Category Archives for "Free Content"

Sep 30

The worse this looks, the more I like it!

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 attempted another bounce Friday morning. Unfortunately, that late morning buying proved fleeting and the index slipped into the red by the close, setting yet another fresh 52-week low.

Friday’s loss makes it -2.9% for the week and the sixth weekly decline out of the last seven. That hurts, but it definitely feels like the selling is losing momentum near the old lows.

Monday’s close was the first fresh 52-week low since this summer. Following Monday, we set a further three 52-week lows. But as dire as four 52-week lows in a week sound, the market dropped less than half a percent on average since Monday’s close. While not good, this is far from panic territory.

There are two ways to interpret this. Either the market is finally running out of sellers after six weeks of exhaustive selling. Or this week’s reasonably stable trade was nothing more than the calm before the next storm.

If stocks were a lot higher, I would be far more worried about further selling. But after the market shed more than 700 points in seven weeks, we have a lot less to worry about because it can’t give back those 700 points again.

Sure, anything is possible and we could fall again next week, but the next bounce is a lot closer than most people think. The AAII sentiment survey is over 60% bearish and at a 12-month high, while the historical average is all the way back at 30%. If a person believes in trading against the crowd, sentiments has rarely been this skewed in the bearish direction.

As always, no matter how overdone the selling has gotten, the market can always get even more oversold. But it is getting harder and harder to scratch out those last few points to the downside and when this pops, boy is it going to pop.

At the very least, we should be lightening up our short positions because greed never pays. But more than that, this thing is a tightly compressed spring poised to rip. Wait for that bounce to start and then jump aboard.

As I often remind readers, the biggest and fastest rallies occur during bear markets. And the last time I checked, we are still in a bear market.

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Sep 29

Why I’m glad I was wrong about Wednesday’s bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 tumbled 2% Thursday, giving back all of Wednesday’s gains.

As they say, easy come, easy go. This remains a volatile market and that means oversized moves in both directions.

The nice thing about Thursday’s selling is it didn’t crash through recent lows. The bad thing about Thursday’s selling is…it didn’t crash through recent lows.

As disappointing as Thursday’s implosion felt following Wednesday’s super encouraging bounce, this still doesn’t count as real capitulatory selling because we didn’t crash through support and fall in one of the biggest losing sessions of the entire pullback.

Now, that doesn’t mean we don’t need capitulation to bounce, but it sure helps.

As for my latest trade, as I wrote Wednesday evening, I liked that bounce and bought it. While that sounds like a huge mistake given how Thursday turned out, it really wasn’t all that bad.

A big part of my trading strategy is buying bounces early and that meant jumping aboard Wednesday’s bounce not long after the open. And it’s a good thing I got in early because Thursday’s poor open was still above my initial entry points, meaning those positions hadn’t even turned red yet.

And just because I bought Wednesday’s bounce doesn’t mean I was naive to the possibility it could fail. In fact, I was fully prepared for Thursday’s retreat. As I wrote Wednesday evening:

Odds are good this bounce will fizzle and we will get to do this all over again in a few days, but since I have no way of knowing if the first, second, or third bounce attempt will turn into the real one, the only thing I can do is buy all of them. Start small, get in early, keep a nearby stop, and only add to a trade that is working and our risks are actually quite low. If this doesn’t work, no big deal, I pull the plug and try again next time, but so far so good.

Hope for the best, prepare for the worst. There is no better way to navigate markets.

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As for what comes next, well, as I alluded to above, I would love to see one last dramatic wave of capitulation selling before bouncing. That will confirm the bottom is in and set up a fantastic buying opportunity.

Barring that capitulation, the only thing we can do is simply wait for the next bounce and try again. (Start small, get in early, keep a nearby stop, and only add to a position that’s working.)

As much as it seems like Thursday’s decline was bad for me, I actually don’t mind. In fact, I revel in the opportunity to buy stocks at even lower prices. Only amateurs get discouraged and give up. Savvy traders pull the plug and get right back after it.

If we don’t bounce Friday, then look for one on Monday. And if not Monday, then Tuesday or Wednesday. As dramatic as the selling has been, the market loves symmetry and the inevitable rebound will be equally impressive.

Make sure you don’t miss out because it will be some of the easiest and fastest money you make all year.

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Sep 28

Stocks bounce after all hope is gone

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 popped 2% Wednesday, snapping a six-day losing streak.

Even in this overwhelmingly bearish environment, seven down days was a little too much and a bounce was inevitable. But this isn’t a surprise for readers of this blog. As I wrote Tuesday:

When the market doesn’t do what it is supposed to do, in this case, devolving into a panicked dash for the exits, we have to sit up and take notice. As bad as things feel near the lows, maybe we really are finally running out of fearful sellers and are on the verge of bouncing on the resulting lack of supply.

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Markets go up and markets go down, that’s what they do. After a month and a half of falling, we are due for some up. How much up is anyone’s guess and we won’t know until after it is all over, but in the meantime, Wednesday was the start of the buyable bounce we’ve been waiting for and the earlier we jump aboard these bounces, the less risky they become.

Economic data has been mostly stable even if coming on the disappointing side of what some investors were hoping for. The lack of meaningful fundamental changes means this remains a sentiment-driven trade and as quickly as sentiment sours, it can bounce back once stocks stop falling.

While Wednesday might not be the real bounce, by starting small and getting in early, we quickly build up a profit cushion to protect our backside. By Wednesday afternoon, we savvy traders were already adding more and nudging their trailing stops closer to their entry points. While not a free trade yet, it is looking pretty good.

Odds are good this bounce will fizzle and we will get to do this all over again in a few days, but since I have no way of knowing if the first, second, or third bounce attempt will turn into the real one, the only thing I can do is buy all of them.

Start small, get in early, keep a nearby stop, and only add to a trade that is working and our risks are actually quite low. If this doesn’t work, no big deal, I pull the plug and try again next time., but so far so good.

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Sep 27

Why violating the 2022 lows could be a good thing

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped another quarter percent Tuesday, making this six losing sessions in a row.

Compared to the size of losses we’ve been experiencing lately, a quarter-percent decline almost feels like an up day, especially for a session that violated the 2022 lows.

Undercutting a widely watched level typically unleashes a big wave of reactionary selling, but this time the selling stalled and prices drifted sideways through the afternoon. This was not the price action we’d expect for such a monumental day, but the market has a nasty habit of doing the least expected.

This muted selling is most likely due to the majority of fearful owners bailing out ahead of the widely expected violation of the 2022 lows. If everyone sells in anticipation of an event, there is no one left to sell when it actually happens.

When the market doesn’t do what it is supposed to do, in this case, devolving into a panicked dash for the exits, we have to sit up and take notice. As bad as things feel near the lows, maybe we really are finally running out of fearful sellers and are on the verge of bouncing on the resulting lack of supply.

As volatile as this market has been, there is no way this falls asleep and simply drifts sideways into year-end. Instead, we are standing on a tipping point. Either the selloff continues, prices bounce, or the most likely option, a little more selling before bouncing hard.

But either way, it is hard for bears to explain Tuesday’s refusal to crash through the 2022 lows. Maybe the panic selling is a few hours delayed and will show up in force Wednesday. But if it doesn’t, we have to wonder how much selling is left in this latest down wave.

I’m happy to ride my short position lower, but at the same time, I’m paranoid and ready to lock in these profits because I know when this bounces, it will happen hard and fast. Holding a few hours too long will get very expensive very quickly.

As for how to trade this, hold the short as long as the selloff keeps going, but be ready to cover and even go long the moment the market starts rallying. The next bounce is close, we just don’t know if it will arrive Wednesday,  later this week, or early next week. But it is coming.

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Sep 26

Why this market is not as risky as most people believe

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 skidded on Monday for the fifth session in a row and the eighth time out of the last ten.

Needless to say, it’s been a rough couple of weeks as the index shed nearly 500 points and is now challenging the summer lows.

Economic headlines remain mostly the same and nothing shocking or even unexpected happened over the last two weeks. Instead, sentiment simply swung from half-full to half-empty as investors looked down and developed a fear of heights. There is nothing more complicated about it than that. Owners lost their nerve and sold because they got scared.

But now that the market is retesting the 2022 lows, the most important thing to remember is that risk is actually at the lowest levels of the year. It sure doesn’t feel that way as waves of panic selling hit the market, but risk is a function of height and these are the lowest prices all year.

Undoubtedly prices can fall further, but this latest 500-point retreat can no longer hurt us because it already happened and we don’t need to be afraid of it.

We always give the edge to momentum and the trend, which is clearly lower. But at some point we are going to run out of sellers and the market is going to bounce because it always does.

We could tumble in one last dramatic violation of support before this latest round of selling capitulates. But bounce off of the lows or violate them, either way, the end will be here soon. If not Tuesday or Wednesday, then later this week or early next week.

I’m currently short the market, but I’m paranoid and standing next to the exits When this finally bounces, it will be hard and fast and I don’t want to give back all of these nice profits.

And more than just short profits, when this bounces, I want to switch direction and grab ahold of the next rally. Remember, the biggest and fastest rallies occur during bear markets. (Start small, get in early, keep a nearby stop, and only add to a trade that’s working.)

Stocks look horrible and they feel even worse, but that tells us this wave of selling is getting close to exhausting itself and the bounce is just around the corner.

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Sep 21

I was wrong and it wasn’t so bad

By Jani Ziedins | Free CMU

Free After-Hours Analysis: 

Whelp, that didn’t work. Tuesday evening I wrote a post titled, “Why I’m holding stocks ahead of the Fed’s rate-hike.” And 24 hours later, everyone knows that was the exact wrong move to make. But that’s the way trading goes sometimes.

If a person’s trading plan requires them to be right 100% of the time, they’re not going to last very long. The hard truth is successful trading means being wrong…a lot. If a person can’t handle that, they better find something else to do because trading isn’t for them.

In fact, the number one difference between successful traders and unsuccessful traders is how they handle being wrong. (Everyone has good ideas, it’s how they handle their bad ideas that drags most people down.)

Successful traders take their losses quickly and move on. Unsuccessful traders argue with the market and stick with their losers. As overly simple as this sounds, that really is all that separates good traders from everyone else.

Take my wrong trade on Wednesday. As I wrote Tuesday evening, I came into the Fed announcement holding stocks. But lucky for me, this was a new position and I always start trades with partial positions until they prove themselves. If I’m going to be wrong, it is a lot easier being wrong on a third or half position. And when I’m right, I keep adding partial positions until I’m fully invested.

And more than starting small, it is just as important to get in early. I picked up those positions Tuesday afternoon. By the time the Fed selloff started Wednesday afternoon, I was already sitting on a decent profit cushion, giving me a reasonable amount of protection. Sure, the index crashed 1% after the Fed’s announcement, but starting from +0.7% mitigates a big chunk of that sting.

And most importantly, when my trading thesis blew up moments after 2pm, I had no choice but to admit defeat and pull the plug. There was no giving it a few more minutes. If something is going to work, it is going to work. When the market took off in the wrong direction, it meant I was wrong and the only thing to do is get out and minimize the damage.

Sure, the market bounced hard an hour later, but I resisted the temptation to chase because the market wasn’t acting the way I expected, so it meant I was missing something. Rather than try to desperately salvage a bad trade, I simply let it go. And that proved to be a good decision because that bounce fizzled and there was a lot more selling left to do.

I was wrong on Wednesday. But more importantly, I lived to tell the story and I’m not going to let one trade discourage me. Like a city bus, the next trading opportunity will be along any minute.

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Sep 20

Why I’m holding stocks ahead of the Fed’s rate-hike

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped 1.1% Tuesday after it failed to hold Monday’s nice gains.

While it would have been more fun to watch stocks rally for a second day in a row, testing and bouncing off of recent lows isn’t a bad consolidation prize.

The first bounce in any attempted rebound rarely succeeds and Monday’s fizzled bounce fits that description. But encouragingly, even though the index undercut Monday’s lows on Tuesday, the selling stalled almost immediately. That tells us there isn’t a lot of extra supply sitting underneath the market. Instead, most owners seem content holding through a minor violation of recent lows. And when owners don’t reflexively sell, supply dries up and prices bounce, which is what we saw Tuesday afternoon.

Even though the index finished more than 1% in the negative, Tuesday was actually fairly constructive. As anyone that’s been doing this for a while can tell you, the first thing a downtrend needs to get turned around is to stop going down. And at least for the last couple of sessions, this market stopped going down.

No one knows for sure what the market will do Wednesday after the Fed announces the next rate hike and lays out its expectations for the next few months, but seeing prices 550 points under recent highs means a big portion of the near-term downside has already been realized.

As scary as buying feels right now, the market has been acting decently the last two sessions and these reduced prices mean the risks of buying here are equally reduced.

Now, I’ll be honest, I’m not excited to be buying this near-term stability, but that’s the way all of my best trades feel in the beginning. (It’s the easy trades that typically cause the biggest problems.)

As much as I think stocks will rally after the Fed’s statement turns out “less bad than feared”, if the waves of selling return, I’m more than happy to admit I’m wrong, pull the plug, and even go short again if the selling accelerates.

Long but standing next to the exits is the way I’m approaching Wednesday.

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Sep 19

Why smart money was buying Monday’s bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 bounced Monday, adding a respectable 0.7% and ending a two-day losing streak. That said, Monday’s gains still leave the index near multi-month lows and August’s relief rally is ancient history.

All eyes are squarely on the Fed and Wednesday’s interest rate decision. But more important than what they do this week, investors are mostly interested in hearing the Fed’s plans for future hikes. Will it be a return of the dovish commentary that kicked off the summer rally? Or will Powell stick with his assertive tone that triggered this fall swoon?

My money is on Powell standing his ground. But there is a big difference when he says these things at 4,300 and when he says the same thing at 3,900. One price incorporated a lot of optimism and left us vulnerable to disappointment. The other is bracing for a stern talking too and it won’t catch many people off guard.

If prices were still at 4,300, I would be concerned about what the Fed says on Wednesday. But 400 points lower, there is already a lot of disappointment reflected in these levels and we could actually see stocks rebound on “less bad than feared” if Powell sticks to what he said in Jackson Hole last month.

Markets are always swinging between “too low” and “too high”. The August rally obviously got a little too carried away. But now that we are closer to the summer lows than the highs, there is a lot less risk in buying these levels.

I never buy dips, but I will be the first in line when prices bounce. And Monday’s bounce off of the opening lows was a great opportunity to get in because it allowed us to manage our risks by placing a very sensible stop nearby. If the bounce keeps going Tuesday, great, we add more and move up our stops. If the selling returns, no big deal, we pull the plug on our partial position at Monday’s intraday lows and start looking for the next bounce.

While it feels foolish to buy ahead of the Fed’s next rate hike, the best trades always start this way. By the time it feels good, it will be too late.

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Sep 15

It’s gonna get worse, but more important, when it will get better

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday was another rough session for S&P 500 as the index shed an additional 1.3%.

So much for the post-Labor Day rebound. But this wasn’t a surprise for readers of this free blog. As I wrote Wednesday evening:

Bouncing 0.3% on the heels of -4.3% bloodbath is downright pathetic. Stocks rebound from oversold levels hard and fast. And since Wednesday’s bounce was neither hard nor fast, that tells us the market is not oversold yet…at this point, the wind is blowing in the other direction and momentum is clearly lower. Don’t relax because it is about to get worse.

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And as expected, the S&P 500 tested and violated 3,900 support Thursday. Unfortunately, dropping a handful of points under support doesn’t count as capitulation, meaning things need to get even worse before they can get better.

Now don’t get me wrong, I’m an optimist at heart and I’m looking for the next bounce, but we need a little more near-term pain before we break through to the other side. Maybe stocks fall hard Friday morning and that signals capitulation. Or maybe the selling doesn’t exhaust itself until Monday or later next week. But at this point, we still need to drive real fear through stock owners’ hearts before this will bottom and bounce. Until then, look out below.

Tuesday’s crash was shortable. We could continue holding the short through Wednesday’s pathetic bounce. And Thursday’s minor violation of 3,900 was only the warmup act, telling us to stick with the short trade into Friday.

What’s coming on Friday? More pain.

But the important thing to remember about short trades is they always end in a hard and fast bounce, so don’t get greedy. Just when this trade looks like it is unstoppable is when we need to pull the ripcord and lock in those short profits because holding a few hours too long will wipe out a big portion of our profits.

And when we bounce, be ready to grab that next wave higher because those first few hours will be very profitable. Maybe the bounce arrives Friday. Maybe it comes Monday or later next week. But it will be here very soon and we need to be ready to jump aboard as soon as the selling climaxes in a spectacular and obvious way.

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Sep 14

Why this is about to get a lot worse (and when it will start getting better)

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 bounced 0.34% Wednesday. While this would count as a respectable performance under most circumstances, unfortunately, these are not normal times.

Bouncing 0.3% on the heels of -4.3% bloodbath is downright pathetic. Stocks rebound from oversold levels hard and fast. And since Wednesday’s bounce was neither hard nor fast, that tells us the market is not oversold yet.

The optimist sees prices holding above 3,900 support. And without a doubt, Wednesday’s lack of follow-on selling brought some much-needed relief to warry stock owners. But Tuesday’s selling was emotionally charged and if there is one thing we know about emotional selloffs, they don’t bounce neatly off of support. Instead, they crash through support, send everyone scrambling for cover, and then bounce only after the crowd has given up hope.

Have we gotten to the point where all hope is lost? It definitely doesn’t feel like it.

Now, don’t get me wrong, I love buying the biggest down day of the entire decline because that often signals capitulation. The difference between those buyable crashes and Tuesday’s selloff is the latest tumble wasn’t plunging to fresh lows. Instead, we simply slipped back to levels from last week.

While a 4% bloodbath will get anyone’s attention, it doesn’t count as capitulatory selling until we are falling to levels no one thought was possible only a few days before. And since we were at these levels a few days ago, this doesn’t count.

No doubt Wednesday’s bounce could carry a little further on Thursday, but at this point, the wind is blowing in the other direction and momentum is clearly lower. Don’t relax because it is about to get worse. How much worse is anyone’s guess, but a terrifying violation of 3,900 support is clearly in the cards.

How much further we go under 3,900 is still up in the air and we will learn a lot more about the market’s mood when we get there. If supply dries up after violating widely followed support, then the bounce is near. If the panic selling resumes, hold on to your hats.

Of course, after this crashes through support and everyone else is panicking, that’s when we start looking for the next buyable bounce.

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Sep 13

Turning lemons into lemonade

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 crashed more than 4% Tuesday after the monthly inflation report came in higher than expected.

The panic selling wasn’t triggered because inflation continues accelerating. In fact, August’s 8.3% reading was under June’s 9.1%. The problem is the July and August stock market rebound was largely based on hopes inflation was moderating even quicker than this. And August’s stubbornly high inflation report dashed those hopes, sending stocks tumbling.

Now, before we throw the baby out with the bath water, Tuesday’s selling only pushed the index back to levels it was at several days ago. But this is one of those half-full, half-empty things. The half-full person sees an index still holding above 3,900 support. The half-empty person sees all the air underneath us if 3,900 support fails.

Will 3,900 support hold? That’s hard to say. But the thing we know for sure is emotion, and thus volatility, is off the chart. No matter what happens next, the move will be oversized. Either a hard and fast rebound from oversold levels or a spectacular crash through near-term support.

Lucky for us, we are nimble traders, so we don’t have to guess ahead of time. Instead, we wait for the market to make its next move and then we jump aboard.

While there is no way to predict a 4% crash, that doesn’t mean we can’t navigate these gyrations successfully. I am fully willing to admit I came into Tuesday’s session long. Last week’s rebound was acting well and there is no reason to abandon a trade that’s working. But lucky for me, my trading plan kept me safe. I buy bounces early and that extra margin made all the difference on Tuesday.

Tuesday’s open gap jumped my trailing stops and when the early bounce failed to stick, I had no choice but to pull the plug. And since I bought my positions last week, that still meant collecting some profits. Definitely not the profits I had in mind Monday afternoon, but on a day when everyone else is running around with their hair on fire, pulling smaller than expected profits isn’t a bad problem to have.

And it’s a good thing my trading plan pulled the plug early Tuesday because the index fell another 100 points before the session was over. This won’t rank anywhere near this year’s most profitable trades for me, but it will probably be one of my better trades because trading well doesn’t always show up in the P&L. Avoiding a loss is just as important as making money.

(I made some quick money shorting the afternoon swoon, but that was an opportunistic trade and not a strategic move.)

Now it’s time to wait and prepare for the next bounce…

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Sep 12

Stick with what’s working

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Monday nicely higher.

A midday step-back tried to unwind some of these gains, but rather than join in the selling, most owners shrugged and prices quickly bounced back near the intraday highs.

If last week’s rebound was built on a pile of sand, the lunchtime swoon was more than enough to trigger a larger wave of follow-on selling. But so far most owners are comfortable holding for higher prices, meaning there is some substance to these prices.

We’ve been waiting a while for the back half of September and now that it’s finally here, we can start taking the market’s price action more seriously. That’s because institutional money managers are back at work and getting ready for the final months of 2022.

While we shouldn’t expect a dramatic change in the market’s behavior overnight, we can put more faith in any of the signals it gives us. And so far, it seems like big money is fairly comfortable with prices at these levels since they haven’t hit the sell button yet.

Maybe this changes tomorrow or next week, but so far, things look pretty good.

Hold the bounce, lift stops, and see what happens. There isn’t much else to do here.

Hold with stops spread across the mid-4k’s. Momentum is still at our back and so far most owners are resisting the urge to sell.

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Aug 29

Are we on the verge of the next leg lower?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 was crushed last Friday and it added to those losses Monday. But on the heels of Friday’s -3.4% bloodbath, Monday’s -0.7% loss felt almost quaint. The index even managed to poke its head into the green during Monday’s session. Unfortunately, that momentary relief was short-lived and prices slipped back near the intraday lows by the close.

The bloodletting started Friday when Powell announced the Fed’s primary focus was fighting inflation and it wasn’t going to let up until the job was done. That mirrors what he’s been saying all along, but it spooked some investors that were hoping for a lighter touch and a quicker return to easy money.

Complicating issues is we are quickly closing in on the Labor Day holiday and many institutional investors are spending the final weeks of summer somewhere other than behind their desks. That means big money managers are not there to steady the market if small investors overreact to these headlines and price action. The saving grace is these small fries don’t have much money, meaning they run out of ammunition fairly quickly and these irrational swings tend to stall and reverse fairly quickly.

What’s that mean for us? Well, it would be foolish to assume the worst is already behind us. These things are rarely one or two-day events. But at the same time, if big money is MIA and not participating in the selling this week, supply could dry up fairly quickly.

A violation of 4k support seems highly likely, but at this point, that will probably signal capitulation selling and not the start of the next big leg lower.

I’m not saying we can’t fall a lot lower than 4k over the next few weeks or months, just that it won’t happen until big money returns from vacation in the second half of September. Until then, expect the elevated volatility to persist, but in a more back-and-forth sort of way.

A really nice setup would be buying a violation of 4k support that bounces back above this key level. Put your stops under support and see what happens.

As for those of us with short profits from Friday and Monday, don’t get greedy and be ready to take profits soon. If the selloff resumes in the back half of September, it will be easy enough to reshort the market. In the meantime, it would be a real shame to let those profits disappear if prices bounce in a near-term relief rally.

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Aug 22

Is this the start of the next big crash?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 tumbled Monday, extending Friday’s losses and the index now finds itself 5% under last week’s highs.

As my dad always used to remind me when I was a kid, easy come easy go. Luckily for readers of this blog, we were on high alert and ready for this pullback. As I wrote in last week’s free post, “How much higher can this go?“:

While I’m not in the business of picking tops, this is pretty darn high and at the very least, we can say the risk/reward is no longer lined up in our favor.

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Sometimes it is better to be lucky than good and I was definitely lucky when I wrote that post hours before this latest round of selling started. But just because I didn’t know exactly when the next step-back was going to start doesn’t mean we can’t be smart about our positioning when the odds are no longer stacked in our favor.

In this case, that meant taking some profits proactively last week and keeping a trailing stop nearby for the remainder of our position. And now that the market is 170 points lower, while other investors are filled with fear and dread, wondering if they should abandon ship before things get worse, I’m watching this from the sidelines with a pile of profits that I’m getting ready to throw back into the market as soon as this bounces.

Headlines remain largely the same, meaning this latest round of selling is little more than traders waking up to all of the risks they were ignoring last week. And so continues the swinging pendulum of sentiment. One week everything is great. The next week the sky is falling. Funny how that works.

Without a major headline catalyst driving this selling, I don’t expect it to go far. This is the kind of stuff that bounces before support and doesn’t crash through it.

The problem trading this gyration is we don’t know if “bouncing before support” means bounce above 4,100 or bouncing above 4k. But rather than try to guess, as smart traders, we let the market lead the way and we buy after it bounces, not before.

Odds are pretty good we will spend some time in the red Tuesday, but be on the lookout for that next bonce and be ready to jump on it. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.

And if Tuesday’s bounce doesn’t stick, no big deal, we pull the plug at our stops and try again Wednesday.

I have no doubt things can and will get worse later this fall, but we are still stuck in the final weeks of summer and that means we shouldn’t expect major moves in either direction while big money is still at their summer cottages.

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Aug 16

How much higher can this go?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished in the green for the fourth day out of the last five trading sessions. And that single red day slipped an imperceptible 0.07%, so does that really even count as a down day? Probably not…

It’s been a great run since the July lows. Just when it looked like we were on the verge of another scary leg lower, the index rebounded 600 points instead. So much for listening to popular opinions.

As I reminded readers at the July lows:

Inflation remains bad. Same with the war in Ukraine and as expected, consumer sentiment is in the toilet. But everyone already knows these things and that is why the index is down 23% YTD. Recycling the same headlines doesn’t surprise anyone and that’s why this week’s bad news hasn’t sent stocks tumbling under June’s lows. The people who fear these headlines sold months ago and that means there is no one left to sell a retelling of those same headlines.

That day the index bottomed at 3,721 and it hasn’t looked back since. And here we are, almost exactly one month later and the index just crossed 4,300.

Who could have seen this coming? We could!!! That’s because these things always happen. Stocks bottom when everything looks their worst. And it didn’t get much worse than the highest inflation in 40 years and the biggest war in Europe since WWII.

But now that everyone is feeling better, is it time to relax? No of course not!!! This is when we need to be the most paranoid.

While it didn’t feel like it, buying in July was actually safe because stocks were already heavily discounted and most of the damage had already been done. But now that the index rallied 18% from the summer doldrums, we find ourselves in the exact opposite situation. Stocks are now pretty darn expensive. That 600-point rally consumed a whole truckload of upside, meaning there isn’t a whole lot left in the tank.

And let’s not forget, we are still stuck with the highest inflation in 40 years, a war in Europe, the most aggressive Fed rate hikes in decades, and an economy that might or might not be in a recession.

The market loves to overdo it. It went too low in June and July. And without a doubt, this rebound will end by going too high. The only question is if this 200-point rally in five days is what finally pushed us over the top.

While I’m not in the business of picking tops, this is pretty darn high and at the very least, we can say the risk/reward is no longer lined up in our favor. With at most, one or two hundred points of upside left in this rebound, and as much as 400 points of risk underneath us, it is really hard to like buying this risk/reward.

I’m more than happy to keep riding this wave higher as long as the easy money continues rolling in (I’m holding and lifting my trailing stops), but I’m standing next to the exits because this won’t end well for the people that stick around too long.

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Jul 27

Are savvy traders holding the breakout or selling the resistance?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday was a great session for the S&P 500 as a 1% opening pop turned into a 2.6% surge by the close. And just as important as the headline numbers, the index closed comfortably above 4k for the first time in nearly two months. Not bad for a market people were leaving for dead a few weeks ago.

A couple of factors lead to Wednesday’s buying frenzy. First, Tuesday evening’s poor tech earnings got the party started and Powell brought the punch bowl Wednesday afternoon when he hiked interest rates a whopping 0.75%.

While neither of these developments qualifies as “good” news, stocks don’t need good news to rally in bear markets. Instead, “less bad than feared” is the name of the game. As poor as tech earnings are and the Fed continues slamming on the monetary brakes, investors are relieved things are not even worse.

While Wednesday was a great session to be holding a 3x leveraged ETF, at this point, that is water under the bridge and what readers really want to know is what’s coming Thursday and Friday.

The market hit its head on 4k resistance last week and retreated back to 3,900, but the fact we returned to 4k resistance so quickly tells us the market wants to be up here, not down there. Combine that with a great day that was driven by better-than-expected news, this breakout still has room to run. How much further is anyone’s guess, but 4,200 is very much in play as long as we remain above 4k.

As for how to trade this, keep holding the 4k breakthrough and lifting our stops. There is no reason to abandon a trade that is working prematurely, so I’m not a fan of impulsively selling this strength because “it feels too high.” A test of 4k support Thursday is normal and expected. Even a minor violation of 4k wouldn’t bother me as long as the selling dries up and the index quickly reclaims 4k.

On the other hand, if the selling accelerates under 4k again, that tells us the market isn’t ready and it needs to retrench a bit longer. Lock in some really nice profits and get ready to buy the next bounce.

But I think that will happen. Any test of 4k will be quick and Thursday is setting up to be another good day.

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Jul 19

Don’t under estimate “less bad than feared”

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

Monday’s intraday skid started the week off on the wrong foot, but Tuesday’s towering 2.8% gains erased all of those second thoughts and then some on our way to the highest close in over a month.

For as many negative headlines as there are swirling around us, stock investors don’t seem overly concerned. In fact, this seems to be a fairly bullish case of “less bad than feared”.

The economic data is awful, but everyone who fears these things sold months ago and those sellers were replaced by confident dip buyers. While our problems are a long way from getting solved, it seems the market is coming to terms with our new reality and recycling the same headlines is no longer enough to trigger another leg lower.

Tuesday’s close put the index above the 50dma for the first time since April. Maybe this breakthrough sticks or maybe we get turned back by it, but as close as we are to 4k resistance, the market rarely gets this close without at least challenging a widely followed level.

After we hit overhead resistance, it could be challenging to find new buyers and this latest rebound might start running out of momentum. But that’s a conversation for another day. In the meantime, for those of us sitting on a pile of profits, there is nothing to do but keep holding and lifting our trailing stops.

If this rally dies at resistance, we lock in profits at our trailing stops. If the rally continues through 4k, even better, we keep holding and lifting our stops.

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Jul 14

Why savvy traders don’t give up

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 fell out of bed Thursday morning for the second day in a row. But just like Wednesday, the selling stalled nearly as soon as it arrived. After an hour of reflexive selling, the supply of fearful owners dried up and the index spent the rest of the session climbing nearly 80 points above those early lows.

While Thursday didn’t give me the start I was looking for, as I often remind readers, how we finish is far more important than how we start. And for the second day in a row, I really liked the close.

Inflation remains bad. Same with the war in Ukraine and as expected, consumer sentiment is in the toilet. But everyone already knows these things and that is why the index is down 23% YTD. Recycling the same headlines doesn’t surprise anyone and that’s why this week’s bad news hasn’t sent stocks tumbling under June’s lows. The people who fear these headlines sold months ago and that means there is no one left to sell a retelling of those same headlines.

Without a doubt, things are bad, but the bad is more or less staying the same. Which for the time being, is good enough to keep a floor under stocks. The problem we’ve been running into isn’t happening during regular hours when the market has actually been trading fairly constructively. Our problems have been festering overnight when smaller and more emotional retail traders are throwing their weight around in the futures markets. These little guys send futures tumbling in the middle of the night when big money is sleeping and that leads to these large opening gaps.

But lucky for us, big money doesn’t agree with these impulsive overnight traders and refuses to join the selling when the main session opens. And when that selling fails to show up, prices naturally start drifting higher.

As I wrote Wednesday, I liked the way the market is trading during the regular session despite these opening gaps. This still looks like a fairly resilient market.

Thursday’s early weakness squeezed me out of the trial position I bought Wednesday for a modest loss. But rather than give up on this trade, as soon as I get out of the market, the first thing I do is start looking for the next entry point. And as luck would have it, Thursday’s late morning bounce gave me that buy signal. And when the index kept going higher through the day, that was enough reassurance for me to add more near the close.

It never feels good selling and buying back in hours later, but it sure beats the feeling of holding something while the losses keep piling up. When forced to choose my poison, I will always pick selling unnecessarily over holding too long.

Maybe futures will tumble again in the early hours of Friday morning, but these little guys are going to run out of money eventually. As we saw Wednesday and Thursday afternoons, this market doesn’t want to go down. And the best thing about a market that refuses to go down is it will eventually go up. As long as we are willing to keep at it, we will be in the right place at the right time to ride the next wave higher.

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Jul 13

Why stocks didn’t crash after inflation hit yet another new high

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 fell out of bed Wednesday morning and dropped more than 1% after June’s inflation reading hit yet another new high.

While the increase in inflation over May was only a fraction of a percent, the increase shows the Fed still doesn’t have control over this economy. (So much for transitory…)

But rather than rush for the exits, most owners shrugged at the inflation headlines and opening weakness and continued holding. When people stop selling the headlines, those headlines stop mattering and that indifference was the name of the game Wednesday afternoon. By the close, the index recovered more than 2/3 of those early losses, even briefly making it into the green.

That’s not the price action we see from a fragile market. If the indexes were on the verge of another collapse, Wednesday’s inflation headlines were more than enough to send panicked owners running for cover. But here’s the thing, after 6 months of panic selling, it seems we finally ran out of panicked sellers. And more than just that, the first half’s sellers were replaced by confident dip buyers that demonstrated a willingness to buy and hold this uncertainty.

While there are no guarantees prices cannot fall to new lows if the headlines get materially worse, Wednesday’s constructive price action tells us it will take something even bigger than 9.1% inflation to send these stubbornly confident owners running for cover.

If the market opens higher Thursday morning, rather than argue with that counter-intuitive strength, jump aboard the bandwagon. Moves that don’t make sense often make some of the best trades (contrarian investing). Put a stop under Wednesday’s close and see where this latest wave takes us.

All of that said, the market is transitioning into a more choppy phase and that means we should be ready to take profits earlier and more often than we were doing this spring.

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Jul 05

What this sideways chop tells us about the bear market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

If a person only saw Tuesday’s S&P 500 closing print showing a 0.16% gain, it would be easy to assume it was just another boring, meaningless session. Oh, how wrong they would be.

Tuesday was another rollercoaster ride, with the index plunging more than 2% in early trade before a late morning rebound erased all of those losses and then some.

As I wrote last week, the bear market is transitioning from large, multi-day moves to more sideways chop. One day’s down is followed by the next day’s up. But this is pretty standard behavior as a correction matures and people adjust their expectations to our new reality.

There is still a lot of uncertainty causing this back-and-forth, but as emotion leaks out of the market, every violation of support no longer triggers waves of panicked owners selling stocks. In fact, we start getting days like Tuesday where an ugly open is met with buying, not follow-on selling.

What comes next? Well, Tuesday’s close leaves us pretty much in the middle of the 3,600(ish) to 4k(ish) trading range. That means the scales are not skewed more in one direction than another and this could easily go in either way. And in fact, that’s exactly what it’s been doing as it keeps dropping and bouncing from day to day.

As for how to trade this, Tuesday’s strong performance was a clear sign to close any shorts we might have been holding over the weekend. As easy as it is to re-short the market, there is no reason to stubbornly stick to a potion and hope it turns around and starts going our way. Instead, close, move to safety, and reassess. 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.

And an aggressive trader could have even bought Tuesday’s afternoon bounce. But because the market is getting choppy, factor that into your trading decisions by trading smaller and waiting for a trade to start working before adding more.

If prices retreat Wednesday, no big deal, we get out near our entry points and wait for the next trade. Maybe that’s buying the next bounce or shorting the next breakdown. But if Tuesday’s rebound keeps going, add more and see where it goes.

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