End of Day Analysis Archives - Page 3 of 56

Nov 16

Why smart money is skipping next week

Free After-Hours Analysis:

The S&P 500 finished Tuesday’s session up a tenth of a percent as it continues to digest the huge rebound from the October lows.

Stocks fall quickly from overbought and unsustainable levels. While holding gains for two sessions is not conclusive, it demonstrates there is some support for these prices. And the longer we stay here, the more real they become.

That said, as good as the market looks, I’m not one to look a gift horse in the mouth. The market gave me huge profits over the last three weeks, and I won’t allow myself to get greedy by asking for even more. As I wrote Wednesday evening, I locked in some really nice profits:

I’m not calling this a top and the index’s momentum could easily push us higher for a few more days, but common sense tells us the rewards above our heads are far smaller than the risks underneath us.

This has been a great trade, but all good things come to an end. We only make money when we sell our best trades, and this is the time to be collecting some very well-earned profits.

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Next week is Thanksgiving, and most big money managers will be on vacation, so we shouldn’t expect a lot of buying. The junior associates manning the desks don’t have the authority to initiate new positions, so it should be a quiet week.

That said, without big money’s guiding hand, that does give emotional retail traders more influence. Lucky for us, these impulsive traders have small accounts and can’t drive the market very far, but they can inject some volatility if they get whipped up into a frenzy.

Limited upside and elevated risks for increased volatility mean this is a great time to watch from the sidelines. Spend next week with friends and family, not obsessing over whether ten points up or down is the start of the next big move. There will be plenty of trading opportunities in the final weeks of the year. Enjoy our recent run of good luck and take some time off.

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Nov 15

All good things must come to an end

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 added another 0.2% Wednesday, making this 11th winning session out of the last 13.

Not bad, considering sentiment was in the toilet three weeks ago after the index fell into correction territory (-10%). Yet, here we are, a handful of sessions later, within 2% of 52-week highs. Funny how that works.

Luckily, loyal readers were well-positioned for this whipsaw. As I wrote in my free analysis three weeks ago when this 400-point rebound was only one day old:

I have no idea if Monday’s bounce will stick, but it was a good start, and that’s all I needed to put on a partial position. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.

If the index retreats on Tuesday, I will pull the plug for a small loss and try again next time. If the rebound keeps going, I will add more and lift my initial stops to near my entry points, greatly reducing my risk.

As I frequently remind readers, buying bounces is hard because two-thirds of them fail. But if we limit our losses on the false starts by entering with partial positions and keeping stops nearby, riding a winner higher with a full position will more than offset any previous losses.

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I will be the first to admit I didn’t see a 400-point rebound coming, but we must be standing in the right place at the right time before we can get lucky. And that’s exactly what happened. I didn’t know how far and fast this rebound would run, but I knew a bounce was coming, and I grabbed hold.

But 400 points later, it is hard to be excited by the diminishing rewards left ahead of us versus the growing risks looming underneath us. Everyone knows stocks move in waves, and just as obvious as it was that a bounce was coming our way three weeks ago, it is equally obvious that this rate of gains cannot keep going.

Now, to be clear, I’m not calling this a top and the index’s momentum could easily push us higher for a few more days, but common sense tells us the rewards above our heads are far smaller than the risks underneath us.

This has been a great trade, but all good things come to an end. We only make money when we sell our best trades, and this is the time to be collecting some very well-earned profits.

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Nov 14

Too much of a good thing makes me nervous

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 popped 1.9% Tuesday after the monthly inflation report continued moderating and is now at levels that make future Fed rate hikes unlikely.

As has been the case over the last twelve months, this continues to be a less-bad-than-feared market. Whether it is uncontrollable inflation or Fed rate hikes strangling the economy, reality has turned out far less bad than doom-sayers have been claiming.

The stock market still faces plenty of economic risks and uncertainty, but at this point, the bulls have been far more right about our economic trajectory than the bears.

Lucky for readers, we were positioned well for Tuesday’s latest run-up in prices. As I wrote Monday evening:

Last Friday’s rebound was buyable, and we could add more Monday with stops already lifted up near Monday’s lows. I don’t see a big pile of near-term upside ahead of us, but when we can enter a trade in a low-risk way, we don’t need a lot of profit potential to make it a trade worth making.

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Without a doubt, I underestimated the big wave of buying that would wash over us less than 24 hours later, but it definitely pays well to be caught on the right side of this trade.

But now that stocks are 400 points above recent lows and within 2% of 52-week highs, this is the time to be getting defensive, not greedy. We’ve been right in a huge way, but that only matters if we are willing to lock in worthwhile profits when we have them.

We don’t need to totally abandon a trade that’s working this well, but we need to be spending far more time thinking about protecting these profits. That means lifting stops and even considering locking in some profits proactively.

Remember, no one can consistently pick tops, so don’t try. That leaves us with two choices: selling too early or holding too long. I prefer selling too early because cash is the best place to be when the next trading opportunity comes knocking. Anyone who holds too long risks giving everything away. Just ask all of the bears that were boasting about their profits two weeks ago. Bears that collected profits early are sitting pretty, while bears that held too long watched a great trade turn into a painful loss.

Stocks move in waves, and as good as this rebound looks, that’s exactly what makes me nervous. We don’t need to sell everything, but lift trailing stops to protect the majority of our profits and consider locking in some partial profits proactively. It is amazing how much easier it is to ride the next wave when we have a pile of profits in our pockets and a lot less exposure to the next wave of selling.

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Nov 13

Don’t fight a trade that’s working

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Monday’s session down a modest 0.1%. More importantly, the index held on to 4,400 after breaking through this key resistance level last Friday.

Economic headlines haven’t changed in a meaningful way in months. Bears are just as bearish as they were last week, last month, and last year. The difference is we ran out of fearful sellers two weeks ago, and stocks popped decisively after supply dried up.

While 5% in one week is a tremendous amount, at this point, the market keeps acting like it wants to go even higher. No one should expect another 5% run over a few sessions, but given Thursday’s and Monday’s failed selloffs, the market is telling us the path of least resistance remains higher.

As I wrote early last week:

Hold near 4,400 resistance for a few more days, and these levels will feel less risky. That’s when some of those left behind last week will find the courage to start buying.

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Holding recent gains was the first step to breaking through 4,400 resistance, and that’s exactly how it played out over the last two sessions.

Of course, the easy gains are behind us, and there will be a lot more back-and-forth going forward, but only fools are fighting this market right now.

Last Friday’s rebound was buyable, and we could add more Monday with stops already lifted up near Monday’s lows. I don’t see a big pile of near-term upside ahead of us, but when we can enter a trade in a low-risk way, we don’t need a lot of profit potential to make it a trade worth making.

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Nov 07

Why smart money is already collecting profits

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Tuesday up a respectable 0.4% as the widely expected pullback from last week’s unsustainable rebound failed to materialize.

Traders have a natural fear of heights, and that causes buying to dry up after big runs like we saw last week. But demand is only half of the equation. At this point, owners are feeling confident and few are interested in selling this big rebound, keeping supply tight and propping up prices.

This inevitable tapering of buying was obvious and is why I was collecting profits late last week. As I wrote last Thursday evening:

To be clear, I’m not calling this a top, but with a big pile of profits in hand, it would be criminal to allow hubris to turn these profits into losses. Remember, we only make money when we sell our best trades. Nearly 200 points in a 3x ETF is good enough for me. At this point, the rewards ahead of us are far smaller than the risks underneath us.

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Hold near 4,400 resistance for a few more days, and these levels will feel less risky. That’s when some of those left behind last week will find the courage to start buying. Until then, prices will likely remain stalled under 4,400 resistance. (Unless the market starts putting the screws to the bears again, and they are forced to cover again at rapidly rising prices, but this is a less likely outcome.)

I like the market here, but the upside is not big enough to justify the risks underneath us. Give it a few more days, and the risk/reward starts to shift in the other direction. But until then, this is a better time to be more cautious than aggressive.

I collected profits, and I have zero regrets, even if Tuesday’s close is a few points above where I sold. Holding a big move too long risks giving it all back, and it would be criminal to allow greed to let last week’s profits escape.

Momentum definitely favors higher prices over the near to medium term, but the incremental rewards of holding for a few more days are nowhere near big enough to justify the risks.

We only make money when we sell our best trades, and for me, that was peeling off very worthwhile profits late last week. Another trade is coming, but I’m comfortable watching the consolidation of last week’s gains from the sidelines.

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Nov 02

I don’t mind being called a fool when it leads to profits like this

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 popped another 1.9% Thursday, making this four up-days in a row.

The Fed did exactly what everyone expected on Wednesday, meaning the Fed’s decision didn’t change anyone’s mind. Those that were bearish on Tuesday were still bearish on Thursday. What changed is the market ran out of impulsive sellers last Friday. The resulting oversold condition triggered this capitulation and 200-point rebound over four short trading sessions.

Easy come, easy go, as my dad loved to remind me when I was young.

There are two ways to trade: starting like a fool and ending like a genius, or starting like a genius and ending like a fool.

Without a doubt, I looked foolish last week when I told readers I was getting ready to buy last week’s blood bath as soon as it bounced. Here’s what I wrote in last Wednesday’s free post (Oct 25th):

Remember, stocks top when everything looks great, and they bottom when everything looks terrible. By that measure, this is definitely a good time to be bottom-fishing. To be clear, I am 100% opposed to buying on the way down. But every time we bounce, you will find me jumping in. Start small, get in early, keep a nearby stop, and only add to a position that’s working. Follow those simple rules, and bottom-fishing is extremely profitable.

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There were a lot of greedy bears gleefully criticizing my optimism last week. And without a doubt, they were right initially. But here we are a few days later, and the market has turned all of their profits into big piles of losses.

Luckily, I have no problem playing the fool in front of the crowd if it lets me rack up a pile of 3x ETF profits like this a handful of sessions later.

Of course, I’m not going to let myself fall into the same trap greedy bears were caught by. I am fully cognizant that markets move in waves, and one week’s genius becomes the next week’s fool. Thursday’s nearly 2% up day was the biggest gain of this rebound, and these things usually accelerate right before the end.

To be clear, I’m not calling this a top, but with a big pile of profits in hand, it would be criminal to allow hubris to turn these profits into losses. Remember, we only make money when we sell our best trades. And at this point, nearly 200 points in a 3x ETF is good enough for me. At this point, the rewards ahead of us are far smaller than the risks underneath us.

But now that I’m out of the market and sitting on a huge pile of profits, the very first thing I do is start looking for that next opportunity to get back in. Maybe that is buying the next dip and bounce. Maybe it is buying a huge short squeeze that powers through the 50dma. No matter what it is, I will be ready for it.

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Nov 01

Why this is the wrong time to be patting myself on the back

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 popped another 1% Wednesday, making this three up days in a row.

While this still has a long way to go before getting back even half of the previous eight sessions of losses, three days of gains is a good start.

Lucky for me, this is the trade I was waiting for. As I wrote Tuesday evening:

I still have no idea how long this rebound will stick around, but now that prices are comfortably above my entry points, I lifted my stops to my purchase prices, making this nearly a risk-free trade. If the index retreats on Wednesday, I get out near breakeven. If the rebound continues, I will let those profits keep rolling in. These low-risk/high-reward trades are what I dream of.

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The Fed gave us another interest rate decision Wednesday afternoon, and as expected, they kept rates unchanged. More interesting is how little the market reacted to the news. Investors have correctly anticipated every Fed rate move this year, but that hasn’t stopped traders from overreacting to every announcement. So, it was actually refreshing to see the market maintain its composure this time. A calm market is a bullish market.

As for my 3x ETF trade that bought this bounce, this is passing the tipping point between offense and defense. While it is tempting to pat myself on the back for spotting a good trade, these gains actually make me nervous. That’s because I know markets move in waves, and all good things come to an end.

The index broke through 4,200 support/resistance and now rests just under the 200dma. It wouldn’t surprise me to see this rebound run into some headwinds. That would be the normal and healthy thing to do, and I’m comfortable holding a measured and methodical rebound. Less sustainable is triggering a powerful short squeeze, and that is what would cause me to punch out and collect profits over the next few sessions.

But no matter what happens, I’m already making a plan to collect my profits. In my book, selling too early always beats holding too long. Remember, we are only in this to make money, and we only make money when we sell our favorite trades.

Keep holding, but lift stops to guarantee some of these profits, and wait to see what Thursday brings.

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Oct 31

Why smart money is buying this bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 rallied another 0.6% Tuesday, extending this week’s rebound.

Nothing meaningful changed in the headlines to justify this bounce, but after a certain amount of selling, we always run out of sellers. This time, it took eight days to exhaust the supply of near-term sellers.

As I wrote last week, and again on Monday, this is the bounce I was waiting for:

I have no idea if Monday’s bounce will stick, but it was a good start, and that’s all I needed to put on a partial position. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.

If the index retreats on Tuesday, I will pull the plug for a small loss and try again next time. If the rebound keeps going, I will add more and lift my initial stops to near my entry points, greatly reducing my risk.

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I still have no idea how long this rebound will stick around, but now that prices are comfortably above my entry points, I lifted my stops to my purchase prices, making this nearly a risk-free trade. If the index retreats on Wednesday, I get out near breakeven. If the rebound continues, I will let those profits keep rolling in. These low-risk/high-reward trades are what I dream of.

The odds are still good this bounce will fail because two bounces fail for every one that works, but if this rallies just a little further, expect bears to start scrambling for covers as they get squeezed.

Maybe this week’s bounce is nothing more than a false bottom on our way lower, but as a nimble swing trader, I’m okay with that. I plan on collecting profits long before the next down wave hits.

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Oct 30

Another obvious bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 bounced 1.2% Monday.

We didn’t get a meaningful improvement in headlines over the weekend, but after eight of the previous nine trading sessions ended in the red, a green day was inevitable.

As everyone knows, stocks don’t move in straight lines. After a bit of down, it was finally time for a bit of up. It doesn’t matter why. Running out of sellers is just one of those things that happens naturally. And Monday was that day.

Last week, I said I was looking for a bounce, and Monday’s price action definitely qualifies:

Remember, stocks top when everything looks great, and they bottom when everything looks terrible. By that measure, this is definitely a good time to be bottom-fishing. To be clear, I am 100% opposed to buying on the way down. But every time we bounce, you will find me jumping in. Start small, get in early, keep a nearby stop, and only add to a position that’s working. Follow those simple rules, and bottom-fishing is extremely profitable.

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I have no idea if Monday’s bounce will stick, but it was a good start, and that’s all I needed to put on a partial position. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.

If the index retreats on Tuesday, I will pull the plug for a small loss and try again next time. If the rebound keeps going, I will add more and lift my initial stops to near my entry points, greatly reducing my risk.

As I frequently remind readers, buying bounces is hard because two-thirds of them fail. But if we limit our losses on the false starts by entering with partial positions and keeping stops nearby, riding a winner higher with a full position will more than offset any previous losses.

I have no idea if Monday’s bounce is the real deal, but it gave me a low-risk entry, and I took it. If this one doesn’t work, no big deal, I take a small loss and try again next time. But if the index bounces a little further on Tuesday, I will lift my stops near my entry points, turning this into a nearly free trade. It is hard to complain about that.

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Oct 25

I made a mistake this week, but you better believe I’m willing to do it again

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

This week’s bounce is already toast as the tech sector melted down on Wednesday, dragging the index under 4,200 support. Rising Treasury yields and political gridlock in D.C. dominate financial headlines, but it was GOOGL’s poor results that became one straw too many, and the index shed another 1.4%.

As I wrote Tuesday, I was a buyer of Monday’s early rebound. While getting dumped out at my stops wasn’t the outcome I wanted, it was the one I expected. As I’ve written many times before, two bounces fail for every one that succeeds. That means the odds of Monday’s bounce failing were high.

No doubt there are traders out there who think they have to win every single time, but anyone who’s been doing this for a while knows this is a game of numbers. Approach this with a trading plan that limits our losses and maximizes our gains, it will always work out for us in the end.

In this instance, I was clearly wrong, but since I bout the bounce early, started with a partial position, and kept a nearby stop, the cost of being wrong was trivial compared to the potential profits from locking in a 100-point move in a full 3x position.

As my critics will be happy to point out, I was wrong this week, but you know what? I will happily do it again next week and the week after. It didn’t work this week, but it will work one of these weeks, and that’s when the profits will come rolling in.

Remember, stocks top when everything looks great, and they bottom when everything looks terrible. By that measure, this is definitely a good time to be bottom-fishing. To be clear, I am 100% opposed to buying on the way down. But every time we bounce, you will find me jumping in. Start small, get in early, keep a nearby stop, and only add to a position that’s working. Follow those simple rules, and bottom-fishing is extremely profitable.

I took a small loss this week, but you better believe I will be buying the next time stocks bounce. Maybe that’s Thursday or Friday. Or maybe it won’t happen until next week, or the week after. But one of these bounces is going to work, and that will make it all worthwhile.

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Oct 24

The obvious, yet counterintuitive trade smart money is making

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished 0.7% in the green on Tuesday as the index continued Monday morning’s rebound off of 4,200 support.

As obvious as this sounds, either 4,200 support holds, or it doesn’t. But sometimes, it is worth stating the obvious because a binary condition like this sets up a really nice trade. Buy the bounce early with a nearby stop and see what happens.

If prices rally back up to the 50dma, we rake in a pile of cash in a 3x ETF. If the selling resumes, we get dumped out near our entry points for a small loss. Big rewards and small risks, what’s not to like about this trade?

Of course, my critics will complain that I’m bringing this up after the bounce. But if they read Monday’s post, I was saying the same thing hours after this opportunity landed in our lap:

I liked Monday’s early bounce, and I bought it. But as a new position, I started small and kept a nearby stop under Monday’s lows. If the rebound continues on Tuesday, I add more. If the selling resumes, I get out and wait for the next bounce.

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I have no idea if this trade will work, but I will never turn down a low-risk/high-reward trade. And so far, it looks promising. Squeeze the bears on Wednesday or Thursday, and I will already be looking to cash in some of these 3x ETF profits.

Remember, some of the best buying opportunities happen in down markets when the bounces come hard and fast. Look at all the profits savvy bounce buyers collected a few weeks ago when the index rallied nearly 200 points from the October lows.

And if I get dumped out near my entry points on Wednesday, it’s no big deal. I wait for the next bounce and then try again.

As my dad always told me when I was a teenager, “You snooze, you lose.”

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Oct 23

Why even bears should expect a near-term bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Monday’s session 0.2% in the red.

Unfortunately, the 0.6% midday gains didn’t stick into the close, but the modest loss was still comfortably above the opening lows that undercut 4,200 support.

This was one of those half-full/half-empty days that gave both sides something to crow about. Bulls saw a nice test of 4,200 support that held. Bears saw a skid into the close that keeps 4,200 support under pressure.

Which side will win? There are tons of opinions, but only time will tell.

I really liked the midday bounce because the violation of 4,200 support failed to trigger wider waves of defensive selling. We broke support, and most owners shrugged and kept holding. That tells us there is not much supply under current prices. If there were, it would have shown up as waves of selling early Monday morning.

On the other side of the argument, it takes a lot more than a lack of selling to prop up a struggling market.

I’m an optimist by nature because stocks spend far more time going up than down. In addition, everyone knows stocks move in waves, so it makes sense that after a bit of down, it is time to expect a bit of up. In fact, the biggest and fastest gains occur during bear markets.

Taken together, both of these things mean the odds of some near-term relief are actually working in our favor. In fact, even bears should be expecting a modest bounce near 4,200 support.

Of course, I’m not a buy-and-close-my-eyes kind of guy. I liked Monday’s early bounce, and I bought it. But as a new position, I started small and kept a nearby stop under Monday’s lows. If the rebound continues on Tuesday, I add more. If the selling resumes, I get out and wait for the next bounce.

As the saying goes, stocks climb a wall of worry, and by that measure, there are plenty of things to worry about. That’s good for stocks because things almost always turn out less bad than feared. Investors should fear the things no one is talking about, not the stuff that has been on the front pages for weeks, if not months.

I’m a buyer as long as 4,200 holds, but violate support, and I’m out of here.

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Oct 19

The obvious mistake the cynics keep making

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 lost 0.9% Thursday after the index slipped under 4,300 support for the first time in nearly two weeks.

Powell said rates are not too high and the Fed could continue raising rates if economic activity is too strong to allow inflation to continue cooling.

This week’s selling is another attempt at the “good is bad” trade. Somehow, people think a strong economy is bad for stocks because it means the Fed will keep hiking rates. But here’s the thing: stock prices are primarily based on corporate profits, not 10-year yields. And when it comes to corporate profits, a robust economy matters far more than 5% interest rates. In fact, one interpretation of the recent increase in Treasury yields is the bond market expects the economy to be strong next year. Does that sound like a good reason to dump stocks?

Regardless, I trade the market, not my opinion. That means I got dumped out of my long trade early Wednesday when the market slipped under my trailing stops near last week’s lows.

Sure, this wasn’t the trade I was looking for, but the market rarely gives us what we want, so I had to make do with what I got. This week, that meant getting dumped out of a partial position for a small loss after buying Monday’s bounce that didn’t work.

But this isn’t a surprise. Bounces fail twice as often as they work. While that doesn’t sound like good odds, if we lose money on partial positions with nearby stops and we make money on full positions with further away price targets, the math works very nicely in our favor.

Monday’s partial trade didn’t work, and now I’m left watching prices fall from the safety of the sidelines.

As I alluded to above, I don’t believe in the “good is bad” trade, and I will keep buying bounces as long as this stubbornly robust economy keeps defying the skeptics. Maybe the market gives me a very tradable bounce on Friday. Maybe the bounce won’t arrive until next week. Either way, I know it’s been forever since the “good is bad” trade worked, and the odds are good this instance will blow up in the cynics’ faces, too.

Until further notice, I’m looking at these dips as buying opportunities, not an excuse to run and hide. The sky is not falling.

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Oct 17

Why the “good is bad” trade is so stupid

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Tuesday’s session unchanged, but that flat result hides some important psychology hiding in the intraday price action.

The index slipped Tuesday morning after retail sales smashed expectations and the “good is bad” crowd hit the panic button. But as I’ve written many times before, the “good is bad” trade is as dumb as it gets. It hasn’t worked for a long time, yet that doesn’t stop people from rushing to sell every time we get a piece of good economic news.

Stock prices are ultimately based on corporate profits. Interest rates and everything else are just noise. As long as corporate profits are strong, stocks will be strong—end of story. Forget all this, “But that means the Fed will keep raising interest rate nonsense.” Strong earnings = strong stock prices Q.E.D.

And no surprise, it didn’t take long before more sophisticated buyers jumped in and bought Tuesday morning’s discounts. There are plenty of reasons for stocks to fall, but stronger-than-expected retail sales are not one of them.

Of course, I shouldn’t complain too loudly because it would be much harder to make money without all of these dumb traders giving it away. Their loss is my gain.

At this point, I don’t see anything that concerns me about this market. Last week’s selling gave bears a golden opportunity to take control and send prices much lower. Instead, prices bounced in their face. That’s a sign of strength, not weakness.

Until we fall under recent lows, this market deserves the benefit of the doubt. Keep holding and lifting stops if/when we get through 4,400. Let those 3x ETF profits come to us.

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Oct 16

Why the contrarian trade could be betting on the rebound

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Monday’s session with nice 1% gains after none of the market’s big worries got worse over the weekend.

I was looking for the index to make a move this week, either continuing last week’s bounce or resuming the September selloff. It only took a few minutes on Monday for the price action to tell us investors are still in a buying mood.

I locked in some very nice 3x ETF profits early last week and spent the weekend in the safety of cash because I wasn’t sure what the market wanted to do next. Following Monday’s positive open, I started buying this early strength because that’s what my trading plan told me to do.

I treated this like a new position and stepped into the market with a partial position and a nearby stop. That way if Monday’s early strength proved to be a false bottom, I could get out with minimal damage.

When the index kept acting well through the afternoon, I added more. While not a zero-risk trade yet, trading in partial positions with nearby stops manages my exposure and is a low-risk way to trade.

Nothing really changed since Friday, but that’s the point. 2023 has been the year of “less bad than feared,” and nothing got worse over the weekend, so stocks are rallying in relief. 4,400 still looms large over us, but the longer we hold these levels, the more likely we will continue through them. If we are going to break down, it will happen soon.

Sometimes the contrarian trade is buying high when the crowd thinks prices are too high. We are not in the clear yet, but stay up here for another day or two, and higher it is.

There are risks in buying these levels, and that’s why we are smart about it, but more often than not, high gets even higher. If stocks don’t tumble on Tuesday or Wednesday, that’s where we are headed. Something that refuses to go down will eventually go up.

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Oct 11

Why bulls should be collecting profits

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday was another volatile session for the S&P 500 as early gains gave way to midday losses that were then recovered by the close. After it was all said and done, the index finished up a respectable 0.4%. Not bad for a day’s work.

Aside from the developing situation in the Middle East, economic headlines haven’t changed in a meaningful way over the last few weeks. Wednesday’s gains make this four up-sessions in a row, and the index continues bouncing back nicely from September’s oversold levels.

As is often the case, sometimes we have to look like idiots before we can be geniuses. That was definitely the case buying last week’s lows. Lucky for me, I don’t I don’t have a problem looking like an idiot. In fact, the more people disagree with me, the better I feel about my position.

As I wrote in last week’s free analysis:

I have no idea if 4,200 support will hold up next week, but it is holding right now, and that is good enough for me. I bought [last week’s] bounce and already lifted my stops up to my entry points, turning this into another low-risk trade.

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Without a doubt, ending like a genius is far better than ending like an idiot. Just ask all of the greedy bears that watched nearly 200 points of profits evaporate in front of their eyes. Nothing is wrose than watching a nice profit turn into a painful loss.

But rather than get cocky and gloat, these 3x profits are making me nervous. Everyone knows stocks move in waves, and that means after a nice bit of up, it is time to collect our worthwhile profits and get ready for the next trade.

Without a doubt, I’m selling too early, but we only make money when we sell our winners, and I really like these 3x profits. It would be criminal to allow greed and hubris to make me join the bears by holding too long and watching all of my profits disappear.

The 50dma and 4,400 resistance is just above our heads, making this a good place to collect our 3x profits. If the rally wants to smash through 4,400 next week, it is easy enough to buy back in. Until then, I nothing beats the calm and clarity that comes from sitting on a pile of profits while enjoying the safety of the sidelines.

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Oct 09

Why the stock market doesn’t care about war in the Middle East

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

War broke out in the Middle East over the weekend, and no surprise, the S&P 500 opened Monday’s session in the red.

While fighting between Israel and Hamas doesn’t have a direct impact on U.S. corporate profits, the tension sent oil prices higher, adding a tax on nearly all economic activity. But by midday, equity traders breathed a sigh of relief when oil prices only rose a few percent, allowing stocks to rebound and finish Monday’s session nicely in the green.

As bad as everything looked last week, this weekend’s headlines made them look even worse. But paradoxically, stocks bounced hard over the last two trading sessions. Luckily, this doesn’t surprise readers of this blog. As I wrote Friday evening:

[N]o matter how bad the market felt these last few weeks, these waves of selling presented savvy traders with low-risk entry points. While no one can say if the bottom is in yet, we do know the market always overdoes things, which means at some point, this wave of reflexive selling will go too far, and then it will bounce hard.

I have no idea if 4,200 support will hold…but it is holding right now, and that is good enough for me. I bought [Firday’s] bounce and already lifted my stops up to my entry points, turning this into another low-risk trade.

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As it turns out, even war in the Middle East couldn’t stop last week’s rebound from oversold levels.

If this market wants to go down, there are more than enough reasons. The fact prices are up decisively, not down, tells us September’s selloff is running out of gas and this bounce has legs.

No matter what we think, we trade the market, not our opinions. Stocks are bouncing hard, and only fools are standing in the way. All of us who were savvy enough to buy last week’s bounce should be moving our stops well above our entry points, turning this into a low-risk/high-reward trade.

This is the point where smart money is moving from offense to defense. Another strong session on Tuesday, and it will be time to start locking in some very nice 3x ETF profits.

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Oct 06

Why smart money keeps buying these bounces

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 tumbled Friday morning after the monthly employment report came in unexpectedly strong. As has been the pattern for a while, the “good is bad” crowd hit the panic button because this increases the odds of another Fed rate hike.

The dumb thing about the “good is bad” trading philosophy is stock prices are based on corporate profits, not the Federal Funds Rate. Strong employment means people have lots of paychecks to throw around, boosting corporate profits. I don’t see how this is a negative for stock prices. And neither do most investors; that’s why those opening losses were quickly erased, and the index finished Friday up a very respectable 1.2%. There are lots of reasons for stocks to fall, but strong employment is most definitely not one of them.

As for trading opportunities, no matter how bad the market felt these last few weeks, these waves of selling presented savvy traders with low-risk entry points. While no one can say if the bottom is in yet, we do know the market always overdoes things, which means at some point, this wave of reflexive selling will go too far, and then it will bounce hard.

I have no idea if 4,200 support will hold up next week, but it is holding right now, and that is good enough for me. I bought this week’s bounce and already lifted my stops up to my entry points, turning this into another low-risk trade.

Maybe I get dumped out again next week, like my previous trades, but buying these bounces early and quickly lifting my stops meant every time I got dumped out, it was a breakeven trade. Being wrong and not losing money isn’t a bad way to trade. But it only comes from having the courage to buy these bounces early and the discipline to move my stops up once the bounce starts working.

I have no idea if Friday’s bounce will stick next week, but by getting in early, this is another low-risk/high-reward trade. If it works, I make a pile of money. If it doesn’t, I get out near my entry point and try again next time.

One of these bounces will stick. There is no reason it can’t be this one.

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Oct 04

Why smart money was buying Wednesday’s bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 bounced 0.8% on Wednesday.

Headlines haven’t changed in a meaningful way, and this rebound is nothing more than the market running out of herd-sellers and dip-buyers jumping on those discounts. Lucky for readers, this bounce is precisely what I wrote about in Tuesday evening’s free post:

The S&P 500 is quickly approaching 4,200 support and the 200 dma. No matter what the future holds, we should expect at least a modest bounce at these widely followed technical levels. Maybe we violate these levels a few days later, but over the next day or two, the odds are good prices will bounce, making this the wrong place to be aggressively pressing shorts.

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While Wednesday’s gains were not enough to offset Tuesday’s painful losses, not falling is a good first step.

I have no idea if Wednesday’s bounce is the real deal or if it is another false bottom on our way lower. But since this bounce was fairly obvious, savvy money jumped aboard it early and took advantage of the quick profit cushion it gave us.

With a fair bit of room between Wednesday’s close and our entry points, it is time to move our stops up to our entry points, turning this into a low-risk trade. If the rebound continues on Thursday, we allow those profits to come to us. If the selling resumes, we get out nearly our entry points, no harm, no foul.

Only a fool would turn his nose up at a free trade. Even if this isn’t the bottom, this is still a fantastic risk/reward and I will make this trade one thousand times over. Hopefully, you didn’t miss this great opportunity.

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Oct 03

Why bears should be taking profits and what to expect next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Tuesday’s session sharply lower as the bond market’s outlook dims.

This isn’t the trade I’ve been waiting for. Luckily, my trading plan is keeping me on the right side of the market. As I wrote Monday evening:

I am not a bear by any stretch of the imagination, but if this market is going to bounce, it needs to happen soon. I will buy back in if prices bounce on Tuesday, but I need to see constructive price action first. Until then, I’m sitting on my hands and watching this from the safety of the sidelines. (Aggressive traders can short another breakdown.)

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As readers know, I tried buying a couple of bounces over the last few weeks, and with hindsight being 20/20, obviously, those trades didn’t work as expected. Fortunately, those failed trades didn’t cost me any money because I bought the bounces early and was able to quickly move my stops up to my entry points. As I’ve written countless times, low-risk/high-reward trades are always worth trying, even when they don’t pay off.

I suppose I could have been bearish and profited more from this decline, but optimists amass far more money than pessimists because the market spends significantly more time going up than going down. If I’m going to error, it will always be buying the bounce because those work far more often than betting on a bigger breakdown that only occurs once every couple of years. As much as bears are boasting right now, they’ve been wrong all year. When it comes to trading, I’d much rather be right for 11 months instead of just one.

All of that said, stocks are only down 8% from their 52-week highs, so this still qualifies as a pretty vanilla step-back and something that happens once every year or two. Of course, the alternative interpretation is stocks have “only” fallen 8%, meaning there is a lot more downside if we are truly falling into a bear market.

Are we close to the bottom, or not even halfway? That’s the million-dollar question. But as nimble and savvy traders, it doesn’t matter. We get out of the way when prices fall, and we buy back in when prices bounce. In fact, the lower prices go now, the more money we make riding the next wave higher, so bring on more selling!

The S&P 500 is quickly approaching 4,200 support and the 200 dma. No matter what the future holds, we should expect at least a modest bounce at these widely followed technical levels. Maybe we violate these levels a few days later, but over the next day or two, the odds are good prices will bounce, making this the wrong place to be aggressively pressing shorts.

Wait for the bounce, then follow the market’s lead. Either the bounce will stick, or it won’t. Savvy traders will be basing their next trade on what happens after 4,200.

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