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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:
Surprise, surprise, the S&P 500 recovered from Wednesday’s massive intraday reversal. Okay, no one was really surprised because Thursday’s 1.4% bounce was the market’s third rebound attempt this week.
“If at first, you don’t succeed; try, try again.”
You definitely have to give bulls credit for not giving up. The level of selling since Thanksgiving has been staggering, yet here we stand, only 3% from record highs. Talk about a can-do attitude!
As I often write, trends are far more likely to continue than reverse. That’s because a bull market bounces countless times but dies only once.
Maybe this bull market is dying, but smart money is sticking with the higher probability trade. Bears have been wrong all year, so what are the odds they’re right this time? Yeah, not very good.
The smartest way to trade this volatility is continuing to give the benefit of the doubt to the bull market while protecting our backside with a sensible stop-loss; ie, buy the bounce but keep a stop under recent lows.
Monday’s bounce didn’t work and neither did Thursday’s early rebound, but you know what, more often than not, the third time’s the charm.
It is hard to buy a third bounce after the first two unceremoniously dumped us out. But the harder it is to buy a bounce, the more likely it is to succeed. (contrarian trading)
I bought the bounce early because if I’m wrong, no big deal, I sell at my stops and wait to buy the fourth bounce.
Remember, getting in early is critical because 1) it greatly reduces our risk by giving us a healthy profit cushion, and 2) by the time the bounce is obvious, most of the discounts will be long gone.
FB’s recent price action looks downright dreadful. But is this finally getting so bad it’s good?
The stock is setting up for a nice bounce off of $310 support. Above this level, the stock is buyable. Under this key level and we get out. It really doesn’t get any simpler than that.
Okay, maybe it gets a little more complicated if the stock dips under $310 for a bit before bouncing back above this key level. In that case, we get out under $310 and buy back in above $310.
(Violating support before bouncing is an even more bullish trading signal than simply bouncing off of support because it shows selling capitulation and that bears have lost control of this trade.)
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday started off well enough for the S&P 500 as prices popped more than 1% at the open. And a wave of follow-on dip-buying pushed the index even higher through the morning. By lunchtime, it looked like this was just another example of alternating up and down days.
But the afternoon session had other plans and hit the rebound with a sledgehammer, knocking it down more than 3% from the intraday highs, turning this into the largest bearish intraday reversal we’ve seen in a while.
Was the market spooked by the first confirmed American Omicron case? Or was it an echo of Powell’s Tuesday comments about winding down the Fed’s bond-buying program? Or maybe traders finally started looking down and realized just how high we are above the October lows?
Most likely it was a cocktail of all of these plus a few others that sent a shiver of second thoughts through the market.
No matter the source, the price action was dreadful; a nice bounce turning into a big loss. And not only that, we undercut Tuesday’s lows and closed at the bottom of the intraday range. Who knows how much further this would have gone if the closing bell didn’t stop the bleeding.
But these things are obvious to everyone that watched the day unfold. What readers really want to know is how to trade this.
Hindsight being 20/20, we know buying the bounce this morning was a mistake, but for anyone that bought the bounce, it actually wasn’t a bad trade. Get in not long after the open and the morning rally gave dip buyers a nice profit cushion. And when midday selling started, retreating under the opening levels was a clear signal to get out.
Buying near 4,610 and selling near 4,610 isn’t a bad trade. If this was the real bounce, the upside potential of returning to the highs would have been 90ish points. Ten-ish points of risk for a shot at a 90 point reward? I’ll take that risk/reward every day.
As it turned out, buying the bounce didn’t work and savvy traders move back to cash long before the day’s real selling started.
While insecure critics love to taunt people for making “wrong” trades, buying the bounce this morning was actually a savvy play. While it didn’t work out this time, there is always next time.
Maybe the selling continues Thursday. Or maybe this was the capitulation bottom and the next bounce is the real deal. Often the third time is the charm and it would be a shame to miss a really nice profit opportunity simply because we were too scared or stubborn to buy the next bounce.
I’m buying the next bounce and if that one doesn’t work, no big deal, I get out and try again next time.
GME tumbled under the all-important $200 support level Tuesday and the bloodbath continued Wednesday. If the Christmas shopping season can’t save this physical retailer, I don’t know what will. This is a no-touch under $200 and we could challenge $150 support before Christmas.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Fear of Omicron came roaring back Tuesday morning and Powell’s late morning comments about scaling back bond buying added fuel to the fire. By the end of the day, the S&P 500 shed 1.9% and undercut Friday’s lows.
While Monday’s bounce looked promising, often these things go through a few false starts before finally finding their footing. For anyone that tested the water buying Monday’s bounce, the clear signal to abandon ship was undercutting the morning lows near 4,620.
Any give-back stings a little, but as the saying goes, the first loss is the best loss. And that was clearly the case here with the index falling another 50 points from the sell signal before the close.
No one likes losing money, but if a person jumped aboard Monday’s bounce early and started with a partial position, the actual losses are fairly modest if they were disciplined and got out near 4,620. Given the potential reward of a bounce back to the highs, the risk-reward was definitely skewed in favor of the dip-buyer even if this particuar trade didn’t work out.
But now that savvy traders are out of the market, it is time to start looking for the next bounce. Maybe it comes Wednesday. Maybe it doesn’t happen until next week. But savvy traders know the bounce is coming and they don’t want to miss it.
We only have to look back a handful of weeks to see the last time this strategy paid huge dividends. While there were a few whipsaws near the October lows, as long as a trader stuck with it, they were rewarded with a nice, nearly 400 point rally when the move finally took hold.
While no one likes taking 10, 20, and even 40 point losses. If that’s what it takes to be in the right place at the right time to catch the next big 400 point wave, who’s really complaining about a little tail-chasing here and there?
Monday’s bounce didn’t work. And the next one probably won’t work either. But as long as we start small, get in early, keep a nearby stop, and only add to a trade that’s working, we will minimize losses while guaranteeing we’re in the right place at the right time for the next big move.
TSLA keeps making hay following November’s bounce off of $1k support. Despite all of the noise in the broad market, TSLA’s bounce is alive and well. This remains holdable above $1k no matter what Elon is Tweeting or doing with his personal shares.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 bounced back nicely Monday, reclaiming 1.3% of Friday’s headline-fueled bloodletting.
The Omicron variant continues to dominate headlines, but after a weekend of thinking about it, investors are far less fearful than they were last week.
But this isn’t a surprise. I was warning premium subscribers all last week light holiday trade often leaves us vulnerable to elevated volatility. That’s because when big money heads out on vacation, emotional retail traders take control of the market. And boy do these little guys love overreacting to everything.
But as expected, when big money’s steady hand returned, a calm came back to the market. If the original Coronavirus lockdowns and follow-up Delta variant couldn’t kill this bull market, why should we be any more afraid of Omicron? And based on Monday’s price action, the market’s answer is we shouldn’t.
Now, one day’s bounce doesn’t mean we are out of the woods. And without a doubt, the situation could take a turn for the worse, but between Friday’s tumble and Monday’s bounce, we have plenty of key levels to watch. The most basic being as long as prices remain above Friday’s intraday lows, this bounce is alive and well.
While it was fairly predictable to anticipate Monday’s bounce, that doesn’t mean holding Friday’s selloff was the right call. If the selling violated our stops, we had no choice but to get out. As the saying goes, it is better to be out of the market wishing you were in than in the market wishing you were out.
Monday’s bounce made a lot of sense, but we just as easily could have opened down -3% too. Anyone trading a leveraged ETF, that’s just too big of a risk to take. It is better to pull the plug and wait to buy the bounce even if that means missing a little in the exchange. In my book, that’s really cheap insurance and is worth it every time.
But now that everyone is back in the market following Monday’s bounce, it is time to spread our stops between Monday’s open and Friday’s lows and see where this bounce takes us.
And if we get dumped out, no big deal, we simply wait for the next bounce and try again.
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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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