End of Day Analysis Archives

Apr 10

Why I’m looking to buy Wednesday’s dip

Free After-Hours Analysis:

The S&P 500 tumbled 1% Wednesday morning after a monthly inflation report came in unexpectedly high at 3.5%. This elevated result pretty much eliminates the possibility of a near-term Fed rate cut, and investors were disappointed.

As bad as that start sounds, the selling never really got carried, and we spent most of the session trading sideways, closing pretty much where we opened. And not just that, the index held recent lows and we remain at levels that were record highs just a few weeks ago. When put that way, reality isn’t nearly as bad as Wednesday’s -1% headline number makes it sound.

In trading, it’s not how the day starts but how it finishes that matters most. And by that measure, Wednesday was a decent day. We took our big lump at the open, but after that, nothing much happened because most owners chose to keep holding their favorite stocks despite the inflation headlines. Without a follow-on dash for the exits, stocks held the early lows, and the day didn’t get any worse. By that measure, Wednesday’s close was constructive, with very little panicked selling or urgent profit-taking.

That doesn’t mean the selling can’t continue Thursday, but every hour that passes without a waterfall selloff decreases the odds of a waterfall selloff.

As for how I traded Wednesday’s dip, readers will remember that Tuesday night, I had a partial position with stops at my entry points. Tuesday’s midday dip knocked me out of my position for breakeven and I arrived Wednesday morning in cash. Given how we opened, that wasn’t a bad place to be.

But rather than jump on the bear bandwagon and short the opening weakness Wednesday morning, I waited to see if the selling would stall, which it did. As I’ve written previously, this is a strong market, not a weak one. That means giving the rally the benefit of the doubt until proven otherwise. And I didn’t see anything Wednesday morning that changed that. In fact, the early resilience further confirmed this outlook and I spent most of the day looking for a dip buying opportunity.

I wanted to buy a nice bounce into the close, but instead, the market muddled into the close. While that was still a decent result, it wasn’t enough to convince me to put my money at risk. I stayed in cash and will reevaluate Thursday morning, where I will buy decisive strength, short a waterfall selloff that undercuts recent lows, or most likely, sit on my hands as the market continues trading sideways.

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Apr 08

Why Monday’s flat session is bullish

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Monday was a constructive session for the S&P 500 as it held the vast majority of Friday’s rebound, and last Thursday’s fearful selling quickly faded from memory.

As expected, last week’s aborted selloff didn’t turn into anything meaningful and was simply a continuation of the recent choppy consolidation. Luckily, the lack of a bigger selloff didn’t surprise regular readers of this blog. As I wrote Wednesday evening, hours prior to Thursday’s panicked selling:

[M]ost owners are comfortable at these prices and are not rushing for the exits. If prices were overbought and vulnerable to a collapse, it would have happened by now. Yet, every time the market slips into the red, supply dries up, and prices bounce. That’s not how a weak market behaves.

Without a doubt, this market is not in a hurry to go anywhere, but anyone betting on a collapse is going to be disappointed. There have been countless excuses and opportunities for stocks to tumble, yet every time, stock owners shrug and keep holding. This situation can’t last forever, but it will take something new and unexpected to convince these confident owners to sell. As we’ve seen over the last couple of sessions, undercutting 5,200 isn’t going to do it.

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Trends continue countless times, but they only change direction once. Anyone who believed something changed last week was betting on a far less likely outcome than those of us waiting for the far more probable bounce.

If I had a crystal ball, I could have squeezed some nice profits out of these recent swings by timing my purchases and sales at the precise tops and bottoms, but no one can predict the market’s exact movements, and only fools try. But just because we can’t see the future doesn’t mean we can’t make savvy trades when these opportunities present themselves, as I wrote on Friday:

[W]hen the sellers failed to show up and prices bounced [on Friday], that was our signal to buy.

[W]e can already lift our stops to our entry points, turning this into another low-risk, high-reward trade. If prices retreat next week, we get out at breakeven, no harm, no foult. If the rebound continues, let those profits roll in.

This is a bullish market, and that makes Monday’s sideways session bullish. If this market was fragile and vulnerable to a collapse, Thursday’s massive bearish intraday reversal was more than enough to send stocks tumbling much further. Instead, supply dried up and prices bounced, as they have during every other episode of weakness since the October lows.

Something is going to change at some point, but last week was not it. I still have the positions I bought Friday with stops near my entry points. While there are no risk-free trades in the market, this is about as low as it gets.

Maybe something will change later this week, but I wouldn’t bet on it.

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Apr 05

Why savvy traders saw this bounce coming and how they got ready for it

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 rallied 1.1% on Friday after the monthly employment revealed another strong showing in April. So much for Thursday’s huge selloff.

In case anyone missed the memo, this is a back-and-forth market. That means frequent and dramatic reversals, as greedy bears learned the hard way on Friday. Unfortunately for them, Thursday’s big dip was a continuation of this back-and-forth pattern, not the start of something new.

Luckily for readers, I said as much Thursday night following that day’s big bloodbath:

[T]here wasn’t any meat to Thursday’s selling, so I question the sustainability of this move lower. We need headlines that will shatter bulls’ confidence and turn them into fearful bears for this rally to break. I didn’t see anything on Thursday that will convince bulls to start selling their favorite stocks. Until proven otherwise, I will be looking for the next buyable bounce; it will probably be here sooner than most people will be ready for.

We didn’t have to wait more than a few hours for the next buyable bounce. Hopefully, you didn’t miss it.

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As for how savvy traders approached Friday’s session, when the sellers failed to show up and prices bounced, that was our signal to buy. As I wrote Thursday evening, this moment was going to arrive far sooner than most people were expecting, which is why savvy traders arrived Friday morning prepared for the unexpected.

For those who bought Friday’s bounce, we can already lift our stops to our entry points, turning this into another low-risk, high-reward trade. If prices retreat next week, we get out at breakeven, no harm, no foult. If the rebound continues, let those profits roll in.

But most importantly, don’t get seduced by the same overconfidence that stung bears on Friday. No matter whose side you are on, this is a back-and-forth market, and that means collecting profits early and often. If you hold too long, those profits will turn into losses.

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Apr 04

Lemmings jumping off the off the cliff

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday started off well enough for the S&P 500 as it popped more than half a percent at the open on a better-than-expected weekly employment report. But all of those good feelings vanished in the blink of an eye. Not long after lunch, the market entered freefall, turning nice opening gains into big losses by the close.

If you believe the financial press, investors got spooked when a couple of Fed officials suggested rate cuts might not be as close as many investors were hoping. But more than these somewhat questionable explanations, this looked more like lemmings following each other off the cliff than a rational response to some unofficial comments by some relatively unknown Fed officials.

I will be honest, I came into Thursday long because I liked the way the market bottomed on Tuesday. As I wrote Wednesday evening, the market was acting well, which made it buyable. I wasn’t expecting a big rally because that’s not what this market has been giving us, but it was a decent, low-risk entry.

Luckily, Thursday’s open allowed me to lift my stops above my entry points, so I was sitting pretty with another low-risk trade. And I felt good about my position until the selling knocked us under the morning’s lows. That’s when the selling accelerated, and I got concerned enough to pull the plug even before my stops were hit.

Remember, stops are our last line of defense, not our only line of defense. If something doesn’t feel right, it probably isn’t right. That’s what it felt like as Thursday’s selling started feeding on itself. And no matter what it feels like, there is never an excuse to let a winning trade turn into a loser, so even if a person didn’t get spooked by the accelerating selling, they should have pulled the plug at their entry points no matter what. Follow these simple defensive rules and most people would have missed all of Thursday afternoon’s pain.

As for what comes next, there wasn’t any meat to Thursday’s selling, so I question the sustainability of this move lower. We need headlines that will shatter bulls’ confidence and turn them into fearful bears for this rally to break. I didn’t see anything on Thursday that will convince bulls to start selling their favorite stocks. Until proven otherwise, I will be looking for the next buyable bounce, it will probably be here sooner than most people will be ready for.

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Apr 03

Why bears keep getting it wrong as this market refuses to breakdown

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 added a tenth of a percent on Wednesday, ending a two-session skid as the index continues testing 5,200 support.

The index opened Wednesday’s session with modest losses, but within minutes, supply dried up, and dip buyers rushed in, shoving the index into the green. It remained there for most of the session, but a bout of momentary second-guessing knocked it into the red in the final hour of the day. But that momentary selling was the best bears could do, and the index bounced into the green in the final minutes of the session.

While not overly bullish, Wednesday’s session was constructive and shows most owners are comfortable at these prices and are not rushing for the exits. If prices were overbought and vulnerable to a collapse, it would have happened by now. Yet, every time the market slips into the red, supply dries up, and prices bounce. That’s not how a weak market behaves.

Without a doubt, this market is not in a hurry to go anywhere, but anyone betting on a collapse is going to be disappointed. There have been countless excuses and opportunities for stocks to tumble, yet every time, stock owners shrug and keep holding. This situation can’t last forever, but it will take something new and unexpected to convince these confident owners to sell. As we’ve seen over the last couple of sessions, undercutting 5,200 isn’t going to do it.

Stocks can fall at any time for any reason, but right now, they are not interested in falling for no reason at all. Until something forces bulls to reconsider their outlook, expect all of these dips to continue bouncing within days, if not hours.

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Apr 02

Why Tuesday’s selloff is already running out of gas

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 skidded over 1% Tuesday morning as gas prices and interest rates continue climbing. But rather than trigger a bigger wave of follow-on selling after the index undercut 5,200 support, most owners shrugged and kept holding. The absense of reflexive selling put a floor under prices, and the market recovered nearly half of those early losses by the close.

If stocks were grossly overbought and vulnerable to a collapse, prices would have tumbled a long time ago. The market rarely gives us this long to sell the top, so odds are good this is not the top.

While a few hours of constructive trade Tuesday afternoon was great to see, by itself, that doesn’t kill the selloff. That makes Wedensday’s early trade is critical. If we survive that, the bears are in trouble.

Unless Wednesday morning turns into a dramatic waterfall selloff, this is simply another buyable dip on our way higher. That’s the way I’m trading it. I bought a partial long position Tuesday afternoon with a stop under the early lows.

If the rebound continues Wednesday afternoon, I add more and lift my initial stops up to my entry points. If the selloff resumes, I get out of my partial position at my stops for a small loss, no big deal.

To be honest, part of me hopes this selloff continues even though I’m holding a partial position. The lower this goes now, the bigger the profit opportunity the market will be giving us. Unfortunatly, I don’t think I will be that lucky and most likely, Tuesday’s selloff won’t amount to much. That’s why I’m already buying.

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Apr 01

Why smart traders are not trading this chop

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 shed 0.2% on Monday as this sideways snooze-fest continues.

The index rallied in the second half of last week, meaning it was time for the pendulum to swing in the other direction. This simple reversal explains most of Monday’s trivial losses: One day’s ups become the next day’s downs.

Nothing meaningful is changing in the financial headlines, which is why the price action is so benign. Bulls are staying bullish, and Bears are staying bearish. This will inevitably change at some point, but we need a big and unexpected headline to shake things up and get the market moving. Until then, expect this slow, choppy grind with a slight upward bias to continue. Better trading opportunities are coming, but they are not here yet.

I will let the day traders fight over these nickels and dimes while I wait for better profit opportunities. Maybe that will happen later this week, or maybe it will take a week or two. But the next trade is coming because it always does, and it will be here when we least expect it. Until then, my goal is to avoid losing money overtrading this meaningless chop and that means sitting on my hands.

Remember, long-term success in the markets doesn’t come from our winning trades but from not giving those profits back in our follow-up trades. Often, the best trade is not trading.

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Mar 27

What Wednesday’s bounce tells us about what comes next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 ended a three-session losing skid on Wednesday, bouncing 0.9% as the index recovered most of its prior losses.

Little changed between Wednesday, Tuesday, or even last week. The market is comfortable at these highs, and few owners are interested in selling. But at the same time, those with cash are reluctant to chase prices even higher. This draw between bulls and bears leaves us mostly treading water above 5,200 support.

Prior momentum is clearly higher, and that means all ties go to the bulls. If prices were grossly overbought and vulnerable, stocks would have tumbled by now. As long as we keep getting more of the same headlines, I don’t expect anything to change. One bad headline can flip sentiment in an instant, and if that happens, there is a lot of air underneath us, but we need to get that bad headline first. Until then, expect this back and forth to continue, but with a little more up than down.

If this market was going to break down, it would have happened by now.

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Mar 08

The market gives us another great, low-risk short entry

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 started Friday’s session with nice gains following a better-than-expected monthly employment report. Unfortunately, those gains were short-lived, and the index finished the session -0.6% in the red.

As I’ve written many times, the market is in a choppy phase, and that means lots of back-and-forth. And so far, the market continues living up to that reputation.

I had no idea Friday afternoon’s fizzle was coming, but I’ve been doing this long enough to know chasing that early strength was a risky trade, so I was happy to let that wave of buying pass me by. And the afternoon selling shows why.

In fact, Friday’s early push to record highs that subsequently tumbled into the red gave us a great shorting opportunity. Rather than buy Friday morning’s good news and keep pushing prices even higher, big investors were taking profits. That intraday reversal is never a good sign, especially when the index starts the session at record highs.

The savvy trade was shorting the dip into the red with a stop above the intraday highs. While shorting an uptrend is a risky trade, keeping a sensible stop nearby limits the risk to a very manageable level. And with all of the air underneath us, the potential upside is multiples greater than the risk. A risk/reward that skewed in our favor is hard not to take.

And now that the market already moved half a percent in our direction, we can lower our stops to our entry points, lowering our risk even further. These are the setups savvy traders dream of.

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Mar 05

Why Tuesday’s retreat wasn’t a surprise

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Well, that didn’t take long. Friday’s break above 5,100 is already history, as the rally stalled and retreated 1% on Tuesday.

Easy come, easy go. As I told readers previously, I bought Friday’s rally above 5,100, not because I thought stocks were going to take off, but because I could enter that trade in a low-risk way:

By acting early and decisively [on Friday], I was able to buy not long after the market retook 5,100, and I could place a stop just under this level. When the rally kept going, I was able to lift my stops to my entry points, creating yet another low-risk/high-reward trade.

Maybe this latest buy gets stopped out at breakeven in a few days. No harm, no foul. But if the buying keeps pushing the index toward 5,200, then I will let those profits roll in. It’s like a free lottery ticket. Only a fool would turn his nose up at it.

Well, as luck would have it, I got stopped out early Tuesday morning for breakeven, and I watched the rest of the day’s carnage from the safety of the sidelines.

While this breakout trade didn’t work, it didn’t cost me anything, so can we really call this trade a mistake? If it worked, I made money, if it didn’t, I got all of my money back. If only all of my bad trades could be this painless.

As for what comes next, this market remains stuck in a choppy, sideways consolidation near 5,100. Until further notice, expect these dips to bounce and for the bounces to dip. One day’s up becomes the next day’s down. Anyone predicting Tuesday is the start of the next big selloff will soon find himself just as disappointed as last week’s breakout buyers.

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Mar 04

The market gave us another low-risk/high-reward trade

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Monday down 0.1% after spending most of the session bouncing between small gains and losses.

As I wrote previously, I was short the market last week, but I was keeping that trade on a short leash because I was losing faith in it:

While I’m still holding my short position and the market is moving ever so slowly in my direction, I am getting impatient. If the short trade is going to work, it needs to start working soon. If not, I will pull the plug before my stops get hit. When a trade isn’t working, our stops are our last line of defense, not our only defense.

As luck would have it, I bailed out the next day for a small profit, not long before the market took off and started setting new record highs.

Obviously, this isn’t the trade I had in mind when I shorted the market. But as I wrote when I placed that trade, I wasn’t shorting because I was bearsih, but because the market was giving me a low-risk short entry with a nearby stop.

Two weeks ago, the market was stalling at 5,100 resistance, and by acting decisively and early, I was able to short the market with a stop just above those intraday highs.

As expected, the buying cooled off over the next few sessions and prices slipped, allowing me to lower my stops to my entry points, turning this into low-risk/high-reward trade. If the index kept sliding, the profits would roll in. If prices bounce, like they did, I would get stopped out near breakeven.

Even though that trade didn’t work as envisioned, I pulled the plug for a small profit when the follow-on selling failed to materialize.

So yeah, I was wrong, but it didn’t cost me anything I got a free trade out of it.

Luckily, I didn’t have to wait long for the next opportunity to pop up because Friday’s price action presented me with the mirror image.

This time, the market rallied above 5,100, and since I pulled the plug on my previous trade Thursday, I was in cash and perfectly positioned to take advantage of the break above 5,100.

Now, I have no idea if this trade will be any more successful than my previous short, but by acting early and decisively, I was able to buy not long after the market retook 5,100, and I could place a stop just under this level. When the rally kept going, I was able to lift my stops to my entry points, creating yet another low-risk/high-reward trade.

Maybe this latest buy gets stopped out at breakeven in a few days. No harm, no foul. But if the buying keeps pushing the index toward 5,200, then I will let those profits roll in. It’s like a free lottery ticket. Only a fool would turn his nose up at it.

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Feb 28

While I’m still sticking with my short trade…but keeping it on a short leash

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished down 0.2% in Wednesday’s relatively quiet session.

As always, there are two ways to look at this week’s price action. The bulls will point to the index holding the vast majority of last Thursday’s 2% pop. The bear’s counterpoint is the rally stalled and is out of gas because it hasn’t been able to add to that pop.

At this point, both sides are stubbornly dug in, leaving us with this sideways draw just under all-time highs.

Too high? Or, not high enough? That’s the million-dollar question.

While both sides have valid arguments and could easily be right, as I wrote on Monday, my money is on the short side. Not because I think the bears are going to win, but because I could enter that trade in a low-risk way.

The rally stalled Friday afternoon, and that lethargic close gave me a short entry with a nearby stop above the intraday highs. If I was wrong, I would get dumped out for a fractional loss. But if the index falls into a very normal and healthy pullback to 5k support, that represents a 2% profit at even money and as much as 6% in a 3x trade.

Even if this short trade has 50/50 odds of working, the simple fact the reward is so much larger than the risk makes this a great trade.

Now, I have no idea if this trade will pay off in the end, but since putting it on last week, I’ve been able to lower my stops to my entry points, even further lowering my risk. I could very easily be wrong and get stopped out at my entry points, but if it doesn’t cost me anything, who cares? It’s like a free lottery ticket. Just because it didn’t pay off doesn’t mean scratching it off was a mistake.

While I’m still holding my short position and the market is moving ever so slowly in my direction, I am getting impatient. If the short trade is going to work, it needs to start working soon. If not, I will pull the plug before my stops get hit. When a trade isn’t working, our stops are our last line of defense, not our only defense.

If prices rally on Thursday, I will pull the plug and collect some trivial profits. While it’s not the trade I wanted, it is hard to complain about being wrong and still collecting a few bucks for my effort.

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Feb 27

Keep sticking with the low-risk/high-reward trade

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 added a modest 0.2% in another mostly irrelevant session as the index continues digesting last week’s big NVDA pop.

As popular as NVDA is as a momentum stock, its success is largely limited to the AI sector, and the company’s success doesn’t tell us much about what Main Street consumers are doing. That means NVDA’s success shouldn’t have a big influence on the board market the way a bellwether stock like AAPL or AMZN would. And no doubt that limited reach is why NVDA’s big results haven’t triggered a multiday rally.

Instead, we are stuck with three largely sideways sessions following last Thursday’s big gains. As I wrote Monday evening, there are two ways to interpret this sideways trade. Either the market is catching its breath before the next leg higher, or this is the last gasp of buying before the inevitable step back.

Both points of view have solid logic behind them, and I could easily see either scenario playing out. So what are we supposed to do as traders, flip a coin?

Nope, savvy traders look at the setup and pick the low-risk/high-reward trade. As I wrote Monday evening, I shorted the market. Not because I’m bearish, but because I could enter that trade with a stop near Friday’s highs. If the index continues slipping, I rake in a pile of profits. If prices bounce back above Friday’s highs, I close my position for a small loss and then change direction, buying the push to fresh highs, this time with a stop under this week’s lows.

As luck would have it, this trade has already worked well enough that I was able to lower my short stops to my entry points, making this nearly a free trade. At that point, it doesn’t really matter if I’m wrong because this is like a free lottery ticket. I make money if it pays out. If it doesn’t, I close my short near breakeven and get ready for the next trade, most likely buying a continued rally past last week’s highs.

Too high or not high enough? I don’t really care because I have a low-risk/high-reward trading plan that works in both directions.

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Feb 26

A low-risk short trade near 5,100

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 slipped 0.4% Monday, following last week’s big run to record highs.

Impressive earnings from market darling NVDA sent the index flying 105 points last Thursday, but so far, the index is struggling to add to those big gains in the follow-up sessions.

Too high, or not high enough? That’s the million-dollar question.

Both sides have compelling arguments. Few things are more powerful than momentum, and this rally is red-hot. But on the other side, all good things must come to an end and this rally is no different.

At this point, I give a very slight near-term edge to the bears. Not because I think this rally is topping but because savvy traders can enter a low-risk/high-reward short trade at current levels.

The market is pausing at 5,100, giving us a low-risk shorting opportunity with a stop near Friday’s intraday highs. If momentum continues higher, we get stopped out for a small loss. On the other hand, a very vanilla pullback to 5k will produce profits of many multiples of that risk.

Low-risk, high-reward trades are what traders dream of, and here’s a good one.

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Feb 07

Now that we hit 5k, how to trade what comes next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 added 0.8% on Wednesday, powering to yet another record close, including a midday push to 4,999.89.

That’s as close to 5k as one can get without actually touching it. As I wrote earlier this week in a post titled, “5k, here we come”:

Friday’s reclamation of 4,900 looks like the real deal, and 5k is up next. We might not go straight there, but the odds are good that if we’ve come this far, we will close the deal soon.

I have no idea what happens after we reach 5k, but until then, this market wants to go higher, not lower.

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For all practical purposes, the index hit 5k on Wednesday. So, now it is time to figure out what comes next.

I see three possibilities: up, down, or sideways. Wow, isn’t that insightful? Ha!

But, seriously, we have these three possibilities. Sideways is likely because the October rebound stalled momentarily at 4,400, 4,600, and 4,800, so another pause at 5k fits the pattern.

As for up, nothing would hurt the bears than another short squeeze. And to be honest, the market almost never gets rejected exactly at a widely followed level. Either we stall before or after. Since we didn’t stall before 5k, that means stalling after.

And lastly, down. No matter how impressive the October rebound has been, it has to end at some point. Why not end it at something as spectacular as 5k? That’s exactly what the NASDAQ did in March 2000, peaking at 5,048 before entering into a multi-year bear market.

As for what I think will happen, the market doesn’t care what I think, and the only choice we have is to follow the market’s lead. That said, it wouldn’t surprise me to see the market have another up day or two to decisively put its stamp on 5k before falling into another sideways consolidation, as it did at prior round milestones in recent months.

As for how to trade this, we collect worthwhile profits when we have them because if we allow ourselves to get greedy, the market will take everything back. That means lifting stops and locking in some partial profits while the crowd is the most optimistic.

Markets move in waves, and it’s been a good run. But that also means it is time to start collecting profits and getting ready for the next trade. Which, at this point, could be up, down, or sideways. Only time will tell. But anyone sitting on a pile of profits on the sidelines will be in the best position possible to jump on that next trade.

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Feb 06

5k, here we come

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Tuesday, the S&P 500 added 0.2% as the index finished four points shy of the all-time closing record.

So much for last week’s panicked selloff. Luckily, this week’s resilience didn’t surprise regular readers. As I wrote last week:

A market that refuses to go down will eventually go up. After a couple of failed selloffs lastlll week, it became increasingly obvious that if this market were going to fail, it would have failed by now.

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Now, I will be the first to admit that last week’s selloff dumped me out at my stops. No matter my outlook or how temporary I think a bout of selling will be, I always sell at my stops, no questions asked.

Sure, I could have held through last week’s dip, but that would have been undisciplined, and that trading strategy requires more luck than skill.

Since I don’t count on luck, I wasn’t willing to hold a violation of my stops. Good thing I’m a nimble trader and was ready and willing to buy the subsequent bounce 24 hours later.

Remember, just because our stops get hit doesn’t mean we give up on a trade. Sometimes it takes a few false starts before a trade finally works. Anyone who gave up last week missed out on a great trade.

As for what comes next, Friday’s reclimation of 4,900 looks like the real deal, and 5k is up next. We might not go straight there, but the odds are good that if we’ve come this far, we will close the deal soon.

I have no idea what happens after we reach 5k, but until then, this market wants to go higher, not lower.

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Jan 31

Why I don’t mind being wrong

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 crashed 1.6% on Wednesday, ouch!

It was a perfect storm between “disappointing” earnings from GOOGL and MSFT and Powell telling investors the Fed doesn’t have plans to cut rates in March. None of these things were bad; in fact, GOOGL and MSFT earnings were actually good. Unfortunately, stocks have gotten so expensive that good is no longer good enough, and anything short of great leads to disappointment.

As I wrote Monday, I bought the 4,900 breakout, so this wave of selling wasn’t great for my position. Luckily, I bought it early Monday and had a nice profit cushion protecting my backside. As I wrote readers Monday evening:

I have no idea how long this rally will last, but given Monday afternoon’s nice gains, my stops have already been lifted to my entry points, turning this into a low-risk trade.

If this turns out to be a climax top and prices crash next week, no big deal. I pull the plug at my stops and follow the market in the other direction. But until that actually happens, I’m riding Monday’s wave higher.

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Sure, I will be the first to admit buying Monday’s breakout was a mistake. But since I entered that trade early and lifted my stops to my entry points, this mistake didn’t cost me anything. It’s like a free lottery ticket. If it works, great. If it doesn’t, no big deal, I get out near breakeven and try again next time.

If a person can’t handle being wrong, this is definitely the wrong game to be playing. For the rest of us, we come at this with a proactive trading plan that protects us when things don’t work out.

And to be honest, I don’t even like calling Monday’s buy a mistake because it was a good trade, and I’d do it again every chance I get. Sure, it didn’t work this time. But do it often enough, and several of those trades will bring in nice profits.

Coincidentally enough, this is exactly what I did at the 4,400, 4,600, and 4,800 breakouts. Batting 0.750 isn’t bad. If that’s what being wrong looks like, I’m happy to be wrong.

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Jan 29

Why I flipped last week’s short positions to long positions on Monday

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 popped 0.8% on Friday, smashing the 4,900 barrier and setting yet another record close.

It is amazing how far we’ve come since the October lows when everything seemed broken. Now, the stock market can’t do anything wrong.

As regular readers will know, I was cautious last week as we were running into resistance near 4,900. But as was the case at 4,800, 4,700, 4,600, and 4,500, 4,900 resistance turned out to be little more than a speed bump.

I put on a short position last week after it looked like the index was getting rejected by 4,900 resistance. But as I often warn readers, shorting an uptrend is one of the hardest ways to make money in the market. That means I approached last week’s short trade with risk management first and foremost. I started small, got in early, and kept a nearby stop.

As is obvious by nw, it didn’t take long for the market to knock me out of my position for a small loss.

When a trade doesn’t work, that forces us to reevaluate our outlook. As I often write, a market that refuses to go down will eventually go up. After a couple of failed selloffs last week, it became increasingly obvious that if this market were going to fail, it would have failed by now.

Last week’s attempted waves of selling continued Monday morning as the index briefly flirted with losses in early trade. But when the selling failed to stick, that told us bears were losing their grip, and the afternoon surge above 4,900 became all but inevitable.

This isn’t the trade I was looking for last week, but as a nimble, flexible trader, I follow the market wherever it takes me, and that meant buying Monday’s 4,900 breakout.

I have no idea how long this rally will last, but given Monday afternoon’s nice gains, my stops have already been lifted to my entry points, turning this into a low-risk trade.

If this turns out to be a climax top and prices crash next week, no big deal. I pull the plug at my stops and follow the market in the other direction. But until that actually happens, I’m riding Monday’s wave higher.

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Jan 24

Could Wednesday finally be the day bears have been waiting for?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 started Wednesday’s session with nice gains and even poked its head above 4,900 for the first time in history. Unfortunately, the index couldn’t hold those gains and skidded all the way back near breakeven by the close.

As I often write, how we finish is far more important than how we start, and by that measure, Wednesday was an ugly session. Far worse than the benign 0.1% gain suggests.

Headlines didn’t change anyone’s mind. Instead, supply dried up when many investors started realizing just how high prices were getting. Without people willing to throw new money at the market, the rally stalled and prices retreated.

Of course, this was expected, as I wrote earlier in the week:

As for what comes next, I haven’t seen anything that suggests we are breaking out of the recent consolidation. And Monday’s lethargic follow-on buying confirms that muted outlook. I’m not calling for a crash or anything like that, just that we need to keep our expectations in check and take our profits early and often. In markets like this, profits don’t last long.

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This rally is being driven by Fear Of Missing Out, and prices are going further than anyone thought possible. But no matter how impressive it looks, gravity always wins in the end.

Now, don’t get me wrong, I’m not calling this a top, and momentum can keep this rally going for weeks and even months. Just ask all of the cynics who have been shorting this rally since the lower 4,000s. But no matter how good this looks, all good things must come to an end.

I have no idea if Wednesday’s intraday reversal is the crack that finally breaks this thing. But it was ominous enough that any nimble trader needs to be paying attention. Anyone overcome by greed and predicting weeks and months of gains is going to end up disappointed. The rest of us are collecting our profits and getting ready for the next trade.

The market is acting really, really well. That’s why I’m getting nervous.

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Jan 22

Why the breakout is already struggling

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 added 0.2% on Monday, notching yet another record close.

As good as that sounds, the intraday price action was fairly disappointing. The index was up over 0.5% in the first hour of trade before a wave of profit-taking knocked it off of those initial highs.

As regular readers know, it’s not how we start but how we finish that matters most. And by that standard, Monday was not a good day. Rather than trigger another short-squeeze and wave of follow-on buying, supply dried up and prices slid from those early highs.

It is way too premature to call Monday morning’s highs a top, but the lack of follow-on buying is a concern. But none of this surprised readers. As I wrote last week, even with Friday’s breakout to new highs, the market was still stuck in a sideways consolidation:

Just because the market broke out of an ultra-tight, 100-point trading range doesn’t mean the recent consolidation is over. Stocks spend 60% of their time chopping sideways, so the odds are good Friday’s breakout was nothing more than a somewhat wider continuation of the recent sideways chop.

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Well, here we are, one session later, and Friday’s breakout is already stumbling.

As I wrote last week, Friday’s breakout was expected and very tradable, but rather than get greedy and hold for more, nimble swing traders are already locking in profits and getting ready for the next trade.

We are only in this to make money, and that means selling our winners before we want to. If we don’t, the temptation to hold too long takes over and we watch all of our profits escape. Who hasn’t done this before? Just ask all of the bears that were sitting on nice short profits less than a week ago.

As for what comes next, I haven’t seen anything that suggests we are breaking out of the recent consolidation. And Monday’s lethargic follow-on buying confirms that muted outlook. I’m not calling for a crash or anything like that, just that we need to keep our expectations in check and take our profits early and often. In markets like this, profits don’t last long.

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