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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 CMU
Free After-Hours Analysis:
The S&P 500 surged 290 points since Monday’s close and is now sitting at the highest levels in a month. And to think, five days ago the crowd was predicting another big crash. So much for conventional wisdom.
In percentage terms, the index is up 6.9% since Monday’s close. Catch this wave in a 3x ETF and now we’re talking about real money! Not bad for a week’s worth of “work”.
Now, I wish I could say I knew the market was going to bottom Monday afternoon and rally sharply the rest of the week. Unfortunately, I’m not psychic and was along for the ride like everyone else.
But while I couldn’t predict the exact when and where this rebound was going to happen, I knew the odds of a sharp bounce were good. This is a volatile market and that means oversized moves in BOTH directions.
First, the market loves symmetry, meaning big drops are followed by big bounces.
Second, headlines are dreadful, but they haven’t been getting worse. The correction since the January highs priced in a lot of bad news. Owners that fear these headlines have been given plenty of time to bail out of the market and have been selling to far more confident dip buyers.
And third, as I’ve written before, the market hates uncertainty more than bad news. While nothing is getting better, we can finally quantify what we’re dealing with. Ukraine is horrific, but it isn’t turning into WWIII. The spike in oil prices stabilized in the low $100s. And the Fed is only planning to push interest rates up near 3%.
While none of this qualifies as good news, it wasn’t as bad as some people feared and stocks have rebounded in a “less bad than feared” trade.
Given the above, I knew the market was poised for a big bounce, what I didn’t know was when. And that’s why I started buying bounces the week before. When I don’t know which bounce will turn out to be the real bounce, the only way to make sure I don’t miss it is to buy all of the bounces.
But rather than do this in a reckless, pick a spot and wager everything on it sort of way, I start small, get in early, and keep a nearby stop. When a bounce fizzles and retreats, no big deal, I get out and wait for the next bounce. And when that one fizzles, I get out and try again.
Two weeks ago people thought I was crazy buying these bounces. But markets don’t bottom until most people have given up. That simply means I need to be more persistent than the average trader.
Some of my early buys turned a small profit. Others broke even. And a few lost a few bucks. Throw all of those trades together and it was largely a wash. But more important than the profit or loss on those small trades is I was ensuring I would be standing in the right place at the right time when the real bounce finally came along.
I’m more than happy to lose a few dozen points on a 1/3 position when the potential upside is 300 points on a full position. This is the kind of risk/reward traders dream of! All it takes is the vision and courage to buy when everyone else thinks we’re foolish. Four days later and who’s the real fool?
At this point, there is nothing to do but lift our stops up near 4,400 and see where this goes. (You bought the bounce on Tuesday, right?)
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 undercut 4,200 support Monday afternoon and just when things looked their worst, the index exploded 240 points higher over the next three sessions and is now resting above 4,400 resistance. Funny how that works.
While a lot of people were caught off guard by this “unexpected” strength, it doesn’t surprise savvy traders that have been doing this for a while. As I’ve been explaining to readers since this correction started back in January, this is a volatile market and that means oversized moves in BOTH directions! Oversold turns into overbought in the blink of an eye and if you hesitate, even for a moment, you miss a fantastic trade.
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While cynics criticized my testing the waters last week with small buys and nearby stops that kept dumping me out near my entry points, this week shows why smart traders stick to their trading plan no matter what other people say.
I wish I could tell people there is still time to buy this bounce, but unfortunately, that ship sailed and only fools are chasing prices at these levels. Smart money buys bounces off of support, they don’t chase big moves near resistance.
Maybe the index continues up to 4,600, and as someone fully invested in 3x ETFs, I’d love to see that. Unfortunately, this remains a volatile market and that means oversized moves in BOTH directions. (I cannot repeat that often enough!) Adding new money up here is way too risky for my blood. Luckily, I loaded up Tuesday and am already sitting on a pile of profits.
The window for offense closed and this is time to shift to defense. My stops are spread between 4,300 and 4,350. If the index retreats to these levels Friday, no big deal, I collect my profits and get ready to buy the next bounce. But if the rebound continues higher, even better, I move my stops up to 4,400 and let those sweet profits come to me.
Fortune favors the bold and that means buying bounces when everyone else questions your sanity. In reality, the biggest fools were the ones waiting until stocks fell to 6-month lows before finally abandoning ship. (I bailed out back on January 5th, in case you missed that post.)
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 exploded 2.2% higher Wednesday after the Fed hiked interest rates for the first time since 2018 and laid out plans for another SIX hikes later this year…ouch!
That’s a bitter pill for investors addicted to cheap money, but the market was actually relieved the Fed’s plans weren’t even more aggressive and longer-term projections show rates topping out in a moderate 3% range.
Wednesday’s big gains add to Tuesday’s decisive rebound off of 4,200 support and that 4.4% two-day total is the biggest win in nearly two years. (Catch a ride on a 4.4% wave in a 3x ETF and now we’re talking about real money!)
So much for Monday’s bearish close under 4,200 support. But that’s the way this usually goes. Stocks only bounce after most people have given up. And unfortunately for all of Monday’s late sellers, not only do they have the humiliation of abandoning stocks at the lowest prices in over six months, they get to watch this rebound race higher without them. That’s the definition of adding insult to injury.
While I was equally discouraged by last week’s pathetic price-action and had low expectations Tuesday morning, I bought the bounce anyway because that’s what my trading plan told me to do. (Start small, get in early, keep a nearby stop, and only add to a position that’s working.)
Well, as is often the case, my gut was wrong while my trading plan was right. That’s a lesson I learned the hard way a long, long time ago and this single idea made more money for me than every other trick, tool, and strategy combined.
Come up with a simple, sensible trading plan and stick to it. Successful trading doesn’t need to be any more complicated than that.
As for what comes next, I’m fully invested and my trailing stops are above my entry points, meaning no matter what happens next, this is pretty much a free trade for me.
If prices continue higher, great, I let those profits pile up. If the selloff resumes and the index retreat under 4,200, I get out at my stops, collect some small profits, and get ready to try again next time.
If I’m right, I make a ton of money. If I’m wrong, I make a little bit of money. I love trades like this! But these opportunities only come to people willing to act early and decisively.
So to answer my opening question, is this the real bounce? Maybe. Maybe not. But no matter what happens next, this is a great trade for me.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 rebounded decisively Wednesday, adding 2.6% after oil prices pulled back from recent highs.
A month ago no one would have believed stocks would rally because oil was selling for $109/bbl, but that’s the world we find ourselves in.
Markets always take things too far, especially when emotion gets involved. That means it was inevitable this latest spike in energy prices was going to overdo it. And at least to this point, it appears like Tuesday’s run to $130/bbl was a bit too far and prices have since moderated from those overbought levels.
Maybe $130 was the capitulation point and things get better from here. Or maybe this is just a temporary reprieve before the next push to $140. Unfortunately, we won’t know until after it happens.
While some people try to guess the answers ahead of time, successful traders follow the market’s lead, especially when it comes to wildly emotional and unpredictable moves like these.
While $130/bbl is definitely unsustainable, that doesn’t mean prices cannot hit $140 or even $150 before falling back to a more appropriate level.
While I have opinions, I’ve been doing this long enough to know better than to trade those opinions. Instead, I follow the market’s lead and Wednesday the market was telling me to buy the bounce. Start small, get in early, keep a nearby stop, and only add to a trade that is working.
If prices continue higher Thursday, great, I will add more. If the bounce stalls and retreats, no big deal, I get out near my entry points and try again next time.
Maybe this is the real bounce. Maybe it is another false bottom on our way lower. Either way, my trading plan has me covered. Buy the bounce, sell the breakdown, and repeat as many times as necessary.
The next big bounce is coming and it will leave a lot of people behind. Luckily, I won’t be one of them. (If the selloff continues for a few more days or weeks, even better, I watch the carnage from the sidelines and swoop in and grab even bigger discounts when the next bounce finally arrives.)
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Tuesday was another turbulent session for the S&P 500 as the index swung between 50 point gains and losses. Unfortunately, bears won the day and the index closed at the lowest levels since last summer.
The price action appeared encouraging after Biden announced a ban on Russian oil imports and the index surged 120 points from the early lows. That midday resilience went against what most people were expecting and unexpected strength is typically a really good sign. But that contrarian move proved short-lived and the index quickly gave back all of those gains and then some by the close.
While this extreme volatility is unnerving a lot of traders, the market doesn’t need to be scary if we come prepared with a sound trading plan.
As I’ve been saying since the start of the year, sell the dips and buy the bounces. While that sounds blindingly obvious, most people end up doing the exact opposite and that is why so many people struggle to make money.
As I wrote yesterday, I locked in profits last week when the previous bounce hit its head on 4,400 and undercut my trailing stops. That means I’ve been looking for the next buyable bounce ever since.
Tuesday’s midday bounce looked good, really good, and so I pulled the trigger on a partial position. (Start small, get in early, keep a nearby stop, and only add to a trade that is working.) When the rebound kept going, I moved my stops up to my entry point, giving myself, in effect, a free trade. At that point, no matter what happened during the rest of the session, I was covered.
And as luck would have it, the selling resumed and I got dumped out near my entry point. Boooo!
While cynics laugh when people buy bounces that don’t work, I look at this as a free lottery ticket. If it works, I make 200 or 400 points when prices bounce back near recent highs. If the trade doesn’t work, I’m out at my entry point, losing nothing. 400 points of upside with virtually no downside? Only a fool ridicules that trade. (And lucky for us, the market is filled with fools. If it wasn’t, it wouldn’t be nearly this easy to make money.)
While Tuesday’s bounce didn’t work and I’m back in cash, I will be back at it again on Wednesday. And if that doesn’t work, there is always Thursday.
One of these bounces is going to work and I don’t want to miss it.
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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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