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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 popped Wednesday, making this the seventh up day out of the last nine trading sessions. Not bad for a market that was written off for dead two weeks ago.
Headlines remain mostly the same, but that’s the point. The economic situation is not deteriorating and we avoided the worst-case scenario, meaning a big portion of January’s panic selling was an overreaction. But that’s the way this usually goes.
Overly pessimistic markets set up to rally on “less bad than feared” and that’s been the story of the last two weeks. As I wrote back then, markets love symmetry and that means the biggest selloffs have the biggest bounces. And what do you know, the index is up nearly 10% from the January lows. Funny how that works.
Buy this bounce in a 3x ETF and now we are talking about real money. Not bad for two weeks of “work”.
But that was then and this is now. 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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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Tuesday in the green for the sixth time out of the last eight trading sessions and these gains leave us 7% above the intraday lows set barely two weeks ago.
Not bad for a bull market that was supposed to be dead. But this revival was always expected. As I’ve written many times before, the market loves symmetry and the biggest crashes are followed by the biggest bounces.
While no one can predict the exact moment when prices will stop falling and start bouncing, it doesn’t take a Ph.D. in Finance to identify the spot on a stock chart when prices stop falling and start climbing.
Emotional markets are as nimble as freight train trades. Once they get going, they tend to keep going and going and going. When we see that first bounce, all it takes is an hour or two to confirm the bounce and give us the green light to jump aboard. Wait any longer and we risk getting left behind.
And for anyone thinking this is nothing more than a case of hindsight bias, here’s what I wrote on January 24th when the January correction bottomed:
Monday’s early 4% crash was far and away the largest losing session of this correction. And during periods like this, the critical thing to keep in mind is emotional, waterfall selloffs typically capitulate on their biggest down days.
And guess, what? This emotional, waterfall selloff capitulated on its biggest down day.
While we cannot go back in time and trade a missed opportunity, we can learn from this experience so we don’t make the same mistake again next time.
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As for where the market is going from here, this is the fourth session in a row the index tested the 200dma and 4,450 support. If this rebound was grossly overbought and vulnerable, it would have collapsed days ago. Instead, every time it challenges support, supply dries up and prices bounce.
And just as important, while volatility remains elevated, these swings are getting smaller and smaller. All of these are signs the market is coming to terms with imminent interest rate hikes and these headlines have largely been priced in. (i.e. Anyone that was afraid of these headlines already abandoned ship.)
While there are no guarantees and emotional selling can return at any moment for any reason, the first thing that needs to happen is for prices to actually start falling. Until that actually happens, this bounce is very much alive and well.
As for how to trade this, the index is buyable/holdable above 4,450. Anything under this level and it is time to get out and wait for the next bounce.
Bitcoin continues holding last week’s $40k breakout. While this is a good start, we will see a lot of crypto-related advertising thrown at the world during this weekend’s Super Bowl. But rather than propping Bitcoin up, this coming-out party could actually turn into a “sell the news” moment for Bitcoin.
The $40k breakout is holdable, but be ready with stops near $40k in case the “sell the news” crowd takes over this weekend.
Bonus: Look for a near-term bounce in FB. Start small, get in early, keep a nearby stop, and take profits quickly. As I said above, oversold moves tend to bounce hard.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Four consecutive up-days was all the S&P 500 could manage before the inevitable down-day came along and took back some of our profits.
But this was expected and only a fool was surprised by Thursday’s step back. -2.4% is definitely on the larger side, but as I wrote previously, the market loves symmetry. January’s spectacular correction was followed by a huge bounce, which ended with this oversized step-back. This is the way the market works. Always has, always will.
But as long as the amplitude of each successive swing is smaller than the one preceding it, we are moving in the right direction and the market is finding its footing.
Will stocks bounce back Friday? Or will we violate the 200dma and retest 4,400 support? Either outcome is likely and that means our trading plan needs to account for both.
Lucky for us, the plan is super easy: buy the bounce and sell the breakdown. It doesn’t need to be any more complicated than that.
This is an emotional market and that means the next move will also be oversized. And lucky for us, those are the easiest to trade because once they get going, they keep going.
As I told readers Wednesday evening, if Thursday’s opening gap bounced, hold the bounce and move our stops up to those early lows. While the mid-morning bounce looked promising, the index fizzled and retreated below the opening levels shortly after lunchtime. And that was our signal to start peeling off this week’s profits.
As easy as it is to buy back in, there is no reason to stick with a falling market. If prices bounce Friday morning, great, we get back in. If Thursday’s selling continues into Friday, no big deal, step aside and wait for the next bounce. Which could come as early as Friday afternoon.
People freak out when the market gets this volatile, but it really is easy to profit from these swings if we keep our heads and are willing to act decisively.
Start small, get in early, keep a nearby stop, and only add to a trade that is working. Follow those simple rules and we don’t have to fear volatility. In fact, with a little bit of practice, you will actually start looking forward to these profit opportunities.
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FB set all kinds of records during Thursday’s -26% implosion. But we already discussed most of this Wednesday evening and it isn’t worth repeating tonight. Instead, FB owners want to know what comes next, and unfortunately, the news isn’t good.
These things are almost never one-day events and that means there is more selling ahead of us. While the stock fell a tremendous amount and this was the highest volume session by miles, we still didn’t get a whole lot of turnover in ownership during Thursday’s session. The bulk of the losses came when the market was closed and by the time it opened, most owners were too shell-shocked to sell. That means there is still a lot of supply left in this stock.
If you want a recent example, check out PTON. That’s what it looks like when a high-growth stock stops growing and investors lose confidence. It isn’t pretty.
Now, it is premature to write off FB as dead. This is still one of the most successful and profitable companies in the world and no doubt the stock will make a comeback at some point. But it needs to get waaaay more oversold before that happens.
But for the optimists in the audience, if this stock breaks convention and actually bounces, that is a buyable opportunity with a stop under recent lows. Just don’t get your hopes up.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 added nearly 1% Wednesday, making this the fourth up day in a row. These gains left the index just shy of 4,600 and miles above last week’s panicked test of 4,200 support.
But everything changed after the close when Meta (aka FB) announced mediocre earnings. While mediocre works for banks and utility stocks, when it comes to highflyers, mediocre is a cardinal sin. And as such, the stock got murdered in after-hours trade, falling more than 20%. Yikes!
And when one of the pillars of tech goes boom, the reverberations are felt throughout the market and the S&P 500 has already given up all of Wednesday’s gains in extended trading.
The market giveth and the market taketh away.
But we knew something like this was bound to happen. If not this, it would have been something else. As I reminded readers last week near the lows, markets move in waves. It also bears remembering this same principle applies following a sharp run-up. Stocks move in waves at both the lows and the highs.
Now, I have no idea what Thursday holds for the market. Maybe FB’s after-hours crash is a severe overreaction and the selling won’t be nearly this bad Thursday during regular hours. Or maybe FB is the spark that launches the next big wave of panicked selling. At this point, either outcome is likely and our trading plan needs to be prepared for both.
Hopefully, most of my readers bought this bounce at much lower levels and are sitting on a big profit cushion. That gives us a lot of flexibility when it comes to responding to a big opening gap Thursday morning.
As for trading large opening gaps, I like to give the market 15-ish minutes to find its footing. Even if the market jumps my stops, this is the one and only exception to selling at my stops “no matter what”. Since I already took most of the hit during the overnight gap, waiting a few extra minutes doesn’t add a lot of additional risk to see if we get a quick bounce. If we bounce, great, I keep holding and move my stops to the early lows. If the selling continues, no big deal, I get out and wait for the next bounce.
But even with the index’s after-hours slump, given the size of my profit cushion from buying Monday’s bounce early, I’m not worried and will be sleeping like a baby tonight. If things get ugly Thursday, no big deal, I get out and start looking for the next trading opportunity. In fact, the bigger the selloff, the more money I make buying the bounce, so bring it on!
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Ummm yeah, in case you hadn’t heard, FB was murdered after the close. And that’s unfortunate. The stock was bouncing nicely off of $300 support this week and was very much buyable. But this 20% haircut reminds us that even good trades can fail spectacularly.
Now, even with this week’s modest profit margin, Thursday morning is going to be very, very painful for FB owners. But as I explained above, it is worth holding the stock for a few minutes after the open to see if prices bounce. Which they almost certainly will.
From there, it becomes a game of damage limitation. Don’t delude yourself into thinking there are rainbows and unicorns hiding behind these storm clouds. There will be a nice bounce over the next few hours and days. But rather than temp us into complacency, that is our opportunity to get out and limit our losses.
Without a doubt, this stock will be buyable again, but it has to go through some healing first. And I’d rather watch that from the sidelines.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Tuesday was another good session for the S&P 500 as it gained 0.7%, making this third up-day in a row.
Not bad given how much fear and uncertainty dominated the market only a handful of sessions ago. But that’s the way this usually goes. Stocks always bottom and bounce when pessimism is off the charts.
As obvious as this is after the fact, it always catches traders off guard in real-time. Humans love to draw trendlines from here to forever and are quick to assume that’s where we’re headed. But that’s not how this works … ever. Cognitively everyone understands markets move in waves, but they always forget this very basic fact in the heat of the moment.
Luckily for readers, I reminded them of this very thing last Thursday evening, hours before this big bounce started:
The thing to remember about dips is they don’t bounce until the crowd becomes convinced prices are headed lower. And right now, the AAII sentiment survey shows 52% bearishness, putting this stat at the highest levels in five years.
While we’ve hit 50% bearishness a couple of times over the last five years, each time that level turned out to be the capitulation point. Can bearishness get even higher? Sure. But is it the most likely outcome? Definitely not.
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Even a bear predicting a much bigger collapse should have been expecting a sharp, near-term bounce. That’s just how this game works.
Now that savvy bounce buyers are sitting on a pile of profits, (you are a savvy bounce buyer right?), it’s time to figure out what comes next.
Well, if the market moves in waves and we just experienced three big up-days, should we be planning on another three big up days? Of course not.
The time for buying has long since passed and now it is time to protect our profits. That doesn’t mean we need to pull the plug. But at the very least, we should be moving our trailng stops up to the lower to mid 4,400s.
Maybe January’s selloff is dead. Maybe it is only just getting started. Either way, my trading plan is ready for what comes next. I’m holding the bounce and will keep riding this wave higher if that’s the way it wants to go. But if this bounce fizzles and retreats, I’m happy to lock in my profits and wait for the next bounce.
While bulls and bears are busy arguing over where the market is headed next, I will be over here, quietly making money no matter which way it goes.
TSLA violated the $850 lows last week, triggering our stops. And hours later it bounced nicely off of $800 support.
While selling the $850 dip and buying the $800 bounce feels like an unnecessary exercise, we do what we gotta do because there was no guarantee $800 support was going to hold.
Just ask all of the people that held the momentary dip under $1,200, $1,100, $1k, and $900. Those poor owners are still waiting for their “imminent” bounce.
As an independent trader, my greatest strength is the nimbleness of my size. I would much rather get out too early than hold too long. Buying back in is easy and painless. But hoping and praying for prices to go back to the old highs? Yeah, that’s not so easy or quick.
But now that TSLA is back above $850, move our stops up and see where this goes.
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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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