Category Archives for "End of Day Analysis"

Feb 21

The smarter alternative to chasing prices higher

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

On Thursday, the S&P 500 posted its biggest loss in two weeks. Of course, biggest is a relative term since we only gave up 0.35%. And the competition wasn’t all that fierce since there was only one other down day in that span.  But that is an indication of just how comfortable this climb higher has been.

Last fall’s plunge scared a lot of emotional investors out of the market, but now that fear is a distant memory. Long gone are predictions of global economic collapse. It been replaced by fear of being left behind. Last year’s fearful sellers turned into this year’s desperate buyers jumping on every dip in price, no matter how small. This desperate buying is why every bout of opening weakness has been gobbled up and we finished all these days higher.

But the thing to remember about emotional sellers is there are only so many of them. We saw that in late December when we ran out of sellers the day before Christmas. The market bottomed and prices rebounded, not because everything got better, but because we ran out of people willing to sell the fear.

And here we are nearly two months later. But instead of running out of sellers, we need to be worried about running out of buyers. Once all of last year’s fearful sellers finish buying back in, who is going to be the next buyer to keep chase prices higher?

While almost everyone loves calm climbs higher, rather than be lulled into complacency, we should be getting nervous about what happens next. The market finishes higher 53% of trading days, meaning it falls the other 47%. If a person believes in reversion to the mean, and they should, expect this string of up-days to be offset at some point by a string of down-days.

That said, claim the market is going to fall long enough and eventually you will be right. But in the market, we only make money when we get the timing right. Not only do we need to know what the market will do, we need to know when it will do it. And without a doubt, timing is the hardest part to get right.

But we don’t need to know exactly when something will happen to make money in the market. Trading successfully is about playing the odds and managing risk, not predicting the future.

Momentum is definitely higher and a trend is more likely to continue than reverse. But there always comes a point where it is no longer worth it. When the remaining reward shrinks and the risks grow.

Prices are quickly approaching major resistance above 2,800 and we haven’t had a meaningful pullback during this nearly 20% rally. How many points of profit are still above us? 30? 50? How many points of risk are between us and support? 180? Risking hundreds of points to make dozens hardly seems like a prudent trade.

The most nimble day traders can squeeze the last few dimes out of this rally, but the rest of us should definitely be growing defensive. Anyone still buying up here clearly doesn’t understand how markets work.

Don’t get me wrong, I’m definitely not bearish. But I don’t see any reason to be chasing prices higher after such a big run. While I don’t know exactly when the next pullback will happen, I do know it will fall through current levels. If we are returning to these prices at some point over the next few weeks, should we really feel pressured to buy today or risk getting left behind?

The biggest risk these late-buyers have is getting cold feet when prices inevitably dip under their buy point. Do they get scared again and bailout “before things get worse”? Sell last December’s plunge. Buy this February’s surge? Sell April’s dip? No wonder most people lose money in the market. If we want to make money, we should do the opposite. Buy when other people are fearful and sell when they are greedy.

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have profitable analysis like this delivered to your inbox every day during market hours

Follow Jani on Twitter

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

Feb 13

The difference between being right and being smart

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 popped Wednesday morning after word spread Trump was willing to sign Congress’s budget compromise. Avoiding another government shutdown eliminated a major risk in front of us and put traders into a buying mood. Unfortunately, that excitement didn’t carry into the close and prices finished near the intraday lows.

A 0.3% gain is still a 0.3% gain and it allowed us to reclaim the 50dma for the first time in more than two months. But if we wanted to be critical and look at the half-empty side, closing near the intraday lows on a good news day is most definitely noteworthy. One day doesn’t make a trend, but it is something to keep an eye on going forward. Almost every day since the Christmas bottom finished near the intraday highs and this late-day buying frenzy propelled us to these highs. But if that buying is waning, it could be an early indication the rebound is shifting into the next phase of the cycle.

The other reason to be cautious is things didn’t end well the previous three times the market retook the 50dma. While there is no comparison between now and where sentiment was last fall, widely followed technical levels have a tendency to turn into self-fulfilling prophecies. Technical traders expect prices to stall at overhead resistance, so they start taking profits proactively, launching the wave of selling that eventually leads to the dip in prices.

I’ve been warning traders to tread likely after the market rebounded nearly 20% from the December lows. And some people criticize me because prices have continued creeping higher. But I’m okay with that. People also criticized me for saying in December people should be buying those discounts, not selling them. By now hopefully everyone appreciates how that one turned out.

After doing this for so many years, I’ve long since gotten used to going against the crowd and actually find reassurance in the criticism because it means I’m on the right track. Nothing makes me more nervous than when everyone agrees with me.

And just because the market has been creeping higher the last few days and weeks doesn’t mean buying up here was the smart thing to do. Allow me to use a blackjack analogy. If a person hits on 18 and he gets a 3 card. That was a great call and he won the hand. But was that really the smart thing to do? While it worked great this time, how often will hitting on 18 backfire? Traders who last a long time in this business understand the monumental difference between being right on a an individual trade and trading smart. Unless you learn to trade to smart, you won’t last very long.

The market continues to act well and momentum is definitely higher, but anyone buying up here is being just as foolish as the guy hitting on 18. Unfortunately, that is the way most people trade. Those that were selling last December’s dip are now chasing 2019’s rebound. Sell low and buy high rarely works out.

Those with long-term investments should stick with their favorite positions. But those with trading profits should be shifting to a defensive mindset and thinking about taking profits if they haven’t already. This rebound priced in a lot of good news. That means there is far less upside left ahead of us and a lot of air underneath us if things don’t go according to plan.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have profitable analysis like this delivered to your inbox every day during market hours

Follow Jani on Twitter

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

Feb 07

It was inevitable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 stumbled Thursday in one of the few misses since the Christmas rebound kicked off. Over the last few days, the index struggled to break through 200dma resistance and has slipped back to the psychologically significant 2,700 level.

While today’s tumble felt abrupt given how calm and steady the climb has been from December’s lows, a down day shouldn’t surprise anyone. As I wrote late last week:

“Everyone knows markets don’t move in straight lines and anyone who expects the market to keep racing higher clearly doesn’t understand how market work. While anything could happen, more often than not, hot markets cool off and pullbacks from overbought levels are a normal and healthy way of consolidating gains.”

We knew this was going to happen, we just didn’t know the when or the why.

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox.

Thursday’s weakness started before the open when European economic data failed to meet expectations. That brought last year’s global growth fears back to the front. The only question is if this is just a single bout of indigestion, or if this will trigger another wave of second-guessing and defensive selling.

The nice thing about today’s dip is we found a bottom before lunchtime and closed well off the early lows. That is the opposite of last year’s dreadful price-action when early weakness triggered runaway selloffs. At least for the time being, investors appear more inclined to buy the dips than pile on the selling. But it takes more than one day to consolidate nearly 400-points of gains, so we have a long way to go before we can waive the all-clear flag.

I want to make one thing clear, I am most definitely not bearish and think the setup over the medium- and long-term looks good. But I am far less optimistic over the near-term. Markets move in waves and the Christmas rebound priced in a lot of good news. Hope that things will be less bad than feared. Unfortunately, the problem with hope is it leaves the door open to disappointment.

The crowd is always filled with emotions that swing between extremes. Last month’s collapse was built on fear of an economic collapse. This rebound started with hope that things were not as bad as feared and quickly morphed into fear of being left behind. And no doubt recent gains leave us vulnerable to another near-term reversal. Two steps forward, one step back. That’s the way the market always worked and there is no reason to expect something different to happen here.

I’m not predicting a crash or anything dramatic like that. Just a cooling off. Maybe that means some sideways trade. Maybe that means a dip back to support. Either way, it is very predictable and shouldn’t catch anyone off guard. But it will. Because it always does.

Everyone knows markets move in waves, but they always forget that fact in the moment. Every dip is seen as the start of something bigger. By rule, it has to. If it didn’t scare people out, then no one would sell and we wouldn’t dip. Even if this is the start of a very normal and routine pullback to support, expect to hear all kinds of people shouting doom-and-gloom and how we better get out now before it is too late.

Smart money buys discounts and sells premiums. It is definitely premature to call a one day dip a discount and we should be prepared for more. But as long as we know it’s coming, then it is a lot easier to maintain our composure and resist the urge to join the hysterical crowd. The market is acting well and there is nothing to do with our favorite long-term investments. But for our short-term swing-trades. This is a good time to get defensive and start taking profits if you haven’t already.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have profitable analysis like this delivered to your inbox every day during market hours

Follow Jani on Twitter

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

Jan 31

Should we buying up here?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 closed January with a bang, finishing at the highest levels in nearly two months. These gains erased almost all of December’s losses. It’s been a wild ride, but one that wasn’t all that hard to predict.

Back in mid-December, I wrote the following about the market swoon and where prices were headed:

While I like these discounts, the looming Christmas and New Years holidays complicate the situation. What would normally be an attractive buying opportunity might struggle to get off the ground since big money is leaving for vacation. That puts impulsive retail investors in charge and that is rarely a good thing. Luckily, these little guys have small accounts and their emotional buying and selling doesn’t go very far. We saw the emotional selling from Thanksgiving week erased the following week when big money returned to work. And the same could happen here.

And that is exactly what happened. Big money left for vacation and fearful retail investors foolishly abandoned their stocks at steep discounts leading up to the Christmas holiday. But just when things seemed their most dire, retail investors ran out of things to sell and we’ve been bouncing higher ever since.

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox.

But everyone knows it’s been a crazy ride. What readers really want to know is what comes next. And like almost everything in the market, the answer “depends”.

Timing is everything in the market. The only thing that determines whether we make money is when we buy and when we sell. This dependency means timeframe matters more than anything else.

The biggest paradox of the market is both bulls and bears can make money at the same time. A bull buys today while a bear shorts, and they both make money if they time their sales right. A bear with a short-term horizon can make money when prices dip next week, while the bull with a longer-term horizon rides the rebound higher over the next few months. They had opposite outlooks, but they both made money.

We currently find ourselves in that position. The market is acting really well and last month’s fears are quickly fading from memory. Anyone with a long-term investing horizon should have been buying this entire dip. The lower prices go, the better it is for them because they get more stocks for their money. What was true last month, is still true today. Unfortunately, too many investors foolishly listened to their gut and were selling the dip, not buying it.

But things get a little more complicated if we shorten our horizon and try to figure out what will happen next week. Everyone knows markets don’t move in straight lines and anyone who expects the market to keep racing higher clearly doesn’t understand how market work. While anything could happen, more often than not, hot markets cool off and pullbacks from overbought levels are a normal and healthy way of consolidating gains.

While momentum is still higher and we could keep drifting that way, there is a lot of air underneath us and each point higher takes away another point of upside. Increasing risks and decreasing rewards makes this is a better place to be taking short-term profits than adding new short-term money.

And while it sounds great that both bulls and bears can make money at the same time, there is no free lunch in the market and unfortunately, more often than not, both bulls and bears end up losing money because they trade impulsively and react to the market’s head fakes. If a person wants to give away money, follow the crowd by dumping stocks after they go down and buying them after they go up. And most people repeat that until they have nothing left. If you want to make money, don’t follow the crowd.

And just to be clearly, I’m most definitely not bearish here. I just think this rally will cool off and consolidate over the next few weeks and that will give us better prices to get in at.

What’s a good trade worth to you?

How about avoiding a loss?

For less than $1/day, have profitable analysis like this delivered to your inbox every day during market hours

Follow Jani on Twitter

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

Jan 29

How to interpret and trade the market’s mixed signals

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Tuesday, the S&P 500 slipped fractionally, but more importantly, it continues holding this month’s 2,600 breakout.

Over the weekend, Trump and Congress agreed to a temporary budget that allowed government workers to return to work and collect back pay. That was a critical development for Federal workers who missed two paychecks, but the political situation is far from resolved and the market actually declined Monday.

As I wrote last week, the 10% rally from the December lows priced in a lot of optimism the problems triggering last month’s swoon would be resolved. Unfortunately, that also meant any compromise was already largely priced in and stocks actually fell Monday because our politicians only offered a temporary solution.

The other significant development is the U.S. government’s criminal probe into Huawei, one of China’s most important companies. No doubt this escalates trade war tensions between these two economic superpowers.

Both of these events could be interpreted as bearish, and that’s the way the market took it, with declines on Monday and Tuesday, but the silver lining is the losses were relatively restrained. Taken together, the last two days of selling didn’t even trim 1% of value and we are still above the psychologically significant 2,600 level. Based on how volatile the previous three months has been, this week’s dip was barely a tremor.

I like how well the market is holding 2,600 support. Prices tumble from overbought and unsustainable levels quickly. This is our third week above this level and shows real demand for stocks at these prices. If equities were fragile and vulnerable to a tumble, there have been more than enough triggers to send us crashing back to the lows. Instead, the market shrugs the negativity off and continues holding recent gains. This is a dramatic improvement from late last year where even the smallest hint of a problem hiccup would send traders scrambling for the exits.

While the market’s mood has done a 180, its not that investors changed their mind, but that we changed investors. Fearful owners sold their stocks at a steep discount to confident dip buyers willing to hold these risks. After enough turnover takes place, we run out of fearful sellers and confident dip buyers disregard flare-ups of recycled headlines. That’s how we go from 250-point free falls to 300-point rebounds.

The problem with 300-point rebounds is those rate of gains is clearly not sustainable for any length of time. And this two-week consolidation above 2,600 support is proof of that. The market needs a breather and there are two ways this plays out; the dramatic stepback, or a mind numbing sideways grind. One scares weak traders out, the other bores them out.

To this point the market has resisted invitations to pullback. Big money seems more interested in buying these discounts than selling the fear and that is keeping a floor under prices. But at the same time, big money hates chasing prices higher and we can see their reluctance show up in the stalled rebound. In many ways, their reluctance to buy after a big move higher is a self fulfilling prophecy that creates the very dip they are worried about. But given how well the market is trading, most likely any near-term dip will be a buying opportunity.

While there is no reason to abandon our favorite long-term investments, there is also no reason to chase prices higher. Either we dip under 2,600 over the next few days or weeks, or we trade sideways for a while. Neither setup creates a good short-term buy. Instead, we should be patient and wait for a better entry.

If the market fails to rally on good news and finishes at the lows for a few days in a row, that is a bearish signal and an inviting short entry. If prices fall under 2,600 support, but quickly find a bottom, then that is our signal to buy the dip. And if we keep grinding sideways, then we just sit and watch. We only want to hold the risk of owning stocks when we are getting paid for it. If stocks are drifting sideways, we’re not getting paid and should be watching safely from the sidelines. We only want to buy when the risk/reward is stacked in our favor and that is not the case at these levels.


Apple reported its first declining revenue and earnings in more than a decade. But everyone knew this was coming and is why the stock was down nearly 40% from the highs. But the thing about the risks is they were already incorporated into the price. And like most things in the market, it probably even over did it.

If after-hours trade is any indication, AAPL will pop nicely tomorrow as reality turns out less bad than feared. If these gains stick Wednesday, it would put AAPL at the highest levels in over a month and easily erase the early January tumble when Apple lowered its guidance. At this point, it looks that dreadful day when the crowd was rushing for the exits was actually one of the best entry points in over a year.

This is what I told subscribers the day after AAPL lowered guidance and the stock plunged to fresh lows:

“I suspect we have already heard the worst from AAPL and things will only improve from here. Hopefully, Tim Cook was smart enough to lower expectations so far yesterday that it will create an easy beat when they report earnings at the end of the month. With the worst of the bad news already out there, most likely things will start getting better from here. Even AAPL bears should be expecting a near-term bounce from these oversold levels.”

Since then, AAPL is up 15% from those lows.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have profitable analysis like this delivered to your inbox every day during market hours

Follow Jani on Twitter

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

Jan 24

Why this rebound demands restraint

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Thursday, the S&P 500 bounced between modest gains and losses. The gov’t shutdown is dominating headlines and there is no end in sight, but the market doesn’t care and continues holding last week’s 2,600 breakout.

It’s been a wild ride from the Christmas lows, but so far the market is still acting well. Prices tumble from unsustainable levels quickly and holding 2,600 for more than a week is a good sign. Especially in the face of bearish headlines. If prices were grossly overbought, we would have tumbled by now.

That said, the last few weeks priced in a lot of good news in anticipation of breakthroughs with China and the shutdown. The problem with hope is it leaves us vulnerable to disappointment if things don’t go according to plan. While the market is acting well and trading like it wants to keep going higher, as long as we continue hovering near 2,600 support, we always run the risk of violating it. I remain cautiously optimistic, but I reserve the right to change my mind if conditions change.

But just because the market is acting well doesn’t mean this is a good time to add new money. Only a fool chases prices higher after a 10% move in a few short weeks. As I often write, markets move in waves. Understanding that principle in October, November, and December allowed us to profit nicely from sharp bounces on our way lower. And now that the market is recovering, we must acknowledge any rebound will include big drawdowns on our way higher. To expect anything different would going against the very nature of the market.

I don’t see any imminent warning signs of an impending collapse, but that still doesn’t mean this is a good time to be holding a short-term trade. No matter what happens next, the market will do something. Maybe it goes higher, or maybe it goes lower. One side will be right and the other side will be wrong. But just because the market will move doesn’t mean there is a good trade for us.

I buy when the odds are skewed in my favor. When the risks are small and the rewards large. Most of the time this happens when the market dips. Fearful sellers offer stocks at steep discounts. The more the indexes fall, the less risk there is because a big chunk of the downside has already been realized. And the lower we go, the greater the reward we collect when prices rebound.

But right now we have the opposite. The 10% rebound from the Christmas lows consumed a huge chunk of the upside. And now that prices are far more expensive, there is a lot more risk underneath us. Stocks are acting like they want to keep going higher over the near-term, but the limited upside remaining and heightened downside underneath means the risk/reward is now skewed against us.

Stocks are acting well and like they want to keep going higher over the near-term, but I’d rather be taking profits at these levels than adding new money. That said, this outlook only applies to my short-term trading account where my holding period is a few days or weeks. For our favorite buy-and-hold investments (think retirement accounts), there is no reason to sell and in fact, smart savers increased their contributions during this market volatility.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have profitable analysis like this delivered to your inbox every day during market hours

Follow Jani on Twitter

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

Jan 22

What to make of Tuesday’s dip and how to profit from it

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 slipped Tuesday, ending a string of four consecutive gains and posting the biggest loss in nearly three weeks.

It’s been a great run since the Christmas lows, with the index surging 10%. But as we know, markets don’t move in straight lines and a down day was inevitable. The question is if this is just one of those step backs before continuing higher, or if today’s weakness marks the end of the rebound.

Stocks have been surging despite December’s negative headlines sticking around. Nothing has been resolved in Trump’s trade war with China. Global growth continues to slow. The Fed is still planning further rate hikes. And the federal government has been shut down for a month with no end in sight.

Hardly seems like rally material, but that is exactly what happened. While the news has most definitely been bearish, it hasn’t been as bad as the crowd feared when they were scrambling for the exits at the end of last year.

Markets are prone to excess and that means oversized moves in both directions. Last summer we went a little too high. Then we fell too far in the fall. And now there is a good chance January’s rebound went a too far and it is time for a well-deserved rest. Even a pullback would be a normal and healthy way to process these gains.

Where we go from here largely depends on what happens next. Last week we reclaimed the widely followed 2,600 support level that propped the market up through October and November. While any near-term weakness will most likely dip under 2,600, how the market responds to such a violation will tell us what mood traders are in.

In December, fearful owners rushed to sell every hint of weakness. But the thing is, eventually we run out of fearful sellers. That’s because every person desperate to bailout ends up selling to a confident dip buyer who is willing to hold the risks. Out with the weak and in with the strong is how these things get turned around.

While bearish headlines are largely the same, and in some respects have even gotten worse, the market stopped caring. And not only has it stopped caring, it is acting as if everything has been getting better. But that is the way the market works. Buy the rumor sell the news. While we don’t have a resolution to any of the problems facing us, the market is assuming a solution is coming and anyone waiting for the confirmation will be too late.

But that assumes things turn out less bad than feared. There is an alternative outcome where the situation turns out worse than feared. And that is what it will take to send this market to fresh lows. But until that happens, expect every dip to bounce.

Having surged 300-points since Christmas, it is clearly too late to be chasing the rebound. Instead, we should be shifting to a defensive mindset and preparing for a consolidation. Savvy short-term traders have been taking profits into this strength. The most aggressive and nimble can try their hand at shorting this weakness. For the less bold, a dip under 2,600 support will likely find a bottom near 2,500 and that would be a great dip buying opportunity. If this market is healthy market, we shouldn’t get anywhere near the lows and retesting 2,400 would be a very bearish sign. Trade accordingly.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have profitable analysis like this delivered to your inbox every day during market hours

Follow Jani on Twitter

Jan 10

How you could have seen December’s dip and bounce before it happened

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

What a difference a few days makes. Three weeks ago the financial world was collapsing and desperate sellers were scrambling for the exits. This week everything is peachy as the market erased the pre-Christmas bloodbath. But this isn’t a surprise to those of us that have been paying attention.

December 20th, I wrote the following:

“While I like these discounts, the looming holidays complicate the situation. What would normally be an attractive buying opportunity might struggle to get off the ground since big money already left for Aspen. Their absence puts impulsive retail investors in charge and that is rarely a good thing. Luckily, these little guys have small accounts and their emotional buying and selling cannot take us very far.

We saw similar emotional selling knock 100 points off the market during the Thanksgiving week. But a few days after the holiday, the market rallied 170-points when big money returned to work and started snapping up the discounts. No doubt we could see the same thing this time around.”

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox.

The market one-upped the Thanksgiving rebound and recovered 250-points since the Christmas holiday. Those of us that kept our cool enjoyed the ride. Unfortunately, those that panicked are kicking themselves right now. But that is the way the market works. It rewards thoughtful and deliberate decisions while it punishes the impulsive and reactive.

The key to surviving periods like this is selling poor price-action, not fear. By the time fear is running through the herd, it is too late to sell because most of the damage has already been done. In fact, selling fear is often the exact wrong move to make because capitulation and a rebound is usually just around the corner.

So what is the difference between poor price-action and fear? Most of the time poor price-action shows up before the crowd gets nervous. This is the stalling when the market should be going up. But it is so subtle that most in the crowd missed it. We saw this in early December and I pointed it out in my December 13th blog post:

“the last three day’s has seen early gains fizzle and we closed well under the intraday highs. Multiple weak closes is never an encouraging sign. And as usual, the market is giving us conflicting signals. It is up to us to determine what it means.

I really like how decisively the market held support this week. But I’m disappointed we couldn’t add to those gains and these weak closes are a concern. What does this mean for what comes next? Unfortunately, this is one of those situations where we don’t have enough information and we need to see what the market does next.

A decisive rally Friday tells us all is well and we are on our way back up to 2,800. But a fourth weak close means a near-term test of 2,600 is ahead.”

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox.

Everyone knows what happened next. But the thing to remember is the market was flashing these warning signs days before the crash through support. A savvy trader could have bailed out a full 300 points above the eventual bottom.

I will be the first to admit I have been, and continue to be, bullish. But just because I believe in the economy doesn’t mean I need to ride stocks down. The biggest advantage individual traders have is our size allows us dart in and out of the market with ease. We don’t need to ride these waves lower as long as we know what to look for.

But that was then and this is now. What most readers want to know is what comes next. And as I often remind people, the market doesn’t move in a straight line. The rebound from the Christmas lows has been a beautiful thing, but rebounds only go so far before they run out of gas. As expected, the rate of gains has slowed as we approached the prior lows near 2,600. What was once support has now turned into resistance.

I still believe in this market over the medium- and long-term, but things could get a little bumpy over the next few days and weeks. Last month’s fear turned into this month’s hope. Unfortunately, hope leaves us vulnerable to disappointment.

As always, the market can do one of three things; up, down, or sideways. Momentum is clearly higher and the longer we hold near 2,600 resistance, the more likely it is we will break through it. Trump striking a deal with Democrats and the Chinese will send prices surging higher. But if we don’t pause and consolidate recent gains, that breakout will be fragile and vulnerable to a pullback. I would be selling a sharp breakout, not buying it. This would be a buy the rumor, sell the news kind of thing.

Markets consolidate one of two ways. Either they take a step back, or they trade sideways for an extended period of time. Given how volatile the market has been and how much uncertainty there is in the headlines, boring, sideways trade seems highly unlikely. Instead, this market most likely needs to take a step back before continuing its climb higher. Whether that step-back starts Friday or waits until the 2,600 breakout fizzles is anyone’s guess, but at least we know what to expect and that helps us get ready to trade it.

I would rather be taking profits at these levels than adding new money. A near-term dip to 2,500 that bounces would be a great buying opportunity. An unsustainable breakout above 2,600 that fizzles could be an interesting shorting opportunty.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have profitable analysis like this delivered to your inbox every day during market hours

Follow Jani on Twitter

Dec 20

How even a bull could tell something was wrong

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

Thursday was another brutal session for the S&P 500, and we now find ourselves 16% under the October highs. The latest fears stem from Trump’s threats to shut down the government if Congress doesn’t fund his wall. These headlines pile on the already fragile sentiment brought on by Trump’s trade war and the Fed’s latest round of rate hikes.

October’s stock crash was initially triggered by a spike 10-year Treasury rates. The ironic thing is interest rates have done nothing but tumble since then. But despite the reprieve in rates, the market has not been able to find its footing given the relentless barrage of bad news. In addition to the problems I already mentioned, Trump’s trade war is slowing global growth, and the US had a high profile Chinese executive arrested. Mix in fears the US economy is overheating, contracting, or somehow doing both at the same time and it becomes the perfect cocktail for impulsive herd selling.

I will be the first to admit I never expected the dip to get this carried away. But this isn’t a surprise. The market has a nasty habit of pushing things so much further than what is reasonable. And clearly that is the case here.

But just because I’m bullish doesn’t prevent me from profiting from this dip. While the initial selloff caught me off guard, the subsequent volatility created a rich hunting ground. I told readers in October that too much damage was done to sentiment in the first round of the selloff and we should not expect a quick return to the highs. That told us to greet every rebound with suspicion and be taking profits, not chasing prices higher. And the same applied to each dip, rather than sell the fear, I was buying it. Buy the dip. Sell the rip. Repeat.

I was, and continue to be bullish, so that made me reluctant to short the bounces, but even just buying the dips has been quite profitable and the extreme volatility allowed me to do in hours what it took weeks to achieve in a slower market. But even though I was bullish, I still had key levels I was watching. Last week after the market closed at 2,650, I wrote the post, “What this market needs to do to keep my faith“:

“the last three day’s has seen early gains fizzle and we closed well under the intraday highs. Multiple weak closes is never an encouraging sign. And as usual, the market is giving us conflicting signals. It is up to us to determine what it means.

I really like how decisively the market held support this week. But I’m disappointed we couldn’t add to those gains and these weak closes are a concern. What does this mean for what comes next? Unfortunately, this is one of those situations where we don’t have enough information and we need to see what the market does next.

A decisive rally Friday tells us all is well and we are on our way back up to 2,800. But a fourth weak close means a near-term test of 2,600 is ahead.”

The next day the market gave up early gains and finished flat. That warned us something was wrong and we should avoid the market. A day later, prices stumbled to 2,600 support and it’s been downhill ever since.

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox.

But that was then and this is now. What readers really want to know is what comes next.

While I like these discounts, the looming holidays complicate the situation. What would normally be an attractive buying opportunity might struggle to get off the ground since big money already left for Aspen. Their absence puts impulsive retail investors in charge and that is rarely a good thing. Luckily, these little guys have small accounts and their emotional buying and selling cannot take us very far.

We saw similar emotional selling knock 100 points off the market during the Thanksgiving week. But a few days after the holiday, the market rallied 170-points when big money returned to work and started snapping up the discounts. No doubt we could see the same thing this time around. Unfortunately, January’s reprieve is still a ways off and until then we are subject to the whims of impulsive retail traders. But as I said, the saving graces is retail traders don’t have a lot of money and it won’t take them long to run out of things to sell. Once they’re out, the selling pressure evaporates and prices stabilize.

Or we could run around like chickens with our head cut off. You decide.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have profitable analysis like this delivered to your inbox every day during market hours

Follow Jani on Twitter

Dec 18

Has anything changed?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

It’s been another rough stretch for the S&P 500 as prices tumbled to the lowest levels of the year. Monday crashed through 2,600 support, triggering an avalanche of defensive selling that didn’t stop until we fell another 50-points. Tuesday was a little bit better since prices closed unchanged, but that disguised the fact early gains didn’t stick and we stumbled back to breakeven. Few things are more disheartening than fizzled rebounds.

Bears want us to run screaming from this market because it is so obviously doomed. Unfortunately for them, they are living in the rearview mirror. They are beating their chest over what has happened. But in the market, we only profit from what is ahead of us. Currently, the market rests 13% under the 2018 highs. The question we need to be asking is if it better to be selling these discounts, or buying them?

A quick history lesson. The S&P 500 has only fallen more than 15% from all-time highs 11 times. The last two times were the dot-com bubble and the 2008 financial crisis. Do current conditions resemble the dot-com bubble where average p/e’s of tech companies were nearly 100? Or the financial crisis where the entire banking sector was so overleveraged it nearly went out of business? Some people think so and clearly they should be selling everything they own and burying it in the backyard. But for the rest of us, do we really believe the economy is on the verge of a collapse that has only been seen a handful of times over the last seven decades???

No doubt bears will crow that I was bullish two months ago in October when the market dipped to 2,600 support, and then again when it fell to the low 2,600s in November. I guess they were right since we now find ourselves under those levels. But the thing to note is it took two full months to fall another 50-points. That’s less than one-point per day. Wow, terrifying stuff!!!

While bulls and bears have been arguing passionately over who is right, I have been quietly grinding out profits riding the waves between these two extremes. I even wrote about it a couple of weeks ago in a post titled “Q: Who is right, Bulls or Bears? A: Neither!

“It is shocking to see the amount of gloating going on every time the market moves to one edge of the trading range or the other. We’ve been bouncing between 2,600 and 2,800 for most of the last two months. Today’s dip and reversal count as the 7th time the market challenged and failed to break out of this range.

But rather than use “common” sense and assume each dip is a great buying opportunity, or rally a time to take profits, these impulsive bulls and bears ignore the evidence and proclaim this is finally the big move they’ve been waiting for. Monday it was the bulls. Today it was the bears. And both sides got it exactly wrong.”

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox.

Has anything changed? No, of course not. Bears are as confident as ever, and bulls are cowering in the corner. This is a mirror image of two weeks ago when the market was challenging 2,800. The last seven times bulls and bears were bragging about their success, the market reversed ran them over. Will this time be any different? No, probably not. But I don’t mind. I will continue betting against the crowd, and so should you.

While I like these discounts, the looming Christmas and New Years holidays complicate the situation. What would normally be an attractive buying opportunity might struggle to get off the ground since big money is leaving for vacation. That puts impulsive retail investors in charge and that is rarely a good thing. Luckily, these little guys have small accounts and their emotional buying and selling doesn’t go very far. We saw the emotional selling from Thanksgiving week erased the following week when big money returned to work. And the same could happen here.

Most likely the market will muddle into year end and the bigger bounce won’t happen until January. That is if nothing significant occurs between now and then. The one big thing that could happen is the Fed backing away from the widely expected rate hike on Wednesday. That would send the market surging higher. But if that doesn’t happen, expect the market to muddle along between 2,500 and 2,600 for the next two weeks. After that, if the financial world doesn’t collapse, expect the market to recover from these oversold levels as reality turn out far less bad than feared.

In my long-term investments, I love buying these discounts and hope prices fall even further so I can buy even more. In my shorter-term trading account, I would rather be buying these discounts than selling them, but I’m not eager to rush in ahead of what could be a volatile holiday.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have profitable analysis like this delivered to your inbox every day during market hours

Follow Jani on Twitter

1 2 3 48