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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 crashed 3.2% Monday, closing under 4k for the first time in over a year. But this isn’t a surprise, as I wrote last week:
Failing to do anything with the biggest up-day in two years is not good. Not good at all. While I’m an optimist by nature, at this point, recent intraday lows near 4,130 are all but toast. And I doubt it will get any better once we get there. 4,400 didn’t hold. Neither did 4,200. And 4,000 is going to be the next victim.
Well, here we are a few days later and now we can cross 4k off the list.
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Now that 4k is a victim of 2022’s correction, the next big bogie is 3,840. While that number seems somewhat arbitrary, it is significant because that represents a 20% correction from recent highs and would turn this correction into a full-on bear market.
Markets tend to go where the crowd is looking and if we came this far, it wouldn’t be anything to see it take those last few steps to make this official.
The good news is once this becomes a bear market, we can finally stop talking about it. And once we stop talking about it, odds are good people will stop selling it too.
The silver lining is Monday’s 3% plunge was one of the largest down days of the year. As far as capitulation goes, the selling typically accelerates moments before the bounce. So a big tumble means we are getting really close.
The problem is we won’t know what is too far until after it happens. Maybe Monday was capitulation. Or maybe we have another 4% or 5% tumble coming Tuesday or Wednesday. As I said, we won’t know until after it happens.
But lucky for us, these things are super easy to trade because the resulting moves are large and in one direction. Once this thing gets moving on Tuesday or Wednesday (either up or down), expect it to keep going.
If that’s down, get out of the way and wait to pick up the pieces. If that’s up, grab ahold, keep adding, and moving our stops up.
If we can get past our fear, riding these swings is a fast and easy way to make money.
While we are setting up for a nice bounce in the indexes, be careful with NFLX and AMZN. These stocks will bounce alongside everything else, but don’t be fooled. These growth stocks broke their sacred contract with the market and stopped growing. (How dare they!) Any bounces in these stocks are nothing more than a quick trade. It will be six or twelve months before these are investment-grade again.
While TSLA isn’t in this boat just yet, nearly 40% off the highs and it will be a while before people trust this stock again. Maybe Musk is selling as aggressively as he is because he knows something we don’t know yet.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
I often say the market loves symmetry, but holy cow, I did not expect Thursday to turn into a mirror image of Wednesday’s huge pop. But that’s exactly what we got, 3% up followed by 3.6% down.
Add those together and we ended up with a fairly tame -0.6%, but wow did the market take the long way getting there.
The market popped Wednesday when the Fed did exactly what they said they were going to do, which was raise rates by 0.5%. Nothing surprising there and Wednesday’s pop was more sentiment-driven than anything. While we didn’t get any meaningful headlines Thursday, if we poped on sentiment, we can just as easily collapse on sentiment. And that’s exactly what happened.
All of this leaves us mostly back where we started. But failing to do anything with the biggest up-day in two years is not good. Not good at all. While I’m an optimist by nature, at this point, Monday’s intraday lows are all but toast. And I doubt it will get any better once we get there. 4,400 didn’t hold. Neither did 4,200. And 4,000 is going to be the next victim.
While Thursday turned into a dreadful reversal, buying Monday’s bounce actually worked really well for me. As always, I started small, got in early, kept a nearby stop, and added to a trade that was working. Following those simple rules and I was sitting on a pile of profits Thursday morning.
While Thursday’s progressive selloff wasn’t what I had in mind, I got out at my nearby stops and watched the trainwreck from the safety of cash. Ultimately, Monday’s bounce didn’t work and I was “wrong”, but if I can make a pile of money being wrong, then I don’t mind being wrong. (And if this is what being wrong looks like, I can’t wait to be right.)
All of this said, I’m still far more interested in buying 52-week lows than shorting them simply because that’s the way the market works. The time to sell was back in January when this first started. Not now that we’ve fallen 700-points.
Remember, markets move in waves and even if this is a bear market, expect some big bounces along the way. While it didn’t happen this week, the next big bounce is coming. Chances are good it will follow next week’s test of 4,000 support.
If the indexes look bad, the FAANG stocks are appalling. AAPL is the best of the bunch because it is “only” down 14%. On the other end of the spectrum, NFLX was murdered, dropping a whopping 73% from recent highs. Of the group, FB looks the most interesting and is buyable once the index finds its footing.
Don’t touch AMZN or NFLX with a 10ft pole because few things are worse than growth stocks that stop growing. It will be a while before these stocks get their mojo back.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Monday evening I wrote the aptly titled post, “Why I’m not giving up and neither should you.” In it I said:
Everyone knows markets move in waves, yet people always forget this very simple fact in the heat of battle. Sell at the top, not at the bottom. Buy at the bottom, not at the top. While everyone understands that, so few people actually do it.
I bought last Thursday’s bounce. It looked great. But as is often the case, it didn’t work. I got dumped out near my entry points for a very inconsequential breakeven trade, and now I’m buying Monday’s late bounce. See how that works?
Will I make money Tuesday? Maybe, maybe not. But with my stops already near my entry points, I don’t have much to lose if I’m wrong and everything to gain if this finally takes off.
Well, here we are two days later and man did this thing take off. (Trade this in a 3x ETF like I do and that adds up to real money!)
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The Fed jacked up interest rates in the biggest one-day jump in two decades. How did the market respond? By rallying 3% on Wednesday. Funny how that works.
But this doesn’t surprise long-time market watchers. “Sell the rumor, buy the news” is as old as the market itself. Stocks tumbled weeks ago when Powell told us he was going to raise rates by 0.5%.
And guess what? The Fed did exactly what Powell told us he was going to do. But stocks rallied 3% anyway. That’s because as is usually the case, the market overreacts to bad news and then it pops back when reality turns out less bad than feared. In this case, the market cheered when Powell said the Fed wasn’t considering 0.75% rate increases anytime soon.
Anyway, as I wrote in Monday’s post, markets move in waves and it shouldn’t surprise anyone when a month-long skid ends in a big bounce.
While catching this bounce wasn’t easy and there were several false bottoms along the way. By starting small, getting in early, keeping a nearby stop, and only adding to a trade that’s working, I got out of my “mistakes” for breakeven.
More important than the result of those little tests is that I was making sure I was always going to be standing in the right place at the right time. While those previous bounces fizzled and dumped me out near my entry points, I knew the big pop was coming. And as it turned out, Wednesday was that day.
As for what comes next, Monday very well could be a near-term capitulation bottom and that means higher prices are still ahead. For those of us that got in early, move stops up to protect profits and keep holding to see where this goes.
For those that missed the bounce, the bounce will probably continue higher over the next few days and weeks, but buying late means taking a lot more risk. This shows why smart money is buying when everyone else thinks they are acting foolish. The real bounce doesn’t happen until after most people have given up, and that’s why savvy traders are more persistent than most people.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Everything looked promising for the S&P 500 when it retook 4,300 last Thursday afternoon. Unfortunately, that was as good as it got and it was all downhill from there. The index entered a death spiral Friday morning and the selling didn’t stop until Monday afternoon when the index hit 4,060.
While that sounds dreadful, the silver lining is the index bounced nearly 100-points in the final hours of Monday’s session and actually finished in the green.
I know I sound like a broken record, but savvy traders sell strength and buy weakness while fools do the exact opposite. The time to abandon March’s huge rebound was back in March, which is exactly what I told readers back on March 31st:
If a person has been following this blog, they were sitting on a nice pile of profits after buying March’s spectacular rebound. But rather than get complacent by our good fortune, we were getting nervous at these towering highs and played defense by snugging our trailing stops up near 4,600.
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In case anyone’s counting, that was 500-points ago. People selling last Friday and this Monday morning are waaaaay late to the party.
Savvy traders look at a market that fell 500-points see a buying opportunity, not a reason to abandon ship.
Everyone knows markets move in waves, yet people always forget this very simple fact in the heat of battle. Sell at the top, not at the bottom. Buy at the bottom, not at the top. While everyone understands that, so few people actually do it.
I bought last Thursday’s bounce. It looked great. But as is often the case, it didn’t work. I got dumped out near my entry points for a very inconsequential breakeven trade, and now I’m buying Monday’s late bounce. See how that works?
These are the kinds of trades I live for. If I’m right, I make a boatload of money. If I’m wrong, I lose little to nothing.
Maybe Monday’s late buys work, maybe they don’t. But if this isn’t the real bounce, it will come eventually because markets ALWAYS bounce. Even bear markets bounce. In fact, bear markets have the biggest and fastest bounces of them all, so bear markets are some of the best times for nimble traders to buy the bonce.
Buy weakness, sell strength, and repeat as many times as the market lets us.
Will I make money Tuesday? Maybe, maybe not. But with my stops already near my entry points, I don’t have much to lose if I’m wrong and everything to gain if this finally takes off.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The market giveth, and the market taketh away. The S&P 500’s huge rebound on Thursday was swallowed by an even larger collapse Friday.
Friday’s -3.6% implosion was the biggest single-day loss since the depths of the Covid crisis. But as bad as that sounds, if you net Thursday’s gain with Friday’s loss, we are only down -1.1% from Wednesday’s close. Not great, but not set-your-hair-on-fire bad either.
This time it wasn’t Covid, inflation, interest rates, oil, or even the war in Ukraine. Instead, it was yet another tech highflier fumbling the ball. This time, the offense was committed by AMZN, falling -14% on disappointing earnings. Combine that with NFLX and TSLA and many of the highflying pillars that propelled the market to record highs in 2021 have come crashing down.
When the biggest and most important companies let us down, it hurts everyone and last year’s unflappable half-full mood has given way to this year’s half-empty outlook. Actually, it’s more like three-quarters empty at this point.
But as dramatic as these whipsaws have been, they have been amazingly easy to trade and avoid.
The hardest whipsaws to trade are the ones that happen when the market is closed. Those are the ones that jump our stops and leave us with a smoking pile of wreckage the next morning. But this market hasn’t been doing that to us. Instead, the majority of these huge swings happened during market hours, meaning nimble traders had plenty of opportunities to get in and out before the serious damage happened.
Anyone that’s been reading this blog knows I like buying bounces. Sometimes they work amazingly well, like March’s hugely profitable 10% surge over a couple of weeks. (Ride that wave in a 3x ETF and now we’re talking real money!)
But April has been far more stingy. Lucky for me, the bounces have been large enough that after jumping aboard early, I’ve been able to quickly move my stops up to my entry points, giving myself a free trade. When the bounce collapses the next day, I get out at my entry points for a breakeven trade, no harm no foul. Which is exactly what I did Friday morning.
Without a doubt, I would rather be making money. But when my “bad” trades don’t lose money, it is hard to complain too loudly about that.
Making money in the market is easy (everyone has good trades), the hard part is keeping it (giving back all of those profits in the next bad trade). But as long as we follow a sensible trading plan, we make big bucks when the wind is at our backs and we sidestep the losses when it isn’t blowing our way.
We don’t need to know what the market will do next if we are nimble enough to follow its lead. That means starting small, getting in early, keeping a nearby stop, and only adding to a trade that is working. Follow those simple rules and making money (and keeping it) gets a lot easier.
As for what comes next, markets rarely kiss the lows and bounce. Instead, they tend to crash through them, scare the hell out of everyone, and then bounce. While fear is really high following Friday’s collapse under 4,200 support, it will probably get even worse before the next bounce.
4,200 failed and 2022’s intraday lows near 4,100 are up next. Maybe after tagging that level, we will finally run out of fearful sellers and bounce.
Even if this is a bear market, buying bounces is still a very profitable strategy. The biggest and most powerful bounces happen in bear markets, so I’m definitely not giving up on buying bounces. As bad as April was, odds are good May will give us another tradable 30% rally in a 3x ETF. I sure wouldn’t want to miss that huge trade because I got discouraged and gave up too early.
Remember, savvy traders sell highs and buy lows. And right now we are a lot closer to the lows that the highs, meaning the next good trade is going to be a buy.
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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