is too much money to be made riding these waves to get hung up on labels and who is right and who is wrong.
Bring on the volatility.
For the first time in a while, Bitcoin is actually outperforming the equity indexes. The breakout above $40k resistance was a buy signal for anyone that missed last month’s bounce off of the lows.
While Bitcoin is trading well for the moment, I am wary of a near-term sell-the-news event following this weekend’s Super Bowl.
There is no reason to sell prematurely based on something that could happen. Instead, we move our stops up and trade what is happening. And for the moment, Bitcoin is trading well.
Just don’t get complacent if we see weakness next week.
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