Category Archives for "End of Day Analysis"

Sep 10

Jani’s Trading Diary: September 10th, 2019

By Jani Ziedins | End of Day Analysis

My Trading Diary

The S&P 500 tumbled for a second day, but the losses were relatively mild as compared to recent volatility. Nothing wrong with a little give back following a strong move over the last few weeks. That said, I was feeling defensive and yesterday’s mediocre close convinced me to take profits in 1/3 of my position. No doubt this was premature, but I had profits and I didn’t want to let them get away. Plus I still have 1/3 left and will benefit if prices rebound. And as I often write, I can always get back in.

I still feel good about the medium-term prospects, but we could test the 50dma and 2,950 over the next few days. That would be a normal and healthy thing to do. Or maybe this morning’s dip is as far as we go. Either way, this market wants to go higher, not lower and every dip is a buying opportunity.


My Trading Plan

Most Likely Next Move: A little cool down that will bounce soon. If the bottom isn’t already in, look for a bounce near 2,950ish.

My Trading Plan: Took some profits yesterday, but already looking to get back in if we close well.

If I’m Wrong: Prices undercut 2,950 and that triggers a tidal wave of defensive selling. But as long as we stick to our stops, then all that dip is is another profit opportunity.

Aug 29

Free Premium Analysis Excerpt: August 29th, 2019

By Jani Ziedins | End of Day Analysis

A free excerpt from today’s Premium Analysis:


Market Mentor

Tuesday morning’s gains launched us above the psychologically significant 2,900 level and prices are within 100-points of all-time highs. People who sold last week’s headlines are now having second thoughts, and that’s the way this game goes. Traders who make the most money are the ones that trade proactively, not react reflexively to what everyone else is doing.

There is a very important difference between selling because your preplanned stop was hit and selling because you are scared things will get worse. Just like there is a difference between holding because that is what your trading plan said you would do and holding because you are hoping that the market will bounce at any moment. Pros trade their plans, amateurs trade their gut.

While there is no guarantee a trading plan will produce a profit in any single trade, following a solid trading plan definitely guarantees better odds for success over the long run. Always plan your trades. That includes when to buy, when to sell defensively, and when to take profits. Just as important, anytime we get flushed out for a loss, don’t get discouraged because the next buying opportunity could be hours away.

At the moment, the market is buyable as long as we hold 2,900 support. The opening gap made it a little more risky to buy because a sensible stop under 2,900 is a little further away. But we can manage that larger risk by trading smaller. Start small and add more after the position starts working.

In addition to the Market Mentor, premium subscribers receive Premium Analysis, Trading Plan, Highfliers, and Trade Ideas every day during market hours.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Aug 26

How to profit sensibly from this volatility

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Monday, the S&P 500 recovered a chunk of Friday’s trade war tumble. Last week Trump “ordered” U.S. companies to stop doing business in China and that sent traders scrambling for the exits. But as bad as a 2.6% loss seems, it wasn’t the biggest loss this month. Heck, it wasn’t even the second-biggest loss of in Agust. While three 2.5%+ losses in as many weeks is terrifying, the market is actually holding up remarkably well and is still within 150-points of all-time highs.

Is this a stubbornly bullish market that refuses to breakdown, or a market teetering on the edge of collapse? That’s what we want to know.

Today’s strength was a good sign. The trade war didn’t get worse over the weekend and rather than continue selling the fear, traders were more inclined to buy last week’s discounts. Major selloffs are dominated by “sell first, ask questions later”. Any break in the selling gives people time to analyze the situation and almost always the calm allows people to realize things are not as bad as feared. The trade war has been brewing for a year and a half and it hasn’t killed this bull. That’s doesn’t count as proof these escalations cannot break this market, but odds are a trend is more likely to continue than reverse. Until further notice, expect the market to keep withstanding these trade war headwinds.

Currently, the market finds itself in between two psychologically significant levels, 2,800 and 2,900. While this is a stubbornly resilient market, it is also extremely volatile and that means we should resist the urge to rush in. Wait for the market to prove itself before buying the dip. If prices recover 2,900, that is the signal to jump in. If prices tumble and under 2,800, wait to buy until prices bounce back above this support level.

A big part of the reason to wait until prices recover a key support level is that lets us place a stop close by. The tighter our stop, the less money we have at risk. Another important strategy in volatile markets is reducing our position size so that a big opening gap doesn’t leave us with an uncomfortable loss. While making money is great, long-term success comes from limiting our losses. This volatility is giving us a lot of great trading opportunities, just make sure you keep your risks in check.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Aug 22

What doesn’t kill us makes us stronger

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 started Thursday with nice gains, but a midmorning selloff pushed prices into the red. But rather than trigger a waterfall selloff and crash through 2,900 support, supply dried up, and prices rebounded nicely of the early lows.

Volatility is elevated, and that means abrupt moves in both directions as traders overreact to every bump in the road. And while volatility can be unsettling, the market is actually trading well, all things considered.

Headlines have been quite bearish between Trump’s never-ending trade war escalations with China, the Fed sending out conflicting signals about interest rate policy, and technical indicators telling us the US economy could be headed into a recession. Common sense tells us the market should be down 15%, not the fairly trivial 3% we find ourselves from all-time highs.

There are two ways to interpret this reluctance for the stock market to crash. Either confident owners are incredibly nieve and the crash is coming. Or confident owners are indifferent to these headlines and their lack of selling means these headlines no longer matter (i.e., are priced in).

No doubt you picked the scenario that fits the best with your bearish or bullish disposition. But the thing to remember about stock market crashes is they are brutally quick and happen before most people even know what hit them. There is no time to debate the fundamentals and make a sensible trading decision to sell before things get worse. There is the freefall, and if you stop to think twice, it is already too late.

To put this in context of current market conditions, the big “oh shit” moment happened 21 days ago when Trump announced he was adding tariffs to the last $300 billion in Chinese imports not already taxed. The stock market imploded over the next four days. But after that initial kneejerk of reactive selling, prices have recovered a big chunk of those losses.

If a person believes stock market crashes move in slow motion and we have plenty of time to make thoughtful trading decisions, then they should be nervous. For the rest of us, a market that refuses to go down on bad news will eventually go up.

If prices dip under 2,900 on Friday after the Fed chairman speaks, bouncing back above support is our signal to buy. On the other hand, if prices don’t even slip to 2,900 support, that is our signal this market is stubbornly resilient and higher prices, not lower prices, are ahead of us.

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Tags: S&P 500 Nasdaq $SPY $QQQ

Aug 20

Putting today’s selloff in perspective

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 stumbled Tuesday, shedding 0.8%, but this selling shouldn’t come as a surprise. August has been a volatile month for stocks, and the previous two days of substantial gains left us vulnerable to a normal and routine step back. While this 0.8% loss would be significant in calmer times, it is quite a bit smaller than the gains and losses over the last few weeks, and it should be taken in that context. Noteworthy, but not alarming.

More importantly, the S&P500 finds itself near 2,900 support. This is after multiple dips under this psychologically significant level over the last few weeks. Trade tensions flared and recession fears spread over the previous few weeks, causing many investors to shift to a defensive posture. But rather than devolve into a downward spiral of selling, supply dried up under 2,900 and prices bounced. That’s because confident owners remain stubbornly confident. It is hard to trigger a waterfall selloff when so few owners are interested in selling their beloved stocks. When traders stop selling the headlines, they stop mattering. And there is a good chance that is what happened here.

This afternoon’s close pushed prices back to 2,900 support. And while this development is noteworthy and worth our attention, the longer we resist selling off, the less likely it is we will selloff. That’s because market crashes are breathtakingly quick and unravel before most people realize what happened. This “crash” is entering its third week. If this market was fragile and vulnerable, it would have crumbled weeks ago.

If the S&P 500 tumbles under 2,900 support over the next few days, we have to adopt a defensive posture, but if prices bounce back above this key level, that is our buy signal. We trade the market, not the headlines. No matter what we think is going on around us, the only opinion that matters is the market’s.

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Tags: S&P 500 Nasdaq $SPY $QQQ

Jul 10

Fear the highs or embrace them?

By Jani Ziedins | End of Day Analysis

Free After Hours-Analysis: 

Find my Trading Plan at the end of this post.

Federal Reserve Chairman Jerome Powell testified in front of congress Wednesday, suggesting the Fed is ready to cut interest rates later this month in order to protect the U.S. economy against the risks of slower global growth and trade-policy uncertainty. His dovish testimony put traders in a buying mood and the S&P500 briefly poked its head above the psychologically significant 3,000 milestone. While that was great for the record books, as I’ve written previously, we are still stuck in the slower summer months and that means we don’t have the firepower necessary to fuel an explosive move higher. Instead, expect prices to move more methodically. But as long as there is more up than down, all is good.

All of the negativity that hung over the market last year has disappeared. But this is no surprise, in early June I wrote the following when traders were scrambling for cover after the S&P 500 challenged 2,800 support:

“We trade the market we are giving and so far this one keeps acting like it wants to go higher. As long as we hold 2,800 support, then we should continue giving it the benefit of doubt. Follow the market’s lead. If it doesn’t want to be bothered by the trade war, then neither should we. If prices continue recovering next week and remain above 2,800 support, Monday’s dip to 2,750 was just another buyable dip on our way higher.”

And here we are, nearly 7% higher since I wrote that.

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The Fed stopped raising rates. We got a truce in the trade war. The Fed is even contemplating rate cuts. And most importantly, despite all the worry, the economy is still holding up remarkably well. Of all of the things that could have gone wrong, we avoided the worst. In fact, things actually turned out pretty well. As usual, the traders overreacted to “what ifs” and that triggered to last fall’s stock crash. But for those of us that recognize the buying opportunity, those repressed stock prices gave the opportunity to profit from the inevitable “less bad than feared”. Avoiding the worst is all it took to get us back to the highs.

Now that we’re making new highs, there isn’t any reason to stop. At least over the near-term. The headline storms are parting and this market rallied every time tensions cooled off. There is no reason to think it won’t happen this time too. That said, temper your expectations. Big money is still on vacation and that means a bigger directional move won’t happen until their deep pockets return in the fall. Until then, enjoy this gentile glide higher.


Market Mentor

It feels like I’ve said this a million times this year, but the best plan is always sticking with what is working. If this market wants to go higher, there is no reason to argue with it. The previous three days of early weakness was met with indifference. In fact, most traders were more inclined to buy the opening dip than jump aboard the selling.

Conventional wisdom tells us complacent markets are dangerous, but the thing conventional wisdom always forgets to mention is how long markets can remain complacent before they fail. This bull market will die like all of the others that came before it. But this is not that time. Until further notice, keep doing what has been working.


Trading Plan

Most Likely Next Move: The slow glide higher continues. Down days are inevitable, but as long as there is more up than down, all is good.

Trading Plan: Stick with what is working and that is buying any dip and every breakout.

If I’m Wrong: Headline fear-mongering comes roaring back. The most likely culprits are either a return of trade war escalations or the Fed disappointing by not cutting rates at their next meeting. Either of these events are still weeks away, so we don’t need to worry too much about them right now.


Highfliers

FB and AMZN are breaking above their recent highs and look great technically. NFLX is close behind but hasn’t exceeded recent highs yet. But if the broad market keeps trading well, expect NFLX to follow suit. AAPL is a little further back, but it is still performing well given the trade risks the company is faced with. GOOGL is the biggest laggard of the bunch, but that also means it has the most room to improve. It is well off its lows and seems like traders are growing immune to the anti-trust issues facing the company.

Bitcoin flirted with $13k again this morning. We’ve come a long way from the $3k lows of only a few months ago. While anything is possible with something as volatile and speculative as BTC, a little cooling off and consolidation above $10k would go a long way to refreshing the market and building a solid platform for the next move higher. $10k continues to be the line in the sand. As long as we stay above it, everything looks good. But it could be a while before we see the next explosive move higher. There is nothing to prevent a buying frenzy from pushing us through $15k tomorrow, but it is prudent to prepare for a longer wait before the next big move higher.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AAPL $AMZN $AAPL $NFLX $GOOGL $BTC.X

Jun 25

How to trade this stalling at resistance

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 stumbled Tuesday in the biggest loss in nearly a month. Last week’s relief as prices surged to all-time highs has turned into this week’s second thoughts. Nothing material has changed in the headlines, but running into resistance near the highs was inevitable as I explained last week:

“Now that prices bounced back near all-time highs, the question is, “what comes next?” I wish I could say the path is rosy for as far as the eye can see. Unfortunately, that is never the case. Momentum is definitely higher and prices will creep back toward all-time highs next week and even start encroaching on 3,000, but the thing we need to remember is we are stuck in the slower summer season. That means big money is on vacation and without their buying power, it will be hard for smaller investors to fund a larger directional move. For that, we need big money and they won’t be back until the fall. So temper your expectations until then.”

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That said, 1% losses are normal and routine. If anything, we should be more surprised by the lack of them, not that one happened today.

The biggest financial headlines continue to revolve around the Fed’s interest rate policy and Trump’s trade war with China. While the Fed didn’t cut rates last week, they said the right things and pushed stock prices to record highs. But that was largely expected, so the bounce was short-lived and now traders are shifting their attention back to trade negotiations as Trump and president Xi are scheduled to meet later this week.

The last time these two got together, they diffused the trade situation with Trump agreeing to postpone a tariff increase. But that reprieve was only temporary and May’s stock tumble started after Trump surprised everyone by going ahead with those tariffs.

Will we see more of the same this time? Probably. Both sides will play nice for the cameras and that will send hope back into the market. But when it comes to actually putting a deal together, the details could derail the process for the umpteenth time since these negotiations started more than a year ago.

Sentiment moves in waves. Periods of relief are inevitably followed by periods of second-guessing. And we should expect the same here. Prices that dip are viewed as good bargains and are snapped up by savvy investors despite the negative headlines. The opposite happens as prices rise on good news and become expensive. Rather than pay the premium, savvy investors are locking in profits and waiting for the next bargain.

As prices push up to resistance during the slower summer months, it shouldn’t surprise anyone to see the rate of gains stall. The only question is if this market refreshes by dipping or by trading sideways. I don’t know the answer to that, but I don’t need to in order to make a good trade. Instead, we wait for the market to tell us what it wants to do and then we jump aboard and enjoy the ride.

Buyable dip or breakout after a lengthy consolidation? Both are very tradable and we should formulate a trading plan around each scenario. Click To Tweet

Buyable dip or breakout after a lengthy consolidation? Both are very tradable and we should formulate a trading plan around each scenario. What signals do you need to see before jumping in? How much of a dip? What constitutes a breakout? I know what works for me, but my risk tolerance and time frame are different than yours. Decide what works for you and then go for it. And just as important as when to get in, don’t forget a plan to get out. That includes both stop-losses and when to take profits. The next trade is coming. Now is the time to get ready for it.


Trading Plan:

Most Likely Next Move: Consolidating after running into resistance near all-time highs. The market will either refresh through a buyable dip back to support, or an extended sideways consolidation under resistance followed by an upside breakout.

Trading Plan: Buy the next dip or the next breakout

If I’m Wrong: Rather than consolidate, Trump and the Fed answer all of the market’s prayers and prices smash through the highs and don’t look back. Any large upside move needs a fundamental catalyst to suck in new buyers. If we see a headline driven buying frenzy, join the party and enjoy the ride higher.


Bitcoin continues its wild gyrations, but more important than any of these daily swings is that prices remained firmly above $10k. That is the line in the sand. Stay above it and all is good. Fall under it and that could be the end of this bounce. The risks are extraordinarily high. The safe time to buy was back at $4k. People chasing prices above $10k face a good chance of getting burned. Volatility and the risks are too high for my tastes. I’d rather wait to see BTC hold these prices for a while before betting on a bigger move higher. That means I might miss the next move. But I’m okay with that. There is investing and there is gambling. To me, betting on a big move higher today is a lot closer to gambling than investing. As the saying goes, it is better to miss the bus than get hit by the bus.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AAPL $AMZN

Jun 18

A lot can change in a few short weeks

By Jani Ziedins | End of Day Analysis

Free After-Hours Update

Trading Plan: at the end of this post.

The S&P 500 burst higher Tuesday, ending last week’s stalemate between 50dma support and 2,900 resistance. The market is excited to see the ECB and Fed inching toward economically stimulating rate cuts. Further boosting sentiment, Trump and the Chinese president scheduled a face-to-face meeting next week to resolve their trade differences.

Three weeks ago the market was in the dumps and traders were abandoning stocks ahead of what many assumed would be a much larger summer swoon. Fast forward to this his week and everything is great and the market is approaching all-time highs. And so swings the pendulum of sentiment. But these developments shouldn’t come as a surprise for regular readers of this blog.

Two weeks ago I wrote the following:

“[W]e trade the market we are giving and so far this one keeps acting like it wants to go higher. As long as we hold 2,800 support, then we should continue giving it the benefit of doubt.

I won’t pretend like I know what Trump is going to do and if those decisions will push the US into a recession. Instead, we follow the market’s lead. If it doesn’t want to be bothered by these things, then neither should we.

[I]f prices continue recovering next week and remain above 2,800 support, Monday’s dip to 2,750 was just another buyable bump on our way higher.”

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Now that prices bounced back near all-time highs, the question is, “what comes next?” I wish I could say the path is rosy for as far as the eye can see. Unfortunately, that is never the case. Momentum is definitely higher and prices will creep back toward all-time highs next week and even start encroaching on 3,000, but the thing we need to remember is we are stuck in the slower summer season. That means big money is on vacation and without their buying power, it will be hard for smaller investors to fund a larger directional move. For that, we need big money and they won’t be back until the fall. So temper your expectations until then.

The biggest headlines ahead of us continue to be a resolution/breakdown of the US/Chinese trade negotiations and a change in the Fed’s interest rate policy. A constructive trade deal would remove a major uncertainty hanging over the market. A breakdown and escalation will renew uncertainty. I wish I could predict the outcome, but it is hard when dealing with leaders and their egos. Neither leader wants to be viewed as caving and that is how we got to this point. Will it get better? Maybe. But there is also a reason this has dragged on for nearly a year without a resolution.

Luckily, the market has been placing less emphasis on the trade war. People who fear these headlines sold a long time ago and were replaced by confident dip buyers who don’t mind these headlines. This process of purge and replace is how markets price bad news in. Eventually, it gets to the point where there is no one left to sell a headline and the market stops caring. The longer this trade war drags on, the closer we get to that point. May’s tumble started when Trump surprised everyone by doubling the taxes on Chinese imports. While that lead to some near-term weakness, it was short lived and the market has since recovered nicely. A further escalation will send a shock through the market again, but this reaction will be even smaller.

Far more important to traders is what the Fed does. Expectations of rate cuts grow by the day. Disappointing employment numbers were met with cheers earlier this month because that increases the odds of a rate cut. It is actually getting to the point that the market will be disappointed if the Fed doesn’t cut rates soon. And given how cautious the Fed has been, there is a good chance it could continue its “wait and see” approach. That would disappoint the overly optimistic take the air out of this hope-filled rebound.

I won’t pretend like I know what Trump and the Fed will do next. Instead, I will focus on the market and make my trading decisions based upon what it is doing and where the risks lie. The market is acting well, but prices are quickly approaching resistance near the old highs. The higher prices go, the greater the risks. The swift June rebound means buying now is riskier than it was a few weeks ago. If the market is settling into a summer trading range between 2,800 and 2,950, this is a better time to be taking profits than adding new money. That said, if the bad news holds off for a couple of weeks, we could see prices inch toward 3,000. But as always, there are no guarantees in the market. What a person does here depends on their timeframe and risk tolerance.


Trading Plan

Most Likely Next Move: Momentum is higher and prices will return to 2,950 resistance and even break through it over the next couple of weeks if the bad news holds off.

Trading Plan: Approaching resistance is a better place to be taking profits than adding new money. If the market continues to trade well, we can always buy back in. If prices stumble, a person cannot buy the dip unless they have cash.

If I’m Wrong: The Fed cuts rates and Trump and the Chinese kiss and makeup. Adding monetary stimulus and removing political uncertainty will send prices sharply higher. But if these events trigger a bigger move, there will be plenty of time to jump aboard it.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Jun 06

The good and bad of trading this market

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

TL;DR: At the end.

On Thursday, the S&P 500 continued its rebound from a dip under 2,800 support. But such a reversal shouldn’t surprise readers of this blog. Last week I wrote:

“Tuesday’s tumble challenges 2,800 support for the third time this month and obviously, there are two ways this plays out. Either the market collapses, or prices bounce. Of course, what that looks like over the next few days and weeks is less obvious. The most likely scenario is prices crash through 2,800 support and just when things look their most hopeless, supply dries up and prices bounce.

 

The stock market loves fooling everyone and violating support just before bouncing is the best way to trick both sides into giving away money. Convince the bulls to abandon their favorite positions all while tempting bears to jump on the short bandwagon. But rather than prove these second-guessers and cynics right, the market embarrasses both by turning around not long after they make their bearish trades.”

And so far that is exactly what happened this week.

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Now that prices are back above 2,800 support, the question is what comes next?

The biggest headline in front of us is Monday’s deadline for new tariffs on all Mexican imports. If Trump follows through on his threats, it creates an all-new front to his trade wars. This adds punitive taxes on imports from our two largest trading partners. New taxes are great if you are a government bureaucrat and love spending other people’s money. Unfortunately, new taxes are a burden on hard-working American consumers and US business. And as most business savvy people know, increasing taxes is never good for the economy.

It doesn’t matter what the Fed does, if the US economy falls into a recession, stocks will go down. Click To Tweet

The biggest threat is if these growth robbing taxes push the US economy into a recession and is why the Fed is growing increasingly cautious. They told us this week they were open to rate cuts if the trade war weakens the US economy and those comments kicked off the latest rebound. But in reality, it doesn’t matter what the Fed does, if the US economy falls into a recession, stocks will go down.

No matter what happens months from now, we trade the market we are giving and so far this one keeps acting like it wants to go higher. As long as we hold 2,800 support, then we should continue giving it the benefit of doubt. But if we cannot hold this critical support level and start a new trend of lower highs, we need to shift to a more defensive outlook and for the first time in a long time, that includes our long-term investments.

I won’t pretend like I know what Trump is going to do and if those decisions will push the US into a recession. Instead, we follow the market’s lead. If it doesn’t want to be bothered by these things, then neither should we. If it wants to overreact to them, then that reaction is what we need to base our trades on.

Prices peaked in early May near 2,950. We bounced up to 2,875 in mid-May. And now we are bouncing to 2,840 in early June. If prices fall under 2,800 next week, that will mark our third lower-high and things don’t look good. But if prices continue recovering next week and remain above 2,800 support, this Monday’s dip to 2,750 was just another bump on our way higher.

Politicians are holding this market hostage and traditional stock analysis doesn’t apply. The best we can do is follow the market’s lead and trade accordingly. Click To Tweet

I wish I could be more definitive with my outlook, but politicians are holding this market hostage and traditional stock analysis doesn’t apply. The best we can do is follow the market’s lead and trade accordingly.


Most Likely Next Move: If prices hold above 2,800 next week, then all is good. If we crash back under support so quickly after retaking it, demand is becoming a serious problem and we should expect lower lows.

Trading Plan: Buy the dip, but keep a tight stop. Start small and only add more after the trade starts working.

If I’m Wrong: Trump’s trade war is killing this bull market and that will show up as a series of lower highs. If investor sentiment flips, this could be the start of a much longer retreat.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

May 28

How to trade the latest test of 2,800 support

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Tuesday, the S&P 500 tumbled for the twelfth time this month on lingering trade war fears. May is on track to be the worst month of what was an otherwise outstanding 2019.

All of this started several weeks ago when Trump caught the market by surprise when he slapped additional tariffs on Chinese goods. China responded by retaliating several days later with further tariffs on US goods.

Trump continued escalating the rhetoric Tuesday when he threatened “substantial” increases on existing Chinese tariffs. Rather than getting better, Trump’s trade war keeps getting worse. No matter what Trump and his supporter believe, the stock market definitely does not agree with this trade war.

That said, this trade war has been with us for over a year and no matter how bad the headlines appear, anything will get priced in eventually. And that includes Trump’s trade war. He doubled Chinese tariffs this month, but the stock market is only down 4%. That’s not because these new tariffs don’t matter. They absolutely do because all taxes are bad for the economy. But the stock market hasn’t reacted in a dramatic way simply because the people who care about these things sold last year and were replaced by confident dip buyers. Eventually, there comes a point when we run out of new people willing to sell a headline. That’s when those headlines stop mattering.

Granted, a 4% pullback feel huge given how gentile this year’s climb higher has been, but we need to keep it in perspective. 5% pullbacks are a common occurrence in every bull market. So, the question is if this May swoon is nothing more than a normal and routine 5% pullback, or if this is the start of something far more insidious?

How often does the market give us four weeks to thoughtfully reflect on a new development and give us the opportunity to get out at our leisure before the eventual collapse? Click To Tweet

The first thing we should remember about market crashes is they are brutally quick. This month’s selloff started several weeks ago when Trump unexpectedly jacked up the tariffs on Chinese imports. How often does the market give us four weeks to thoughtfully reflect on a new development and give us the opportunity to get out at our leisure before the eventual collapse? That’s not how the market normally works.

Tuesday’s tumble challenges 2,800 support for the third time this month and obviously, there are two ways this plays out. Either the market collapses, or prices bounce. Of course, what that looks like over the next few days and weeks is less obvious. The most likely scenario is prices crash through 2,800 support and just when things look their most hopeless, supply dries up and prices bounce.

The stock market loves fooling everyone and violating support just before bouncing is the best way to trick both sides into giving away money. Convince the bulls to abandon their favorite positions all while tempting bears to jump on the short bandwagon. But rather than prove these second-guessers and cynics right, the market embarrasses both by turning around not long after they make their bearish trades.

Hopefully, everyone has their trading plan laid out and already know how they will respond to this violation of support. Will you hold thorough it? Will you sell defensively and be ready to jump back in after the bounce? It all depends on our outlook, risk tolerance, and time frame. What it should never be based on is how we feel in the moment. Only fools let the market turn their emotions against them. Savvy traders plan their trades ahead of time and then trade their plan as conditions warrant.

That said, there is nothing wrong with trimming a position to help sleep at night. But if you sell, always be ready to jump back in as soon as conditions warrant it.


Most Likely Next Move: The dip violates 2,800 support before bouncing.

Trading Plan: Get defensive if needed, but be ready to buy the dip once prices find a bottom.

If I’m Wrong: Waves of emotional selling overwhelm the market and prices tumble all the way to 2,600 support.


Bitcoin popped this weekend. While this strength gives me pause, the cryptocurrency keeps doing everything it needs to do and $10k is the next target. That said, we need to be careful because there are clear signs of market manipulation. All of the big moves over the last few weeks have come in the middle of the night and over the weekend. Times when the volume is the lowest and easiest to manipulate. There is a good chance some unscrupulous players could be jacking up the price in order to suck gullible buyers in so they can sell to them in a classic pump-and-dump.

The buying frenzy in Bitcoin is being driven by the price increases, not a greater adoption of cryptocurrencies. Unless BTC starts delivering on some of its disruptive promises and becomes more ingrained in the economy and consumer behavior, this latest bounce will be nothing more than a fleeting speculative bounce in a much bigger bear market.

BTC keeps acting well and momentum is higher, but the crash will be hard and fast once the music stops. The next move is probably still higher, but we won’t get much warning when this ride ends.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $BTC.X

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