End of Day Analysis – Cracked.Market

Mar 28

A common sense trading plan for an indecisive market

Free After-Hours Analysis:

The S&P 500 finished Tuesday down little more than a tenth of a percent as the choppy, sideway trade continues.

Not much is going on in the headlines and like a kid with ants in his pants, the market can’t stop moving. But just because we’re moving doesn’t mean we are going somewhere. Every bit of up is followed by a bit of down and we continue consolidating in between 3,800 support and 4,200 resistance.

Headlines are fairly stable and that means few people are changing their minds. Nothing has convinced bulls to sell or bears to buy, which means we are stuck bouncing around current levels. No doubt this will change at some point, but it will take a significant and unexpected headline to break this stalemate. Until that happens, expect more of the same.

Until further notice, buy the bounces, sell the breakdowns, and most importantly, take profits quickly. This is the trade the market is giving us and that’s what we are stuck with. No doubt a bigger, directional move is coming, but it will take a fundamental driver to get us there.

That said, if nothing bad happens, expect the market to drift higher over the next few weeks on less-bad-than-feared relief.

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Mar 27

Why fools keep losing money in this very easy market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 kicked off Monday morning with nice gains after nothing bad happened over the weekend. Unfortunately, that early push above 4k resistance turned back and the index gave up a big portion of those initial gains by the close.

As I’ve been saving for a while, anyone anticipating a big directional move is getting chewed up by these whipsaws. Friday’s violation of last week’s lows ended in a big bounce and Monday’s push to recent highs was turned back by 4k resistance.

Smart money is trading against these swings, not in their direction. As I wrote Friday afternoon:

Bears were right for a few minutes [Friday] morning, but if they held on much longer than that, they watched all of those profits go flying out the window. And no doubt it will be the bulls’ turn [this] week when we hit our head on 4k resistance yet again. This is the kind of market where if you are not taking profits, you will be taking losses a few hours later.

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Well, here we are Monday afternoon following a rejection by 4k resistance. If someone is surprised by these reversals, clearly they are not paying attention.

Savvy traders see the market for what it is, not what they want it to be. And that simple nuance is the difference between making money and losing money. Bulls and bears need to be right, I just want to make money and don’t care who wins. And that is making all the difference here.

As for what comes next, expect more of the same. Buy the bounce and sell the breakdown. But remember, we only make money when we sell our winners. If you are not taking profits when you have them, you will end up taking losses days, if not hours later.

Stay nimble and ignore everything coming out of bulls’ and bears’ mouths. This is a choppy trading range. Only fools are trading it like it is going somewhere.

If the index bounces above 4k resistance Tuesday or Wednesday, that is a buy signal. If the selling continues Tuesday, that is shortable. And no matter what happens, take profits early and often because if you don’t, the market will take everything back a few hours later and you will be left holding the bag.

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Mar 24

The secret to printing money in this market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 closed Friday up a very respectable 0.6%.

While a half percent gain is normally nothing to get excited about, this finish was actually a great outcome considering the index found itself in a -1% hole shortly after the open when investors got spooked by a run on another European bank.

Stubbornly high inflation, a tight labor market, the fastest rate hikes in a generation, and now a banking crisis. Sounds like a one-two-three-four punch and the market should be down and out for the count. But it looks like someone forgot to tell the market because it is nearly 500 points above the October lows.

As I’ve been writing for a while, this is a back-and-forth market and anyone trading the breakout or breakdown is getting killed by these reversals. As I wrote Thursday evening:

This is the kind of market where if you are not locking in worthwhile profits, you are left taking losses a few hours later. It really is that simple. Greedy bulls and bears are getting killed while savvy and opportunistic traders are printing money.

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One day’s up is turning into the next day’s down. And now it looks like that time frame has been shrunken down to hours. Bears were right for a few minutes this morning, but if they held on much longer than that, they watched all of those profits go flying out the window.

And no doubt it will be the bulls’ turn next week when we hit our head on 4k resistance yet again. This is the kind of market where if you are not taking profits, you will be taking losses a few hours later.

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Mar 23

The obvious mistake bulls and bears keep making

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday’s +0.3% finishing print in the S&P 500 fails to convey what a wild ride we took through the session.

A huge opening rally erased all of Wednesday’s -1.7% slump as the whipsaw price action continues. But just when the bulls were the smuggest, demand dried up and the index gave back all of those early gains.

This wild price action shouldn’t surprise anyone. As I’ve been writing for a while, this is a back-and-forth market, not a directional one. Every bit of up is followed by a bit of down. As I warned readers Wednesday evening:

[I]f we are not taking profits early and often, we won’t have any profits left to take. This applies equally to both bulls and bears. This is not a directional market, this is a back-and-forth market. One day’s up turned into the next day’s down. Don’t get fooled into trading the breakout/breakdown, trade the reversal.

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This is the kind of market where if you are not locking in worthwhile profits, you are left taking losses a few hours later. It really is that simple. Greedy bulls and bears are getting killed while savvy and opportunistic traders are printing money.

This market is not breaking down and it is not breaking out, so stop trading like it is. The crowd is losing a ton of money. Lucky for us, their losses can turn into our gains.

Obviously, this pattern cannot last forever, but I don’t see any hints this price action is changing. Keep buying the dips and selling the rips until the market proves otherwise. Remember, lock in worthwhile profits early and often because if you don’t, the market will hand you a pile of losses a few hours later.

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Mar 22

Should we be afraid of Wednesday’s pathetic close?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 shed 1.6% Wednesday after the Fed increased interest rates by 0.25%.

Two weeks ago the market would have cheered this 0.25% hike because at that point, many people were predicting 0.5%. But a lot can change in two weeks, namely the entire banking system falling under threat.

Because of the threat posed to banks, the Fed went ahead with this more measured 0.25% increase despite February’s hot employment report and stubborn inflation data.

But rather than cheer the Fed’s moderate step, investors got cold feet and started dumping stocks Wednesday afternoon.

Lucky for us, this giveback was not a surprise. As I wrote Tuesday afternoon following that day’s big surge higher:

Will this relief last? No, probably not. That’s why savvy bounce buyers are standing near the exits and even locking in some worthwhile profits proactively as we challenge 4k resistance.

Remember, we only make money when we sell our winners and this remains a choppy market. As I’ve been saying for a while, if we are not taking profits when we have them, then we will be taking losses a few days later.

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While I was taking profits before the Fed announcement, that wasn’t because I feared a big retreat. As bad as Wednesday’s 1.6% givebacks felt, this only brings us back to Monday’s close. That’s hardly panic material.

Sure, stocks can always fall even further, but we need a new and unexpected reason to crash to fresh lows and the Fed matching expectations is hardly new or unexpected.

Until further notice, continue trading this market as if it is rangebound. That means buying weakness and selling strength.

As I wrote Tuesday afternoon, if we are not taking profits early and often, we won’t have any profits left to take. This applies equally to both bulls and bears. This is not a directional market, this is a back-and-forth market. One day’s up turned into the next day’s down. Don’t get fooled into trading the breakout/breakdown, trade the reversal.

Wednesday’s close was ugly, but we didn’t learn anything new, so expect the selling to dry up fairly quickly. If you are short, be ready to take profits soon. If you’re in cash, that means getting ready to buy the next bounce.

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Mar 21

Is this the time to be greedy or fearful?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 popped Tuesday, adding another 1.3% to Monday’s nice gains.

As bad as the headlines seem, the best buying opportunities arrive when everyone is the most scared. As is often the case, the latest banking scare’s selling capitulated last week when headlines were their most dire and prices are now rebounding on less-bad-than-feared. We haven’t had another domino fall and investors are breathing a sigh of relief.

Will this relief last? No, probably not. That’s why savvy bounce buyers are standing near the exits and even locking in some worthwhile profits proactively as we challenge 4k resistance.

Remember, we only make money when we sell our winners and this remains a choppy market. As I’ve been saying for a while, if we are not taking profits when we have them, then we will be taking losses a few days later.

Bears that didn’t lock in short profits last week are taking losses this week and we will be saying the same thing about bulls that hold too long next week.

No doubt I will be taking profits too early, but that sure beats holding too long. Buying back in is far easier than convincing the market to go back to the levels you wish you sold at.

The Fed is meeting this week and we will have our next rate decision Wedensday’s afternoon. If the news is good, there will be plenty of time to buy back in and ride the next big wave higher. But until then, I’m happy locking in what I’ve got.

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Mar 20

Is the worst already behind us?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Monday 0.9% higher as the half-full outlook makes a comeback. While the banking crisis is far from being resolved, it isn’t spiraling out of control and this weekend’s less-bad-than-feared is enough to keep the sellers at bay.

More than simply cheering the helping hand being given to struggling banks, some investors are actually embracing this banking crisis as “bad news is good news”. This new wrinkle puts a tremendous amount of pressure on the Fed to slow rate hikes or risk turning this into a real crisis.

That said, this remains a choppy market and one day’s up is followed by the next day’s down. Monday’s bounce is a lot better than tumbling to fresh lows, but the coast is not clear and we need to remain cautious. While we might be avoiding the worst, we are awfully close to the edge and it won’t take much of a slip to send us flying off of the cliff.

Governments and big banks are propping up their struggling peers. While that has slowed the deposit withdrawals, is it enough to end this crisis of confidence? While it looks promising, only time will tell and we need to put a few more days of stability behind us. The problem with waiting for the all-clear is the good discounts will be gone by then.

I’m not happy buying this uncertainty, but the hardest trades often turn into our best trades. I’m nowhere near ready to start celebrating Monday’s small bounce, but it is working. I remain cautious and will be taking profits early and often, but I’m willing to give this bounce the benefit of doubt until it proves me wrong.

Start small, get in early, keep a nearby stop, and only add to a trade that’s working. And take those worthwhile profits when we have them because they won’t last long!

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Mar 10

I was wrong and why it didn’t cost me any money

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 shed another 1.5% Friday following a stronger-than-expected employment report.

This continues the “good is bad” theme as investors remain fixated on interest rates and continue rooting against the economy.

As I wrote Thursday evening, I actually expected the selling to capitulate and bounce Friday after the employment report:

“Sell the rumor and buy the news” happens often enough that people have given it a name. All of this week’s bloodletting actually improved the odds of a bounce on Friday. Once a nervous owner sells all of his stocks, his opinion no longer matters. So for every nervous owner that bailed out on Thursday, they lost their ability to vote on what comes next.

And more than just taking away weak owners’ votes, these worrywarts have been replaced by confident dip-buyers. If these buyers were afraid of Friday’s employment report, they wouldn’t have been jumping in Thursday afternoon. Out with the weak and in with the strong. That doesn’t sound like a bad thing to me.

Lucky for me, I don’t trade my opinion and was instead on the sidelines Friday morning, waiting for the market to tell me what it wanted to do:

Rather than guess about the employment numbers and then guess about the market’s reaction, I’ll wait for the market to tell me what it wants to do. This is one of those situations where I’d rather be a little late than a lot early.

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As it turned out, there were a lot more people waiting to sell stocks on Friday. As much as I liked Thursday’s setup, it didn’t work. That happens. If this game was easy, everyone would be rich and we know that’s not the case.

This continues to be a half-full market and no doubt dip-buyers will be scarce next week as we wait for the latest round of inflation data.

But just because stocks didn’t bounce on Friday doesn’t mean waiting for a bounce is a bad trading thesis.

Obviously, I was early, and in the stock market, early is the same thing as wrong. But at the same time, this trade could start working later next week or the week after that.

The market has a nasty habit of convincing us we are wrong moments before proving us right. I was clearly wrong on Friday, but since I was waiting for the market to make its move first, I was lucky to be wrong from the sidelines.

But if the market bounces following next week’s inflation data, I will be one of the first to jump aboard that bandwagon. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.

If the selling resumes and I get dumped out again for a small loss again, it happens. For every bounce that works, there will be two or three that don’t. But as long as my losses are on partial positions and my wins are with full positions, I will come out ahead in the end.

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Mar 09

Why savvy traders are not worried about Thursday’s dreadful price action

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday’s S&P 500 session started out innocently enough with the index showing a modest gain, unfortunately, it was all downhill from there as the index shed nearly 2% by the close.

As ugly as Thursday’s session looked, we can’t read too much into this price action because this wave of selling was nothing more than handwringing ahead of Friday’s employment report.

“Sell the rumor and buy the news” happens often enough that people have given it a name. All of this week’s bloodletting actually improved the odds of a bounce on Friday. Once a nervous owner sells all of his stocks, his opinion no longer matters. So for every nervous owner that bailed out on Thursday, they lost their ability to vote on what comes next.

And more than just taking away weak owners’ votes, these worrywarts have been replaced by confident dip-buyers. If these buyers were afraid of Friday’s employment report, they wouldn’t have been jumping in Thursday afternoon. Out with the weak and in with the strong. That doesn’t sound like a bad thing to me.

As for what happens Friday, I have zero idea what the employment report will say, and more than that, even if I knew the number, there is no telling how the market will react to it anyway.

Is good still bad, or have we switched back to good being good again? Maybe stocks rally on bad, but what if it’s really bad? How bad is too bad??? No one knows what Friday holds and it isn’t even worth the effort trying to figure it out.

Rather than guess about the employment numbers and then guess about the market’s reaction, I’ll wait for the market to tell me what it wants to do. This is one of those situations where I’d rather be a little late than a lot early.

Give the market 30ish minutes Friday morning to get the knee-jerk out of its system. After that, the market won’t be able to hide its true intentions and it’s time to jump aboard the resulting move.

That said, odds are good that this week’s selling priced in a lot of bad news and anything that meets expectations, or better yet, turns out less bad than feared, will lead to a nice pop.

I will let the gamblers place their bets ahead of the employment report. I’m more than happy to show up a little late to this party if it dramatically lowers my risk. If this really is the start of the next big, multi-day move, being 30 minutes late isn’t going to change much.

But as I’ve been saying for a while, I believe we are stuck in a trading range. All of the hype surrounding Friday’s employment numbers will most likely result in a letdown and this will be old news by Friday afternoon. If we really are stuck in a trading range, Thursday’s retreat to the lower end of the range means stocks are buyable and I will be more than happy to snap up these discounts once all of the dust clears later Friday morning.

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Mar 08

Why smart money is betting on a trading range and not a breakout or breakdown

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday turned into a mixed session for the S&P 500.

The index spent most of the day trading modestly in the red as Powell continued testifying in front of Congress for a second day, but a late surge of buying pushed the index into the green, closing up a somewhat trivial 01.%.

While no one is getting excited over a 0.1% gain, on the heels of Tuesday’s 1.5% tumble, any gain, even a tenth of a percent is an accomplishment.

As I’ve been saying for a while, if this market was fragile and vulnerable, stocks would have crashed a long time ago. Sure, inflation remains a stubborn problem that the Fed is still trying to fix, but we’ve been living under these conditions for a year. At some point, no matter how bad the news, eventually it gets priced in and stops mattering. And right now, this market seems okay with stubbornly elevated inflation.

Without a doubt, stocks could fall to fresh lows, but we need the headlines to be truly shocking and unexpected, simply more of the same isn’t going to break this market. Until something changes, expect this choppy sideways trade to continue.

Both the bulls and the bears are wrong on this one. We are not racing up to the highs and we are not crashing back to the lows any time soon. I will reevaluate my outlook if prices crash under last week’s lows, but until that happens, I will continue buying every bounce and taking profits early and often because nothing in this market will last long.

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Mar 07

Why Bulls AND Bears keep losing money

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 retreated 1.5% Tuesday after Powell threw cold water on last week’s rebound.

I’ve said it before and I will say it again, this is a choppy market and that means the only people making money are the ones locking in profits when they have them.

Both bulls and bears are too busy arguing with each other to make money. Bulls insist every bounce is the start of the next big move higher and bears gloat every time prices fall.

Unfortunately, this approach means both sides are making the exact wrong moves at the exact wrong time. Bulls are buying the highs when they feel the most confident and end up selling the lows a few days later when they get scared. And bears are doing the mirror image, gleefully shorting the lows and then getting spooked and covering after prices blow up in their face.

Buying strength and selling weakness works great in directional markets, but this is not a directional market, so everyone trading that way is getting killed.

Last week I told readers to buy the next bounce in my post titled, “Should we be worried about this test of the recent lows?” But equally important, I also warned readers to take profits quickly because they wouldn’t last.

I will be there to buy the next bounce and the one after that. But because I know this is a low-energy environment, I will be quick to take profits because it won’t be long before those profits are gone.

A bigger directional move is coming, but it is still a way out. Until then, keep taking profits early and often.

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Well, here we are a few days after stocks surged impressively from Thursday’s lows. Unfortunately, a big chunk of those profits have already been erased. This was an extremely profitable trade for everyone that treated it like a trade. For everyone else, they lost even more money reflexively buying Friday’s strength and selling Tuesday’s tumble.

Trading isn’t hard once we shed our bullish and bearish biases and start trading the market instead of our opinions.

As for what comes next, I will keep buying weakness and selling strength until the market tells me it is ready for the next big directional move. Until then, expect this volatile sideways chop to continue.

Powell will continue speaking to Congress on Wednesday, we have the monthly employment report coming Friday morning, and more inflation data next week. Expect these wild whipsaws to continue.

If you are not taking profits when you have them, then you will end up taking losses when the market inevitably swings in the other direction.

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Mar 06

What smart money is doing now

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 popped to multi-week highs Monday morning as bears continued getting blown out of their short positions.

As has been the case for a while, this recent price action is not being driven by meaningful changes in the fundamentals. Instead, this is a sentiment trade and the latest wave of overwhelming bearishness made a bounce inevitable.

I wrote about this golden opportunity in last week’s post titled “Why savvy traders are getting greedy“:

[A]s far as contrarian trading signals go, the market’s pessimism suggests this is the time to be looking for buying opportunities. The last time the AAII sentiment survey had this few bulls was back in early January, which as it turned out, was a great time to buy stocks…

By now, everyone knows what happened next.

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Unfortunately, Monday’s early strength fizzled and prices retreated back to Friday’s close. But that shouldn’t surprise readers either, as I warned them Friday evening:

[W]e need to keep expectations in check. Just as there wasn’t a real reason to be crashing, there isn’t a real reason to be rallying. That means we shouldn’t expect a big rally and this rebound is simply a normal and routine gyration higher following a bit of down.

Rather than get cocky and complacent with my newfound success, I recognize this is still a choppy market and I don’t want to let this pile of profits escape, so I’m already lifting my trailing stops and getting ready to lock in worthwhile profits if the selling returns next week.

That outlook proved to be especially helpful Monday morning as all of those easy and early gains evaporated.

Stocks spend more time going sideways than up or down and that means we should be wary of predictions of an imminent crash or surge to record levels. Stock prices fluctuate, that’s what they do and we shouldn’t be surprised when prices bounce from the lows and stall after reclaiming a big chunk of lost ground.

Powell is testifying in front of Congress over the next couple of days and we have the monthly employment report due on Friday. Both of those have the potential to move the market, but if the headlines continue coming in near expectations, expect this sideways grind to continue. Buy weakness, sell strength, and repeat as many times as the market lets us.

As easy as it is to buy back in, we should never be afraid of taking worthwhile profits off of the table. Rather than make the same mistake overconfident bears made near the lows, we want to ensure we protect these profits and it is worth locking in some partial profits proactively. Sure, we are probably selling a little too early, but by putting some profits in our pocket and reducing our exposure, it gets a lot easier to ride through these inevitable whipsaws.

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Mar 03

Why Friday’s huge rebound was inevitable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 exploded 1.6% higher Friday and easily reclaimed 4k support.

While I’m sure the financial press came up with a justification for this latest wave of buying, the simple truth is we ran out of sellers and a rebound was inevitable.

A month of selling is a long time and the lack of acceleration under 4k support told us supply was drying up. As scary as the last few weeks felt, we actually haven’t fallen all that far from recent highs.

As I reminded readers over the last few weeks, every routine dip feels like it is the start of something much bigger because if it didn’t, no one would sell and prices wouldn’t dip in the first place.

As expected, without a significant and unexpected fundamental driver changing a large number of peoples’ minds, this latest wave of selling petered out and this bounce was inevitable.

While it is easy to point out these things after the fact, I’ve been telling readers this wave of buying was just around the corner. Here is what I wrote four days ago in a post titled, “Why savvy traders are getting greedy“:

As far as contrarian trading signals go, the market’s pessimism suggests this is the time to be looking for buying opportunities. The last time the AAII sentiment survey had this few bulls was back in early January, which as it turned out, was a great time to buy stocks because the index rallied nearly 10% over the next few weeks.

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Now, some of my critics will point out that even a broken clock is right twice a day. And that’s true, I’ve been trying to buy this bounce for a while, and in the market, early is the same thing as wrong. But I knew the odds of failure were high and that’s why I was buying each of those previous bounces with a partial position and a nearby stop. When the previous bounces failed, I got out for a small loss on a partial position.

While I’d much rather be making money, small losses aren’t the end of the world. And Friday was when the patience and persistence finally paid off. After taking a few small losses on previous buys, I was in the right spot at the right time when Thursday’s selling stalled and prices bounced hard.

I got in early and when that trade kept working, I quickly scaled up my position. So yes, I was wrong and collected a couple of small losses along the way, but Friday was the day when it all came together and I made a pile of money on a full position.

Small losses and big wins are the way we beat this game.

That said, we need to keep expectations in check. Just as there wasn’t a real reason to be crashing, there isn’t a real reason to be rallying. That means we shouldn’t expect a big rally and this rebound is simply a normal and routine gyration higher following a bit of down.

Rather than get cocky and complacent with my newfound success, I recognize this is still a choppy market and I don’t want to let this pile of profits escape, so I’m already lifting my trailing stops and getting ready to lock in worthwhile profits if the selling returns next week.

Remember, we only make money when we sell our winners. We don’t have to look far to find bears who wish they were a little more proactive in locking in their profits.

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Mar 01

Should we be worried about this test of the recent lows?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 continues probing recent lows and is testing the 200dma.

Headlines haven’t changed in a meaningful way since January, but the market’s mood couldn’t be more different. The half-full outlook that 2023 started with has given way to this recent wave of hand-wringing. Is this the result of a fundamental change in the market’s outlook, or just part of the market’s routine mood swings? Good question.

The market rallied 700 points from the October lows, so this 250-point retreat from recent highs shouldn’t surprise anyone. Two steps forward, one step back has always been the name of the game, and at this point, this latest slip from recent highs doesn’t look any more severe than one of those routine steps back.

But as long as we continue testing the lows, we are always at risk of making new lows. But as long as most owners keep shrugging and holding, any selling will be contained. If this crop of owners was skittish and prone to impulsive selling, we would have seen the bottom fall out a long time ago.

I’d love to see a buyable rebound from these levels, but the market is in charge and it dictates the pace. If we need to consolidate for a few more weeks, then I have no choice but to keep waiting and watching.

I will be there to buy the next bounce and the one after that. But because I know this is a low-energy environment, I will be quick to take profits because it won’t be long before those profits are gone.

A bigger directional move is coming, but it is still a way out. Until then, keep taking profits early and often.

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Feb 27

Why savvy traders are getting greedy

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The selling took a break on Monday as the S&P 500 added a modest 0.3%.

While green is green, the index was far higher in the first hour of the session. Unfortunately, potential buyers remain skittish given the recent price action and most are adopting a wait-and-see attitude.

While it is more fun to see prices race higher, buyers’ reluctance is actually a good sign if a person believes in buying fear and selling greed. At this point, the only ones feeling greedy are the bears. Everyone else is filled with trepidation as they wait for the next shoe to drop.

But as far as contrarian trading signals go, the market’s pessimism suggests this is the time to be looking for buying opportunities. The last time the AAII sentiment survey had this few bulls was back in early January, which as it turned out, was a great time to buy stocks because the index rallied nearly 10% over the next few weeks.

Are we on the verge of the next turning point? As everyone knows, there are no guarantees in the market, but the odds favor a near-term bounce and that’s what I’m getting ready for.

Buying bounces is never easy because there are always false positives, but if we start small, get in early, and keep a nearby stop, the cost of being wrong is small. And if we scale up our position when the real rebound finally arrives, the rewards will dwarf the small losses we take in the meantime.

Fortune favors the bold and savvy traders are getting greedy when everyone else is scared.

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Feb 24

Why the stock market is not as bad as it seems

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Friday’s S&P 500 session started off with a thud after an inflation data point went a tenth in the wrong direction. That sent the index tumbling 1.5% shortly after the open, but rather devolve into a mad dash for the exits, few owners decided to join in the selling and prices never retreated under those early.

No matter how bad the headlines get, there always comes a point where we run out of fearful sellers. What started four weeks ago as some routine profit-taking near multi-month highs has since devolved into this handwringing and talk of crashing to fresh bear market lows.

But as I’ve written many times before, every routine step back always feels like the world is ending. If it didn’t, no one would sell and prices wouldn’t fall. So by rule, people have to be scared or else they wouldn’t give up on their favorite stocks.

So who’s right here? While I would much rather be experiencing real victories instead of moral victories, Friday’s absence of follow-on selling was actually a good sign despite the red finish. An inflation reading ticked up and most investors kept their cool. That means it will take something even bigger and scarier to send these confident owners running for cover.

I know I sound like a broken record, but at this point, I don’t see anything in the headlines or price action that tells me this market is headed back to last year’s lows.

Stocks go up and stocks go down, that’s what they do. At this stage, this still looks like routine consolidation. Sure, it fell a little further than it could have, but stocks rallied 700 points from the October lows, so should we really be overreacting to a 250-point giveback?

Two steps forward, one step back. If that’s all this is, that means we are coming up on a nice buying opportunity. In a few weeks, most people will struggle to remember what they were so afraid of.

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Feb 23

Did we just experience a capitulation bottom?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday’s session was as bipolar as it gets for the S&P 500.

In a very disappointing fashion, the index turned respectable opening gains into fresh multi-month lows by lunchtime. That’s not the price action you expect from a healthy market. But just when all hope was lost, or more specifically, because all hope was lost, supply dried up and prices bounced decisively into the close, finishing near the intraday highs.

As bad as the morning looked, the afternoon’s rebound was doubly impressive. Remember, it’s not how we start, but how we finish that matters most. What very easily could have triggered another big wave of selling reversed course in a beautiful capitulation bottom.

This was the trading signal we’ve been waiting for and hopefully you didn’t miss it.

As I’ve been writing for a while, I don’t believe this latest pullback from the highs is the start of something more insidious. Stocks go up and stocks go down, that’s what they do. And no one should be surprised when stocks pull back from multi-month highs and consolidate those gains. This is very normal and healthy behavior.

But no one claimed traders have to be rational. Give the market a few down days and all of a sudden everyone is predicting the next big crash. Sure, the market failed to bounce at 4,100 support and even undercut 4k, but that is par for the course for a market that rallied four hundred points in little more than a month. Two steps forward, one step back. Everyone knows that’s how this game works, yet they always forget that simple truth in the heat of battle.

I really liked Thursday afternoon’s bounce. This was the bounce I was looking for and I bought it with open arms. Without a doubt, the selling could return Friday, but my stops near Thursday’s midday lows will keep me safe. And if I get dumped out, that’s okay too. I move to the sidelines and wait for the next buying opportunity, something that could arrive as soon as Friday afternoon.

Everyone wants stocks to pull back so they can buy more, but every time the market gods answer their prayers, most of these people are too scared to buy. Don’t be the average trader. Have a trading plan and stick to it. The hardest trades to make often turn into our biggest winners.

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Feb 22

Are bulls losing the war?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday turned into another back-and-forth session for the S&P 500 as the market digested the minutes from the latest Fed meeting. The index spent most of the session bouncing between small gains and losses before ultimately closing down a fairly trivial 0.15%.

While the Fed’s meeting minutes were responsible for triggering a late wave of selling, the modest size of the givebacks isn’t all that noteworthy. Stock crashes are breathtakingly quick, so giving back a handful of points in the final hours of the session isn’t that big of a deal. This bear market has seen more than its fair share of shocking headlines that trigged gigantic waves of panic selling that sent stocks tumbling 3%. Wednesday’s 0.15% loss was about as far away from that as you can get.

While it is more fun to watch stocks climb higher, everyone knows down days are a normal and healthy part of every market. And more than that, this latest two hundred points retreat from recent highs has changed the risk/reward.

Hindsight being 202/20, it’s obvious now that 4,200 was too high and it was time for a cooling off. More useful would be knowing this back when stocks were challenging 4,200 resistance. Lucky for readers of this blog, that is exactly what I did on February 2nd when the market peaked at multi-month highs.

Bears are quickly becoming an endangered species, but as nimble and agnostic traders, we have to get concerned when one side accumulates too much power because it often ends in a reversal in the other direction. Now, to be clear, I’m not picking tops, but 700 points above the October lows and we have to be aware that a huge portion of the near-term upside has already been realized.

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And wouldn’t you know it, here we are a few weeks later and bulls are the ones that have become an endangered species. And so continues the swinging pendulum of sentiment. But just as it was unwise to be chasing the market when everyone was bullish back near multi-month highs, it is just as risky to be overly bearish near recent lows.

Stocks move up and down, that’s what they do. Opportunistic traders take advantage of these price swings. Foolish traders don’t learn from their mistakes and keep drawing never-ending trend lines on their charts.

Can stocks keep falling? Absolutely, but is that the most likely outcome? If there was as much fear and uncertainty as the bears claim, prices would be falling a lot more than 0.15%.

Until proven otherwise, I will continue trading against these periodic swings, not betting on their continuation to extreme levels.

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Feb 21

When being wrong is a good thing

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 came back from the long weekend in a foul mood, shedding another 2% and finishing at the lowest levels since late January.

Half-full or half-empty? Thus far the pessimists have been dominating the market’s mood. The current line of reasoning is the economy is “too good” and that will require the Fed to be even more aggressive with its rate hikes to push the economy into a recession.

The problem with this line of thought is the Fed is not trying to push the economy into a recession. If the Fed can tame inflation without a recession, that would be the best possible outcome. But so far traders are more fixated on the half-empty side of the glass and don’t want to think about positive interpretations of recent data points.

But for all of the people calling for the indexes to tumble another 10% from here, I just don’t see it. We reached those 2022 lows when fear and uncertainty were at their peak. When we had no idea how high inflation would get, how devastating the rate hikes would be, or how bad the energy situation would get following Russia’s invasion of Ukraine.

Well, over the last year we gained a lot more clarity. Inflation is no longer spiraling out of control and has come a long way off of the summer highs near 9%. Consumers still have jobs and money to spend. And Europe is navigating the energy crisis a lot better than many envisioned. So what’s not to like?

In truth, the market’s recent slump is a lot easier to explain, stocks rallied nicely off of last year’s lows and it is simply time for one of those very normal and healthy stepbacks. Nothing more and nothing less.

Despite what the naysayers claim, we are actually navigating all of the risks surrounding us quite nicely. Inflation is coming down and the current 6% readings are exaggerated because the way rent is calculated doesn’t show the month-to-month declines in lease renewal rates.

Rather than run and hide, this is the time to be looking for the next buyable bounce. Friday’s midday bounce looked good to me and I bought a partial position, but obviously, it didn’t work. Fortunately, my trading starts small, gets in early, and kept a stop nearby. So while Friday’s bounce didn’t work, it didn’t cost me much.

In fact, Tuesday’s wave of selling is actually good for me personally because it means I will be able to make even more money buying the next bonce. And if the next bounce fails, that’s alright too, I get out and try again from even more attractive levels.

A lot of traders need to be right, lucky for me, I’m only here to make money and that makes navigating these whipsaws so much easier.

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Feb 17

Why this market is refusing to break down

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 lost another 0.3% on Friday, turning this into the second losing week in a row. (That said, the weekly loss was a very inconsequential 0.3%.)

Friday’s session kicked off very ominously by crashing under 4,100 support, a level that had been propping up the market all February long. But rather than unleash a tidal wave of reactionary selling, supply dried up and prices bounce off of 4,050.

So much for teetering on the edge of a massive breakdown. The market violated support and most owners shrugged and kept holding. And most optimistic of all, Friday’s session finished at the intraday highs.

But this contrarian price action doesn’t surprise readers of this blog, as I wrote Thursday evening:

This is the “opposite market” and the smart trade is going against conventional trading signals instead of following them. Maybe stocks open poorly Friday, but rather than jump aboard the selling bandwagon, be on the lookout for that next bounce because odds are good it will come hard and fast.

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Remember, it’s not how we start, but how we finish that matters most. And Friday was yet another session where the bears tried to break the market and failed. Sure, we finished in the red, but starting low and finishing at the intraday highs is bullish, not bearish.

Trading would be so much easier and more fun if every session ended in the green. But we know that’s impossible and down days are inevitable. But at this point, I don’t see anything in this price action that says this is anything other than a very vanilla consolidation of recent gains under 4,200 resistance.

Making money gets so much easier after we shed our bull and bear biases and trade what is in front of us. This market doesn’t want to go up and it doesn’t want to go down, so stop getting fooled by these false alarms. Until further notice, these dips are buyable and the bounces are sellable. And if we are not taking profits when we have them, the market will steal them back a few hours later.

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