End of Day Analysis – Cracked.Market

Oct 02

Why Monday’s strange price action didn’t surprise savvy traders

Free After-Hours Analysis:

The S&P 500 finished Monday’s session unchanged. This isn’t the price action most investors would have expected if they knew a last-second deal would avert the October 1st gov’t shutdown. But the market has a nasty habit of not doing what most people think. (Hence why so many inexperienced traders complain, “the market is fixed.”)

There are a few reasons this weekend’s budget deal didn’t move markets. First, this is nothing more than a patch job that, at best, delays the budget fight for a few more weeks. Second, if the disgruntled Republicans depose McArthy, then the next round of negotiations could end up being even more contentious. And lastly, a gov’t shutdown happens every few years. It isn’t a big deal, and the market wasn’t really worried about it. If stocks don’t fall much on a headline, they don’t have much room to rebound after everything gets solved.

As readers know, I bought last week’s bounce:

Thursday’s price action played out as expected, and everyone with the courage to buy Wednesday afternoon’s bounce is sitting on a nice profit cushion. Move stops above our entry points and this is practically a free trade. If the rebound continues, we make a pile of profits. If the selling resumes, we get out near our entry points for a breakeven trade. That’s a phenomenal risk/reward, and only a fool would criticize it.

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As it turned out, I got stopped out for a small gain Friday afternoon after lifting my stops above my entry points. While this wasn’t the trade I was looking for, being wrong about the bounce and still making money isn’t a bad thing. Give me a free trade and I will take it a million times over.

As for what comes next, not falling on Monday is always better than falling, especially given what September looked like. Unfortunately, the longer we hang out near recent lows, the more likely it becomes that we make new lows.

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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Sep 28

Why Wednesday’s dumb trade looks genius on Thursday

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 popped 0.6% Thursday, adding to Wednesday’s late rebound.

Lucky for readers, this is the exact setup I was waiting for. As I wrote in Wednesday evening’s free analysis:

I don’t know if Wednesday was the true capitulation bottom I’ve been waiting for, but I do know that buying the bounce is the best trade a person could make here.

By getting in early, a savvy trader is already sitting on a profit cushion and moving their stop up to their entry points, making this a low-risk trade. If the selloff resumes Thursday, no big deal, we get out near our stops, no harm, no foul. But if the bounce continues, a wave of profits will come rolling in hard and fast. Low-risk, high-reward trades are what dreams are made of.

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Thursday’s price action played out as expected, and everyone with the courage to buy Wednesday afternoon’s bounce is sitting on a nice profit cushion. Move stops above our entry points and this is practically a free trade. If the rebound continues, we make a pile of profits. If the selling resumes, we get out near our entry points for a breakeven trade. That’s a phenomenal risk/reward, and only a fool would criticize it.

As for what comes next, nothing meaningful changed in the headlines, and all of the problems that triggered the September selloff haven’t been resolved. But as I’ve written before, this is a sentiment trade, and sentiment frequently swings back and forth without rhyme or reason.

Between the Fed keeping interest rates higher for longer and the Federal gov’t on the verge of shutting down, there really isn’t a lot of good news going around right now, but that’s the point. When all of the headlines are bad, they can only get better. As I’ve written before, stocks will bounce long before the good news hits the presses. That means we must be brave enough to buy when everyone else is still in a foul mood. Anyone waiting for the news to become official will be way late to the party.

Is the worst of the September selloff already behind us? I have no idea. But I like this bounce, and it is giving us a ton of headroom to lift our stops, making this trade worthwhile even if it doesn’t work out in the end.

Maybe bears are right, and we’re wasting our time buying this bounce, but if we can do it in a low-risk way, why not give it a shot? One of these bounces will stick, and this could easily be it.

At this point, keep doing what is working and move our stops up to at least our entry points, turning this into a low-risk trade. If it works, great. If not, we get out and try again next time.

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Sep 27

Why the safe trade is buying Wednesday’s bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

It looked like Wednesday would be another ugly session for the S&P 500 as the index skidded another -0.8% in midday trade. But just when all hope was lost, the index bounced hard, erasing all those losses over a handful of minutes.

While it is definitely premature to claim September’s selloff is over, when it ends, this is what it will look like.

As I wrote Tuesday evening, I was looking for a bounce, and Wednesday afternoon’s pop definitely qualifies:

Maybe prices bounce in the second half of the week, or maybe it doesn’t happen until next week. But as long as I wait for capitulation and the inevitable bounce (and keep a nearby stop), any false bottoms won’t be a problem. More importantly, I stay alert and ready to go because the market loves symmetry and the inevitable bounce will come hard and fast. Wait a few hours too long, and you will miss a big pile easy and fast profits.

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I don’t know if Wednesday was the true capitulation bottom I’ve been waiting for, but I do know that buying the bounce is the best trade a person could make here.

By getting in early, a savvy trader is already sitting on a profit cushion and moving their stop up to their entry points, making this a low-risk trade. If the selloff resumes Thursday, no big deal, we get out near our stops, no harm, no foul. But if the bounce continues, a wave of profits will come rolling in hard and fast. Low-risk, high-reward trades are what dreams are made of.

As I said above, it is way too early to claim the selloff is over, but this is the best buying opportunity we’ve had in a while. And if this bounce doesn’t work, no big deal, we get out and try again next time. One of these is going to work spectacularly well, and we don’t want to miss it.

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Sep 26

Why an optimist loves this week’s selloff

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 shed another -1.5% Tuesday as last week’s fear trade comes roaring back.

Last week, it was the Fed telling us they will keep interest rates higher for longer than most investors were hoping for. This week, fear of a U.S. gov’t shutdown/default is adding to the pessimism. Of course, none of these headlines are new or unexpected, and this weakness simply reflects the never-ending swing of sentiment.

While it is hard to watch these losses pile up over the near-term, most investors knew these things were coming, so we shouldn’t expect a significant repricing of stocks based on widely known and expected headlines.

Sure, the US could actually default on its debt this time, sending the global economy into a tailspin. But we’ve been down this path so often that very few investors actually believe this will happen. Number one, this latest round of equity selling won’t turn into anything significant because the consequences of default are too dire and a budget deal is coming. But number two, if the unthinkable actually happens, the consequences are so dire a 20% crash in stock prices wouldn’t be enough.

That turns this into the infamous black swan trade. It most likely won’t happen, but if it does, it will be bad!

Lucky for us, we are nimble, independent traders, and we can pull the ripcord long before markets fall 20%. In fact, I pulled the rip cord last week and have been watching this week’s carnage from the safety of the sidelines.

As much as I want to buy these discounts, savvy traders don’t buy the dip, they wait for the bounce.

If history repeats itself, as it almost certainly will, Republicans and Democrats will eventually come together and save us from themselves at the eleventh hour. And more than waiting for this bipartisan agreement, stocks will rebound days, even weeks, before a deal is reached, so savvy traders are following the market’s price-action and not waiting on the headlines.

The market is in a bad mood, but like all bad moods, it will eventually improve. The only question is when.

We didn’t get a bounce last week, and we’re not getting one in the first half of this week, but that doesn’t mean it isn’t going to happen. While my inclination is to buy this oversold tumble, I need to see the selling capitulate and bounce first. That simple requirement is saving me a truckload of money this week.

Maybe prices bounce in the second half of the week, or maybe it doesn’t happen until next week. But as long as I wait for capitulation and the inevitable bounce (and keep a nearby stop), any false buttons won’t be a problem. More importantly, I stay alert and ready to go because the market loves symmetry and the inevitable bounce will come hard and fast. Wait a few hours too long, and you will miss a big pile easy and fast profits.

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Sep 22

Why buying Friday’s early bounce was NOT a mistake

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 started Friday’s session off well enough, bouncing back from Wednesday’s and Thursday’s bloodbath. Unfortunately, those feelings of optimism didn’t last long, and the index fell into the red by the end of the day.

Knowing what we know now, most people would think buying Friday morning’s bounce was a mistake. But I actually think it was a brilliant move, especially since I did it!

After two days of hard selling, the market was ripe for a bounce. Even the most brutal selloffs have up hours and even up days, so Friday’s early bounce shouldn’t surprise anyone.

But what we do with those bounces is where amateur and savvy traders separate themselves. As I wrote Thursday evening, I was angling to buy the next bounce:

Without a doubt, this could be the start of the next major bear market, and we need to protect our backside because there is no excuse to ride a losing position all the way into the dirt, but until I see something more compelling, I will keep waiting for the bounce. Even if this is the start of a bear market, a bounce is still headed our way because bear markets bounce too. In fact, some of the easiest and fastest money is made trading bear market rallies.

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And buying Friday morning’s bounce is exactly what I did. But I’m not an idiot, I was smart and strategic in buying. I waited for the bounce, I started small, I got in early, and I kept a nearby stop. Within hours, prices had risen enough that I could lift my stops to my entry points, and that’s when the magic happened.

Now, I’m sitting on a free trade. If the bounce takes off, I rake in piles of profits in a 3x ETF. If the index retreats, I get out at my entry point, no harm, no foul. Only a fool would pass up on a free trade, regardless of how it turned out.

Sure, the index could have retreated before I was able to lift my stops to my entry points, but since that was on a partial position with a nearby stop, it wouldn’t have hurt much. Even that was a worthwhile trade with a low risk and a high reward, especially when the market was ripe for a bounce after two days of brutal selling.

Critics will claim buying Friday morning’s bounce was a mistake, but it was a mistake I will happily make every chance I get. Bring on those free trades. While this one didn’t work, one of them will, and that’s when I will collect a mountain of free profits.

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Sep 21

There are only two ways this ends, and how savvy traders are approaching it

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 gapped under 4,400 support Thursday morning and kept going as Wednesday’s fear trade continued. By the time it was all said and done, the index finished down a dreadful -1.7%. That was enough to make this the lowest close since June. Ouch.

The Fed didn’t say what investors wanted to hear Wednesday afternoon, and that kicked off this 120-point tidal wave of reflexive selling.

There are two ways this plays out: either we bounce, or we don’t. It really is that simple. Since I don’t believe Wednesday’s headlines changed anything, I’m looking for a continuation trade. After this wave of volatility and reflexive selling passes, the market will go back to what it was doing previously, which was consolidating this summer’s gains between 4,400 support and 4,400 resistance.

The thing to keep in mind is the market only changes its long-term trend every other year, give or take a few years. While something this vague can’t be used as a timing signal, it is a useful fact to keep in mind when debating if the market’s long-term trend has changed. If we get 400 sessions of continuation for every one change in direction, the odds always heavily favor a continuation, not a change in trend.

Until proven otherwise, I will continue giving the bull market the benefit of the doubt and will view this weakness as a buying opportunity.

As I wrote Wednesday evening:

Since the market didn’t pop Wednesday afternoon, that means I’m trading the dip and bounce. Maybe we bounce Thursday morning and never look back. Maybe we fall a little further under 4,400 support before bouncing. Either way, I’m waiting for the bounce and then jumping aboard. The lower this goes now, the more money I make buying the bounce in a 3x ETF.

Just because buying the bounce didn’t work on Wednesday or Thursday doesn’t mean that strategy won’t work on Friday or even next week. The market has a nasty habit of convincing us we are wrong moments before proving us right.

Without a doubt, this could be the start of the next major bear market, and we need to protect our backside because there is no excuse to ride a losing position all the way into the dirt, but until I see something more compelling, I will keep waiting for the bounce. Even if this is the start of a bear market, a bounce is still headed our way because bear markets bounce too. In fact, some of the easiest and fastest money is made trading bear market rallies.

Of course, Thursday’s price action reminds us why only fools buy dips. Low has a nasty habit of getting even lower, and this is definitely one of those times where it is better to be a little late than a lot early. Savvy traders wait for the bounce. Start small, get in early, keep a nearby stop, and only add to a position that’s working.

And if our first, second, and third trades get stopped out? No big deal. We make mistakes with small positions and nearby stops, while we ride the winner with full positions and a far larger profit targets. Follow this simple plan, and the math will work out in our favor.

As I wrote Wedensday, when I’m standing safely on the sidelines, I’m happy to be wrong. Bring on another wave of selling because the lower this goes now, the more money I make buying the inevitable bounce.

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Sep 20

How smart money is approaching Wednesday’s decline

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 shed 1% Wednesday after the Fed kept interest rates unchanged.

That non-move was widely expected, so stocks were not responding to the September rate decision, but to what the Fed said about the remainder of 2023 and 2024. At this point, the Fed’s data telegraphs one more rate hike this year and keeping rates that high through the end of 2024.

None of this surprises anyone because the Fed’s been consistent in their messaging for weeks, if not months. But it does poke a hole in the hopes that the end of this tightening cycle is closer than 2025.

That said, odds are good the Fed isn’t going to stick to its plan through the end of 2025 because when else have they correctly forecasted the economy a year and a half ahead of time?

Most likely, the Fed is simply leaving the door open to further hikes so they don’t disappoint investors if they need to hike again. This is the classic under-promise, over-deliver.

Since the Fed decision and outlook were exactly what the crowd expected, it is already priced in, and we shouldn’t expect Wednesday’s selling to turn into anything more than another test of 4,400 support. It takes new and shocking developments to send the stock market into a tailspin, and we didn’t get anything remotely close to that Wednesday afternoon. Two steps forward, one step back. Rinse and repeat.

As I wrote Tuesday evening, I am approaching this as a buying opportunity. The only question was if I was going to buy a pop Wednesday afternoon or wait through the dip and bounce:

I’m a buyer on Wednesday afternoon if the index trades well after the Fed statement. If prices fall, I’m still interested in buying, but I will wait for capitulation first. Maybe that happens Wednesday afternoon, or maybe we need one last puke-out Thursday. But no matter what, I am looking at this as a buying opportunity. The only difference is if I buy on Wednesday afternoon or wait until Thursday or Friday.

Since the market didn’t pop Wednesday afternoon, that means I’m trading the dip and bounce. Maybe we bounce Thursday morning and never look back. Maybe we fall a little further under 4,400 support before bouncing. Either way, I’m waiting for the bounce and then jumping aboard. The lower this goes now, the more money I make buying the bounce in a 3x ETF.

Anyone trading Wednesday’s decline like the world is ending clearly isn’t paying attention. The market is consolidating the summer’s gains near 4,400 support—nothing more, nothing less.

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Sep 19

How smart money is trading the Fed meeting

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Tuesday’s session off a modest 0.2%. Not bad, considering the index was down nearly 1% in midday trade.

All eyes are on the Fed’s meeting. While there is near universal agreement the Fed will keep interest rates steady Wednesday afternoon, the crowd is far more interested in what they have to say about November’s meeting and beyond. Will they keep hinting at another rate hike this year? Will they mention the possibility of rate cuts next year? Those questions will drive the next waves of buying and selling.

That said, the Fed tries really hard not to spook the market, so we shouldn’t expect anything surprising. After a brief reflexive knee-jerk of volatility Wednesday afternoon, the market will quickly go back to what it was doing previously, which is consolidating the summer gains above 4,400 support.

Tuesday’s midday selling actually increases the odds of a decent finish on Wednesday afternoon. That’s because the market got rid of a bunch of weak-kneed owners, and once those people sell, their opinions don’t matter anymore.

As is typically the case, we can ignore the first 15-ish minutes after the Fed announcement because those knee-jerk swings often go in the wrong direction. But after 30-ish minutes, the market can’t hide its true intentions, and that’s when we have the green light to jump aboard the next trade.

I’m a buyer on Wednesday afternoon if the index trades well after the Fed statement. If prices fall, I’m still interested in buying, but I will wait for capitulation first. Maybe that happens Wednesday afternoon, or maybe we need one last puke-out Thursday. But no matter what, I am looking at this as a buying opportunity. The only difference is if I buy on Wednesday afternoon or wait until Thursday or Friday.

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Sep 15

Why bulls and bears are still getting it wrong and how savvy traders are making money

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 tumbled -1.2% Friday on relatively benign headlines.

We got some decent economic headlines from China, while the UAW hit The Big Three with targeted strikes. While the UAW strikes have the potential to affect the US economy if they drag on long enough, The Big Three stocks were actually up during the session, so if their knowledgeable investors are not worried, then the rest of the market shouldn’t be too concerned.

Instead, Friday’s givebacks were nothing more than the routine gyrations of an index consolidating 2023’s impressive gains. Stocks go up, and stocks go down, the same way you and I breathe. This is all very standard stuff. There is no reason to read more into Friday’s dip than that.

Luckily, none of this surprised readers. I wrote the following a week ago, and the subsequent price action played out exactly as expected:

As for what comes next, these swings are vanilla sentiment gyurations and nothing more. Going up and down like this is as natural as breathing for the market. Since the latest wave of selling wasn’t propelled by meaningful and unexpected headlines, it won’t go far and we are nearing the bottom.

That means locking in our short 3x ETF profits and getting ready to buy the next bounce. It will probably take one or two more tests of 4,400 support before we bounce for good, but taking profits a little early makes sure we are in the right spot to take advantage of the next trading opportunity, which is most likely buying the bounce Friday or early next week.

The funny thing is I could be copy and paste last week’s analysis into Friday’s analysis because not one thing has changed.

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As for what comes next, expect more of the same. We are stuck in a trading range between 4,400 support and 4,600 resistance. Until something more meaningful comes along, exepect this sideways chop to persist.

As for trading, that means catching these waves and then taking profits early and often because if we hold one or two days too long, those profits will be long gone.

This is the wrong time to be trading for a big directional move and stubborn bulls and bears will keep getting chewed up. For the rest of us, keep squeezing these profits out of the market a few dozen points at a time. While that doesn’t sound like a lot, make these trades in a 3x ETF and now we are taking about real money, especially for what ammounts to a few days of work.

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Sep 11

The foolish mistake both bulls and bears are making

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 rebounded another 0.7% Monday after nothing terrible happened over the weekend.

Headlines remain benign, and that means this continues to be a sentiment trade. Since sentiment trades don’t go very far in either direction, it’s not a surprise to see these swings stall and reverse within a handful of days.

Lucky for readers, I anticipated this bounce in last Thursday’s free analysis after the index fell for three sessions in a row:

As for what comes next, these swings are vanilla sentiment gyrations and nothing more. Going up and down like this is as natural as breathing for the market. Since the latest wave of selling wasn’t propelled by meaningful and unexpected headlines, it won’t go far and we are nearing the bottom.

That means locking in our short 3x ETF profits and getting ready to buy the next bounce…[T]aking profits a little early makes sure we are in the right spot to take advantage of the next trading opportunity, which is most likely buying the bounce Friday or early next week.

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Bulls and Bears positioning themselves for the next big breakout or breakdown keep getting frustrated by this stalling and reversing price action. But for those of us who see this for what it is, buying the dips and selling the bounces is the best way to squeeze some very attractive 3x ETF profits out of this market.

At this point, I don’t see this pattern changing any time soon. We need something dramatic to wake us from this sideways grind. I don’t know what that will be, but I will know it when I see it, and so far, I don’t see it.

The warning I gave readers last week is equally applicable this week:

And when this dip finally bounces, don’t expect it to go far and take worthwhile profits off the table as soon as we have them because, just like [last] week, it won’t be long before those profits get away from anyone that gets greedy and holds too long.

If we’re not expecting a big rally, that means we are already looking at these 3x ETF profits and planning an exit.

The market is acting well enough, and Monday’s nice close tells us to keep holding. So keep holding and lifting our stops. But remember, the biggest mistake is letting a winning trade turn into a loser, so make sure our 3x ETF stops are at least as high as our entry points. With little to no risk underneath us and lots of profit opportunity above us, what’s not to like about this trade?

My plan is to see what happens Tuesday and make a decision on what to do with these 3x ETF profits based on the upcoming price action. But so far, so good.

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Sep 07

How smart money is profiting from from this chop

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 slipped 0.3% Thursday, making this the third losing session in a row, and the index opened low enough to have given back all of last week’s impressive gains.

As they say, easy come, easy go. Anyone who got greedy last week and was holding for even higher prices watched all of their profits escape. But this doesn’t surprise those of us that have been doing this for a while. The market rewards those with the courage to buy when others are fearful and sell when everyone else becomes hopeful. The market goes against our innate instincts, which is what makes trading successfully so hard for most people.

Once we recognize these patterns and conquer our impulses, we can make a lot of money from other people’s mistakes. This is what I was telling readers two weeks ago when the crowd was convinced stocks were going crash a lot lower moments before they rebounded 150 points instead.

As I wrote back on August 25th, when the index was probing 4,350 support:

The market’s natural inclination is to go up, and breakdowns are breathtakingly fast. Combine those two concepts, and [August 25th] modest rebound definitely favors the bulls. If we were going to break down, prices should have taken another tumble [today].

Something that refuses to go down will eventually go up, and that’s exactly what happened over the next two weeks. But late last week, when the rebound is obvious to everyone, that’s was when smart money was locking in their 3x ETF profits.

Following that very profitable rebound, on August 30th, I warned:

[T]his is a better place to be collecting our 3x ETF profits than adding new money. By the time it looks safe, it is usually too late to buy…Now, don’t get me wrong, I’m not predicting a return to recent lows under 4,400. But everyone knows the markets move in waves, and after a nice bit of up, we need a little down.

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Well, here we are. A big portion of August’s rebound has been wiped out, and the lucky ones have nothing to show for it. Those that couldn’t control their impulses and were chasing prices higher last week, got in right before the fall and are sitting on a humuliating pile of losses. (That said, I do have to thank these tardy buyers for taking my 3x ETFs off my hands and leaving me with a pile of profits!)

As I said above, this isn’t hard once we start following the patterns and conquering our impulses.

As for what comes next, these swings are vanilla sentiment gyurations and nothing more. Going up and down like this is as natural as breathing for the market. Since the latest wave of selling wasn’t propelled by meaningful and unexpected headlines, it won’t go far and we are nearing the bottom.

That means locking in our short 3x ETF profits and getting ready to buy the next bounce. It will probably take one or two more tests of 4,400 support before we bounce for good, but taking profits a little early makes sure we are in the right spot to take advantage of the next trading opportunity, which is most likely buying the bounce Friday or early next week.

And when this dip finally bounces, don’t expect it to go far and take worthwhile profits off the table as soon as we have them because, just like this week, it won’t be long before those profits get away from anyone that gets greedy and holds too long.

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Sep 06

This is only hard if we fall for the market’s tricks

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 tumbled 0.8% Tuesday as it undercut both the 50dma and 4,450 support in midday trade. While an afternoon bounce reclaimed 4,450, it wasn’t enough to get the index back above the 50dma.

I warned readers last Thursday something like this was coming when the crowd was busy gorging itself on stocks at the highest levels in several weeks:

[T]his is a better place to be collecting our 3x ETF profits than adding new money. By the time it looks safe, it is usually too late to buy…Now, don’t get me wrong, I’m not predicting a return to recent lows under 4,400. But everyone knows the markets move in waves, and after a nice bit of up, we need a little down.

[E]xpect a little more cooling off over the next few sessions. For the most aggressive, they can short any incremental weakness but keep positions small and profit targets close. Shorting an uptrend is one of the hardest ways to make money in the market, and it requires impeccable timing.

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Well, here we are, three sessions later, and the index is down ~50 points. While 50 points doesn’t sound like a lot, that turns into real money in a 3x ETF.

For the unfortunate masses who held the previous trade too long, they watched a big chunk of their profits escape during Wednesday’s decline. For the nimble traders that collected worthwhile profits last week and then flipped direction, that’s well over 100 points of profit for a few days’ work. Do that a couple of times a month, and now we are talking real money.

As for what comes next, the market loves symmetry. Since we didn’t rally very far from the August lows, we shouldn’t expect this subsequent step-back to be very large. Maybe Wednesday’s test of 4,450 support is all we need to reset the clock. If that’s the case, we should hold above Wednesday’s lows for the remainder of the week.

On the other hand, if we retreat under Wednesday’s lows, look for the selling to push us back near 4,400 support. At this point, I would expect that to be the last gasps of selling before bouncing. (If it’s not, the August lows are under serious threat.)

As I wrote last week, I wasn’t expecting a lot from this week’s retest of support, and that means I was already peeling off my short profits. If the bounce continues on Thursday or Friday, I’m pocketing all of those short profits and going long again. But if we can’t hold Wednesday’s lows, I’m jumping back on the short bandwagon…

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Aug 31

Successful trading isn’t rocket science

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 slipped 0.15% Thursday, ending a four-day winning streak.

After rallying 150 points over a handful of days, it shouldn’t surprise anyone the market wanted to take a breather. And as far as breathers go, -0.15% doesn’t really count, so expect prices to slip a little further over the next few sessions.

Headlines remain benign, but a rebound that didn’t need a headline to kick it off doesn’t need a headline to take a step back. Stocks go up, and stocks go down; that’s all this is.

As I told readers on Wednesday:

[T]his is a better place to be collecting our 3x ETF profits than adding new money. By the time it looks safe, it is usually too late to buy…Now, don’t get me wrong, I’m not predicting a return to recent lows under 4,400. But everyone knows the markets move in waves, and after a nice bit of up, we need a little down.

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This isn’t rocket science, but apparently, Wednesday’s tardy buyers missed the memo. But without late money, we’d have no one to sell our stocks to and give us our profits. So thank them for that.

As for what comes next, expect a little more cooling off over the next few sessions. For the most aggressive, they can short any incremental weakness but keep positions small and profit targets close. Shorting an uptrend is one of the hardest ways to make money in the market, and it requires impeccable timing.

For everyone else, wait for the dip back to 4,450 support and see what happens. If prices bounce, buy that bounce with a stop under this level. If the selling continues, wait for a bounce off of 4,400. Rinse and repeat.

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Aug 30

When good enough is good enough

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 added 0.4% on Wednesday, making it four winning sessions in a row.

Headlines haven’t changed in a meaningful way, and in fact, some weaker-than-expected economic news came out over the last few days, causing many investors to cheer because they assume the Fed is done hiking rates.

Is weaker-than-expected economic news good? I don’t buy into the bad-is-good trading philosophy, but if traders want to buy bad news, no one can stop them.

As for my personal trades, I really liked this market last week when the index was under 4,400. Now that we are above 4,500, the risk/reward flipped against us. A big chunk of the upside has been realized, and there is not a lot left in this move over the near term. On the other side, risk is a function of height, so by that measure, the index is 150 points riskier than it was last week.

Combine these two ideas, and this is a better place to be collecting our 3x ETF profits than adding new money. By the time it looks safe, it is usually too late to buy. No doubt, it won’t take long for many of Wednesday’s tardy buyers to regret that decision.

Now, don’t get me wrong, I’m not predicting a return to recent lows under 4,400. But everyone knows the markets move in waves, and after a nice bit of up, we need a little down. Anyone expecting another 150-point rally over the next few sessions doesn’t understand how markets work.

Smart traders buy when they don’t want to buy, and they sell when they don’t want to sell. This beautiful rebound above 4,500 makes it hard to pull the plug on a 3x ETF trade that is working this well. But collecting worthwhile profits is never a mistake. Remember, we only make money when we sell our favorite positions.

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Aug 29

Don’t make the same mistake bears just made

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 popped 1.5% on Tuesday as the index put the screws to the bears.

There were some minor economic headlines, but certainly nothing worthy of launching the index through the 50dma and 4,450 resistance. Instead, this was a massive short squeeze. Bears spent last week planning all of the things they were going to buy with their profits, and instead, found themselves dumped on their butts with a big pile of losses.

But that’s the way this goes. This is a volatile market, and if we are not taking worthwhile profits when we have them, we will be taking losses a few days later.

Luckily, Tuesday’s pop didn’t surprise readers of this free blog because we’ve been riding this rebound and collecting a big pile of 3x ETF profits along the way. As I wrote Monday evening:

As for what comes next, I like what I see. No one is talking about the Chinese economy anymore. If the market doesn’t care, then we don’t care. Powell’s speech last Friday couldn’t bring out the sellers either. And, we violated 4,400 support multiple times over the last two weeks without triggering another follow-on wave of defensive selling, telling us there is not much supply left under our feet.

A market that refuses to go down will eventually go up, and that’s the way this trade is coming together. Stick with what is working and keep lifting our stops.

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Now that the bears have been squeezed out, who is left to keep buying and pushing stocks higher? That’s a good question.

As good as the market looks right now, this is when smart traders are switching to defense. The market didn’t get surprised by amazing and unexpected news, so we shouldn’t expect a huge repricing of stocks. Instead, bears got their latest trade wrong, and this bounce is correcting that fairly minor mistake. Is there a reason to keep racing higher? No, probably not.

Now, don’t get me wrong. Stocks could easily continue racing back to the highs. But that’s not the most likely outcome, and we shouldn’t base our next trade on hope of the unlikely.

We collect worthwhile profits when we have them because if we hold too long, this volatile market will steal them back. Just ask the bears what that feels like.

We don’t need to dump everything, but we should lift our trailing stops to protect our profits and even consider locking in some worthwhile profits proactively. Remember, we only make money when we sell our favorite positions.

Keep holding, lifting stops, and even taking some profits off the table proactively. And once we are out, start looking for that next trade, which could include buying a continuation higher if that’s what the market wants to do.

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Aug 28

Why the path of least resistance is higher, not lower

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 added a respectable 0.6% on Monday, extending Friday’s 0.7% bounce, and the index is setting up for another run at 4,450 resistance.

Lucky for readers of this free blog, we saw this rebound coming last week when I wrote on Friday:

The market’s natural inclination is to go up, and breakdowns are breathtakingly fast. Combine those two concepts, and Friday’s rebound definitely favors the bulls. If we were going to break down, prices would have taken another tumble on Friday.

It doesn’t take much to trigger the next wave of selling, but so far, this [rebound] is acting well enough to keep giving it the benefit of the doubt. At this point, I’m cautiously optimistic [last] Thursday’s tumble was the fluke, not [September 18th’s] rebound. For the time being, I’m a buyer of Friday’s bounce, with stops not far behind.

If the bounce continues on Monday, I let those profits come to me. If the selling resumes, I get out for a minor loss and try again next time. Lots of upside and limited downside. What’s not to like about this trade?

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As expected, the index rallied on Monday, and I was able to move my stops up to my entry point, turning this into a low-risk trade. If the selling resumes on Tuesday, I get out near my entry points, no big deal. If the bounce continues, I let all of those 3x ETF profits come to me.

Low-risk/high-reward trades are what we dream of. But these setups are only possible when we have the courage to jump aboard a rebound early.

As for what comes next, I like what I see. No one is talking about the Chinese economy anymore. If the market doesn’t care, then we don’t care. Powell’s speech last Friday couldn’t bring out the sellers either. And, we violated 4,400 support multiple times over the last two weeks without triggering another follow-on wave of defensive selling, telling us there is not much supply left under our feet.

A market that refuses to go down will eventually go up, and that’s the way this trade is coming together. Stick with what is working and keep lifting our stops.

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Aug 25

Why I’m already buying Friday’s bounce

By Jani Ziedins | End of Day Analysis

Free After-hours Analysis:

Friday’s session took the S&P 500 on another wild ride. The index opened up 20 points, then fell 40 points from those early highs, before finally rebounding and closing with a respectable +0.7% gain. Watch that price action too closely, and one is bound to get whiplash.

The big economic headline was Powell’s speech from Jackson Hole, where he stressed a cautious approach to further rate hikes. That was enough to keep the market from tumbling into another tailspin, but it wasn’t enough to get buyers to start chasing prices higher with reckless abandon. In the end, we recovered half of Thursday’s tumble, which was a fairly decent showing, all things considered.

Lucky for us, this performance is exactly what I was looking for. As I wrote Thursday evening:

As for what comes next, last Friday’s bounce is still alive, even if it is on life support. If we trade well Friday afternoon, Thursday’s selling will be nothing more than the herd getting spooked and panic selling. On the other hand, if the index falls under Friday’s lows, anything is possible.

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The index held above Friday’s lows and closed decently well, making this a buying opportunity.

The market’s natural inclination is to go up, and breakdowns are breathtakingly fast. Combine those two concepts, and Friday’s modest rebound definitely favors the bulls. If we were going to break down, prices should have taken another tumble on Friday.

We are still in the early stages, and any stability near the lows is fragile. It doesn’t take much to trigger the next wave of selling, but so far, this is acting well enough to keep giving it the benefit of the doubt.

At this point, I’m cautiously optimistic this Thursday’s tumble was a fluke, not last Friday’s rebound. For the time being, I’m a buyer of Friday’s bounce, with stops not far behind.

If the bounce continues on Monday, I let those profits come to me. If the selling resumes, I get out for a minor loss and try again next time. Lots of upside and limited downside. What’s not to like about this trade?

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Aug 24

Why smart money was not surprised by Thursday’s aggressive selloff

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 opened Thursday morning above 4,450 as investors cheered NVDA’s AI-fueled earnings results. Unfortunately, the enthusiasm was short-lived. Not only did the index give back all of those opening gains, but it lost all of Wednesday’s pop, too.

Rising interest rates and the index running into overhead resistance at 4,450 and the 50dma were too much for the index to handle. Once the cracks started showing, skittish owners scrambled for the exits.

Lucky for us, running into resistance at these key technical levels doesn’t surprise regular readers. As I wrote in Wednesday’s free post titled: “Why smart money is already eyeing the exits”

Capturing a big portion of a 100-point move in a 3x ETF is real money! That’s why we are already shifting our mindset from offense to defense. Start looking for an opportunity to harvest profits. 4,450 is coming up quickly, which will bring prior support/resistance and the 50dma into play. At the very least, these levels will be a minor speed bump. At worst, we could hit hour heads and tumble back to the lows, so we need to be watching how the market behaves at these levels over the next couple of days.

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I will be honest; I was fairly certain I was collecting profits too soon when I pulled the plug Wednesday afternoon, and I never would have guessed the index would tumble as aggressively as it did on Thursday. But at the same time, I’ve been doing this long enough that nothing surprises me, and that’s why I was happy to sell “too early” Wednesday afternoon when I had a nice pile of profits.

This is a choppy market, and if we’re not taking worthwhile profits when we have them, the market will take all of those profits back.

As for what comes next, last Friday’s bounce is still alive, even if it is on life support. If we trade well Friday afternoon, Thursday’s selling will be nothing more than the herd getting spooked and panic selling. On the other hand, if the index falls under Friday’s lows, anything is possible. Lucky for us, we pulled the plug long before that can happen.

Buy a nice bounce on Friday and sell a continuation of Thursday’s selloff. As jumpy as traders are, something is going to happen, and all we need to do is hop on and enjoy the ride.

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Aug 23

Why smart money is already eyeing the exits

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

What a difference a day makes. Tuesday’s second thoughts were smashed by Wednesday’s 1.1% rally that surged through 4,400 and kept going.

As I wrote in Tuesday’s free analysis:

Keep holding Friday’s purchases with stops already moved up to at least our entry points. If the rebound continues, we let the profits roll in. If the selling resumes, we get out near our entry points and try again next time. Lots of upside and very little downside, what’s not to like about this trade?

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The market loves to make us second-guess our trades. If it wasn’t trying to get us to abandon our positions, it wouldn’t be doing its job. And as we all know, the market is very, very good at its job. But at this point, routine second-guessing is all that last week’s selloff appears to be. Headlines remain stable, and this rebound is simply the realization that last week’s Chinese fears were overblown, at least as far as U.S. equities go.

Capturing a big portion of a 100-point move in a 3x ETF is real money! That’s why we are already shifting our mindset from offense to defense. Start looking for an opportunity to harvest profits. 4,450 is coming up quickly, which will bring prior support/resistance and the 50dma into play. At the very least, these levels will be a minor speed bump. At worst, we could hit hour heads and tumble back to the lows, so we need to be watching how the market behaves at these levels over the next couple of days.

Remember, taking profits too early is always better than holding too long and letting all of these profits escape. Just because we lifted our stops above our entry points doesn’t mean we should let the index fall back to our stops before locking in profits. And remember, buying and selling are not binary decisions. We can always take some profits and let the remaining portion of our position ride, hedging our bets by taking the best from both approaches.

Keep holding, lifting stops, and start moving toward the exits.

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Aug 22

Why smart money is buying this bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 gave up -0.3% on Tuesday after starting the session up a respectable 0.4%

Nothing much happened in the headlines, and this continues to be a sentiment based trade echoing last week’s Chinese rate cut.

As I said last week, it’s been forever since China mattered to U.S. stocks, and I don’t think that is going to change here. Instead, the market cooled off for no other reason then it needed to cool off, and it didn’t really matter what the headlines were.

Since there isn’t much bite to last week’s headlines, it won’t require a massive capitulation to reverse itself and pull out of this tumble. Odds are decent Friday could have been the worst of this latest wave of selling.

Luck for readers, we were ready for it. As I wrote on Friday:

By acting decisively Friday morning, we already have a nice profit cushion and can move our stops up to our entry points, greatly reducing our risk. If this bounce is the real deal, the profits will keep rushing in. If this is another fake bottom on our way lower, we get dumped out near our entry points and get to try again next time, no harm, no foul.

As for next week, if the index retreats back to Friday’s intraday lows, all bets are off. But until that happens, we have the green light to keep holding, adding, and lifting our stops.

We will learn a lot about the market’s mood over the next three sessions. That’s when either the buyers or the sellers run out of ammunition and the market moves in the opposite direction. A strong performance in the back half of the week and the bounce is still on. Fall back to the lows and bears are still in c0ontrol. It really is that simple.

At this point, the bounce is still alive, and I’m giving it the benefit of the doubt until it proves me wrong.

Keep holding Friday’s purchases with stops already moved up to at least our entry points. If the rebound continues, we let the profits roll in. If the selling resumes, we get out near our entry points and try again next time. Lots of upside and very little downside, what’s not to like about this trade?

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