Category Archives for "End of Day Analysis"

Jul 27

Are savvy traders holding the breakout or selling the resistance?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday was a great session for the S&P 500 as a 1% opening pop turned into a 2.6% surge by the close. And just as important as the headline numbers, the index closed comfortably above 4k for the first time in nearly two months. Not bad for a market people were leaving for dead a few weeks ago.

A couple of factors lead to Wednesday’s buying frenzy. First, Tuesday evening’s poor tech earnings got the party started and Powell brought the punch bowl Wednesday afternoon when he hiked interest rates a whopping 0.75%.

While neither of these developments qualifies as “good” news, stocks don’t need good news to rally in bear markets. Instead, “less bad than feared” is the name of the game. As poor as tech earnings are and the Fed continues slamming on the monetary brakes, investors are relieved things are not even worse.

While Wednesday was a great session to be holding a 3x leveraged ETF, at this point, that is water under the bridge and what readers really want to know is what’s coming Thursday and Friday.

The market hit its head on 4k resistance last week and retreated back to 3,900, but the fact we returned to 4k resistance so quickly tells us the market wants to be up here, not down there. Combine that with a great day that was driven by better-than-expected news, this breakout still has room to run. How much further is anyone’s guess, but 4,200 is very much in play as long as we remain above 4k.

As for how to trade this, keep holding the 4k breakthrough and lifting our stops. There is no reason to abandon a trade that is working prematurely, so I’m not a fan of impulsively selling this strength because “it feels too high.” A test of 4k support Thursday is normal and expected. Even a minor violation of 4k wouldn’t bother me as long as the selling dries up and the index quickly reclaims 4k.

On the other hand, if the selling accelerates under 4k again, that tells us the market isn’t ready and it needs to retrench a bit longer. Lock in some really nice profits and get ready to buy the next bounce.

But I think that will happen. Any test of 4k will be quick and Thursday is setting up to be another good day.

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Jul 19

Don’t under estimate “less bad than feared”

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

Monday’s intraday skid started the week off on the wrong foot, but Tuesday’s towering 2.8% gains erased all of those second thoughts and then some on our way to the highest close in over a month.

For as many negative headlines as there are swirling around us, stock investors don’t seem overly concerned. In fact, this seems to be a fairly bullish case of “less bad than feared”.

The economic data is awful, but everyone who fears these things sold months ago and those sellers were replaced by confident dip buyers. While our problems are a long way from getting solved, it seems the market is coming to terms with our new reality and recycling the same headlines is no longer enough to trigger another leg lower.

Tuesday’s close put the index above the 50dma for the first time since April. Maybe this breakthrough sticks or maybe we get turned back by it, but as close as we are to 4k resistance, the market rarely gets this close without at least challenging a widely followed level.

After we hit overhead resistance, it could be challenging to find new buyers and this latest rebound might start running out of momentum. But that’s a conversation for another day. In the meantime, for those of us sitting on a pile of profits, there is nothing to do but keep holding and lifting our trailing stops.

If this rally dies at resistance, we lock in profits at our trailing stops. If the rally continues through 4k, even better, we keep holding and lifting our stops.

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Jul 14

Why savvy traders don’t give up

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 fell out of bed Thursday morning for the second day in a row. But just like Wednesday, the selling stalled nearly as soon as it arrived. After an hour of reflexive selling, the supply of fearful owners dried up and the index spent the rest of the session climbing nearly 80 points above those early lows.

While Thursday didn’t give me the start I was looking for, as I often remind readers, how we finish is far more important than how we start. And for the second day in a row, I really liked the close.

Inflation remains bad. Same with the war in Ukraine and as expected, consumer sentiment is in the toilet. But everyone already knows these things and that is why the index is down 23% YTD. Recycling the same headlines doesn’t surprise anyone and that’s why this week’s bad news hasn’t sent stocks tumbling under June’s lows. The people who fear these headlines sold months ago and that means there is no one left to sell a retelling of those same headlines.

Without a doubt, things are bad, but the bad is more or less staying the same. Which for the time being, is good enough to keep a floor under stocks. The problem we’ve been running into isn’t happening during regular hours when the market has actually been trading fairly constructively. Our problems have been festering overnight when smaller and more emotional retail traders are throwing their weight around in the futures markets. These little guys send futures tumbling in the middle of the night when big money is sleeping and that leads to these large opening gaps.

But lucky for us, big money doesn’t agree with these impulsive overnight traders and refuses to join the selling when the main session opens. And when that selling fails to show up, prices naturally start drifting higher.

As I wrote Wednesday, I liked the way the market is trading during the regular session despite these opening gaps. This still looks like a fairly resilient market.

Thursday’s early weakness squeezed me out of the trial position I bought Wednesday for a modest loss. But rather than give up on this trade, as soon as I get out of the market, the first thing I do is start looking for the next entry point. And as luck would have it, Thursday’s late morning bounce gave me that buy signal. And when the index kept going higher through the day, that was enough reassurance for me to add more near the close.

It never feels good selling and buying back in hours later, but it sure beats the feeling of holding something while the losses keep piling up. When forced to choose my poison, I will always pick selling unnecessarily over holding too long.

Maybe futures will tumble again in the early hours of Friday morning, but these little guys are going to run out of money eventually. As we saw Wednesday and Thursday afternoons, this market doesn’t want to go down. And the best thing about a market that refuses to go down is it will eventually go up. As long as we are willing to keep at it, we will be in the right place at the right time to ride the next wave higher.

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Jul 13

Why stocks didn’t crash after inflation hit yet another new high

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 fell out of bed Wednesday morning and dropped more than 1% after June’s inflation reading hit yet another new high.

While the increase in inflation over May was only a fraction of a percent, the increase shows the Fed still doesn’t have control over this economy. (So much for transitory…)

But rather than rush for the exits, most owners shrugged at the inflation headlines and opening weakness and continued holding. When people stop selling the headlines, those headlines stop mattering and that indifference was the name of the game Wednesday afternoon. By the close, the index recovered more than 2/3 of those early losses, even briefly making it into the green.

That’s not the price action we see from a fragile market. If the indexes were on the verge of another collapse, Wednesday’s inflation headlines were more than enough to send panicked owners running for cover. But here’s the thing, after 6 months of panic selling, it seems we finally ran out of panicked sellers. And more than just that, the first half’s sellers were replaced by confident dip buyers that demonstrated a willingness to buy and hold this uncertainty.

While there are no guarantees prices cannot fall to new lows if the headlines get materially worse, Wednesday’s constructive price action tells us it will take something even bigger than 9.1% inflation to send these stubbornly confident owners running for cover.

If the market opens higher Thursday morning, rather than argue with that counter-intuitive strength, jump aboard the bandwagon. Moves that don’t make sense often make some of the best trades (contrarian investing). Put a stop under Wednesday’s close and see where this latest wave takes us.

All of that said, the market is transitioning into a more choppy phase and that means we should be ready to take profits earlier and more often than we were doing this spring.

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Jul 05

What this sideways chop tells us about the bear market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

If a person only saw Tuesday’s S&P 500 closing print showing a 0.16% gain, it would be easy to assume it was just another boring, meaningless session. Oh, how wrong they would be.

Tuesday was another rollercoaster ride, with the index plunging more than 2% in early trade before a late morning rebound erased all of those losses and then some.

As I wrote last week, the bear market is transitioning from large, multi-day moves to more sideways chop. One day’s down is followed by the next day’s up. But this is pretty standard behavior as a correction matures and people adjust their expectations to our new reality.

There is still a lot of uncertainty causing this back-and-forth, but as emotion leaks out of the market, every violation of support no longer triggers waves of panicked owners selling stocks. In fact, we start getting days like Tuesday where an ugly open is met with buying, not follow-on selling.

What comes next? Well, Tuesday’s close leaves us pretty much in the middle of the 3,600(ish) to 4k(ish) trading range. That means the scales are not skewed more in one direction than another and this could easily go in either way. And in fact, that’s exactly what it’s been doing as it keeps dropping and bouncing from day to day.

As for how to trade this, Tuesday’s strong performance was a clear sign to close any shorts we might have been holding over the weekend. As easy as it is to re-short the market, there is no reason to stubbornly stick to a potion and hope it turns around and starts going our way. Instead, close, move to safety, and reassess. As the saying goes, it is better to be out of the market wishing you were in than in the market wishing you were out.

And an aggressive trader could have even bought Tuesday’s afternoon bounce. But because the market is getting choppy, factor that into your trading decisions by trading smaller and waiting for a trade to start working before adding more.

If prices retreat Wednesday, no big deal, we get out near our entry points and wait for the next trade. Maybe that’s buying the next bounce or shorting the next breakdown. But if Tuesday’s rebound keeps going, add more and see where it goes.

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Jun 29

Was Wednesday the calm before the next storm?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday was a quiet session for the S&P 500 as the index finished almost exactly where it started. That was a welcome relief following Tuesday’s massive bearish reversal.

Does Wednesday’s stability suggest the worst is already behind us? I wish the market was that easy. Unfortunately, these things are rarely one-day events and that means the ugliness will likely continue Thursday and/or Friday.

While last week’s 6.5% rebound was impressive and 4k seemed within reach, the further along we get into a selloff, the less energy these moves have.

Early in the correction, selloffs and rebounds crashed through support and resistance. But after a while, investors start getting used to our new reality and emotion starts coming out of the market. That’s when these swings start stalling and reversing before reaching key support and resistance levels.

Nearly six months into the 2022 bear market and it makes sense last week’s rebound stalled before reaching 4k resistance.

But if the rebound stalled under 4k, then that means we are already riding the next wave lower. Maybe prices slip to 3,700 and find support. Or maybe we need to retest the lows near 3,600. Either way, both of those down legs involve further declines from here.

Or maybe Tuesday really was a rare one-day event, we bounce off of 3,800 support, and finally get up to 4k resistance. While not the most likely outcome, it is still very much a possibility.

Lucky for us, we are nimble traders and don’t need to commit to anything. Buy the bounce off of 3,800 and short the breakdown under 3,800. No matter what the market does next, we will be ready for it.

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Jun 28

Why Tuesday’s ugly turn wasn’t a surprise

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Tuesday started off well enough with the S&P 500 popping nearly 50 points in early trade. But that opening bounce was as good as it got and it was all downhill from there. And when I say downhill, what I really mean is we fell off a cliff, dropping nearly 130-points from those intraday highs.

Consumer confidence is in the toilet and that was enough to bring the sellers back following last week’s impressive 6.5% bounce.

As I’ve been saying for a while, this is a volatile market and that means oversized moves in both directions. Every bit of up is inevitably followed by a bit of down. And what we got that in spades on Tuesday.

But Tuesday’s volatility shouldn’t surprise regular readers of this blog, as I wrote Monday evening:

Now that stocks are dramatically higher, a big chunk of the upside has been realized and the risks of a near-term pullback have increased. While we can stick with this bounce as long as it remains above our trailing stops, this is the time to be getting defensive and ensuring these nice profits don’t escape.

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I was hoping the rebound would take us closer to 4k resistance before running out of momentum, but the market’s never once asked what I thought, so I have no choice but to follow its lead. While I came into the day still holding last week’s nice bounce, the selling quickly forced me to lock in some really nice profits in the mid to upper 3,800s. While not as juicy as I wanted, I have no right to complain about the nice profits the market gave me. (Catching a big portion of a 6.5% pop in a 3x ETF pays really well.)

When Tuesday’s midday selling didn’t relent, that was our invitation to initiate a short position. Shorting a bull market is one of the hardest ways to make money in the market, so it’s a good thing we are not in a bull market. But that still means we need to be really careful. Shorting successfully takes impeccable timing, so don’t be afraid of taking profits early and often. Hold a little too long and those short profits will be gone.

As for what to do on Wednesday, easy, buy a bounce and short a breakdown. This is an emotional market and that means oversized moves in both directions. Grab on early and enjoy the ride.

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Jun 27

Why the stock market is more predictable than most people think

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Monday ever so slightly in the red. While a 0.3% loss isn’t trivial, it is fairly insignificant compared to last week’s staggering 6.5% gains.

While one day of support isn’t conclusive, the longer we hold last week’s gains, the more real they become. So by that measure, every hour further we get into this Tuesday and Wednesday, the better it looks.

Headlines haven’t changed in a meaningful way, but that’s kind of the point. This year’s 20% retreat from the highs priced in a whole lot of bad news. That means we are not deciding if the economy is good or bad, but if it is bad or really bad. And at least for the time being, our environment seems less bad than investors were fearing two weeks ago when stocks were testing multi-year lows.

But this isn’t a surprise. As I wrote the on the evening of June 16th, hours before last the latest big rebound kicked off:

Maybe we get a little more selling on Friday, but everyone knows markets moves in waves and after falling more than 500 points over a handful of days, the next near-term bounce is just around the corner.

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We don’t need to be psychic to know what the market is going to do because it always does the same things. In this case, emotional selloffs get carried away and go too far. And when that happens, it means an equally impressive rebound is coming up. And that’s exactly what we got.

Predicting the market is easy, the hard part, and where all of the money is made, is getting the timing right. And that’s where it pays to be a nimble trader. We don’t buy dips, we buy bounces. Start small. Get in early. Keep a nearby stop. And only add to a position that is working.

Catch part of last week’s 6.5% rebound in a 3x ETF and now we’re talking real money!

But now that stocks are dramatically higher, a big chunk of the upside has been realized and the risks of a near-term pullback have increased. While we can stick with this bounce as long as it remains above our trailing stops, this is the time to be getting defensive and ensuring these nice profits don’t escape.

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Jun 23

The simplest and best trade staring us in the face

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday was another back and forth session as the market digested Powell’s second day of testimony before Congress.

At this point, the Fed is no longer counting on a soft landing for the economy and they plan on keeping interest rates elevated until inflation starts coming down in a clear and convincing fashion. That means they could continue applying the brakes even if the economy slips into a recession. Hence, the increased likelihood of a “hard landing”.

Wednesday the market rallied during Powell’s testimony and slipped into the close after he finished. Thursday gave us the mirror image as the market slumped during his testimony and then rallied after he concluded.

One day down, the next day up. And so continues the battle between bulls and bears. The index remains nicely above last week’s lows, but it also seems stalled just under 3,800.

As obvious as this sounds, either the market clears this sideways consolidation under 3,800 or it doesn’t. The nice thing about binary setups is they are very tradable. Either we buy the breakout or we sell the breakdown. And the longer we stay within this range, the more coiled the spring becomes, meaning the resulting breakout/breakdown will be even larger.

At this point, expect the resolution to either run up to 4k resistance or drop under recent lows near 3,600. Maybe there will be a head fake or two along the way, but as long as we start small, get in early, and keep a nearby stop, the costs of being early are small. More important is we make sure we stick with it and are standing in the right spot at the right time when this thing finally makes its next move. (Today’s nice close gives the bulls the edge.)

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Jun 22

What Wednesday’s price action means for the latest bounce attempt

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday’s seesaw session threw us for a loop, with a -1.2% opening loss bounced into the green an hour later. The intraday reversal even rallied as high as +1% before settling back near breakeven by the close.

I really, really liked the morning reversal. Selling evaporated moments after the open as buyers rushed in to prop up the market. And everything looked amazing when the intraday rally crested +1%. That was a 2% gain from the open and everything was going swimmingly, that is until a late slump erased all of those midday gains.

In the news, Powell testified to Congress that the Fed is still planning on aggressively raising rates and that risks pushing the economy into a recession. But as bad as those soundbites seem, the market was actually received well and investors were relieved those comments were not even worse.

Sometimes bad news can be good news when it isn’t as bad as feared and that’s the scenario we found ourselves in around lunchtime. Our economic environment is far from great, but at least it is not getting worse. Or at least that’s how the midday logic went.

And with stocks at 52-week lows, the path of least resistance seemed to be higher. At least until a wave of second-guessing overcame the market in the final hour of the day.

As I often remind readers, it’s not how we start but how we finished that matters most. And by that measure, it was both a good day that we bounced off of the early lows and an inconclusive day in that we skidded into the close. I loved how stocks ricocheted off of the opening lows. But the lethargic close showed a real lack of conviction by institutional investors in the final hours of the day.

I started buying the bounce Friday afternoon, added more Tuesday, and was loading up on additional positions Wednesday morning. But that late slump gave me second thoughts. As easy as buying back in is, it made sense to take some risk off the table. If stocks continue higher Thursday, I can always buy back in. But if the market retests last week’s lows, the best place to be is cash.

Since I was sitting on a modest profit, I decided the bigger crime would be allowing that to turn into a loss if the second-guessing continued Thursday. It seemed prudent to take some risk off the table and close some positions proactively.

In trading, defense always comes first, especially when doing something as risky as trying to catch a bounce. When these things work, they tend to really work. And Wednesday afternoon didn’t feel like the bounce was working. That’s all I needed to pull the plug while my trade was still above breakeven.  As the saying goes, it is better to be out of the market wishing you were in than in the market wishing you were out.

But as soon as I’m out, I’m already looking to get back in and will happily buy a bounce Thursday morning. And if that bounce doesn’t happen Thursday, then I’ll be waiting for it on Friday or Monday. Just because Wednesday’s close was indecisive doesn’t mean I’m giving up on this trade. I just didn’t like the risk/reward at that particular moment in time. A lot can change in a few hours so I’m already looking forward to what Thursday’s price action will bring us.

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Jun 21

Why smart money is buying this bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 came back from the three-day weekend well-rested and promptly popped 2.5% Tuesday.

Headlines haven’t improved in a meaningful way, but more importantly, they haven’t gotten worse either. Last week’s tumble to fresh lows seems to have reached a near-term capitulation as it ran out of fearful sellers, giving us this nice little bounce.

I’m under no delusion and think lower prices are still ahead over the medium and longer-term. But at the same time, I recognize markets move in waves and I also know bear markets have some of the biggest bounces on their way lower.

As bad as things felt last week, the selling got a bit ahead of itself and a near-term bounce seems appropriate. How long this lasts and how far it goes is anyone’s guess, but 4k resistance is very much on the table if we string together a few more nice up days. (A bounce back to 4k from Friday’s close represents a 9% gain in the index. Catch part of that wave in a 3x ETF and now we’re talking about real money!)

Buy the bounces and sell the breakdowns. Seems easy enough but we must have the courage to actually do it.

Now that the market is bouncing, it is time to close our shorts and start buying the bounce. Start small, get in early, keep a nearby stop, and only add to a trade that’s working. Follow those simple rules and there is money to be made. Or at least, it opens the door to a very attractive, low-risk trade.

Maybe we need to bounce a few times before making our way back up to 4k, but unless someone is psychic, we won’t know which bounce is the real bounce until after it happens. And since I’m not psychic, the best I can do is treat all of the bounces as if they are the real deal until they prove me wrong. But as long as I start small, get in early, and keep nearby stops, any mistakes will be fairly inconsequential, especially when compared to the profits that come from riding the next wave higher.

Trading is a game of risk versus reward and right now the risk/reward is stacked in our favor. Buy the bounce, move our stops up to our entry points as this rebound progresses, and if we get stopped out, no big deal, we step aside and wait for the next bounce.

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Jun 16

Are savvy traders running from this market or are they getting ready to buy the next bounce?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

So much for the Fed bounce, the S&P 500 gave back all of Wednesday’s gains and then a chunk more, finishing at the lowest levels in a year and a half. Ouch!

Gas is pushing $5/gal, mortgage rates are creeping up to 6%, consumer confidence is tumbling, and inflation remains stubbornly stuck at 40-year highs. Oh yeah, and there’s the biggest war in Europe since WWII. But other than that, things are going pretty well.

As poorly as everything feels, stocks are not oblivious and their nearly 25% decline reflects a lot of this pain.

Most bear markets bottom out between 25% and 30%, meaning we are most of the way there for a vanilla bear market. There are exceptions, like the Great Depression and the Great Recession, but the banking system nearly imploded in those episodes and for a repeat, we’d need to see something equally terrifying.

While $5/gal oil is painful, the biggest problem we have right now is most people have too much money and are bidding against each other for housing, cars, and everything else that is in short supply. Our biggest problem is the economy is too hot and the Fed is trying to cool things off.

Does that sound like our current situation has anything in common with the worst bear markets in history? No, not really.

And so while people are afraid of how much worse this will get, it is a little late to be worrying about that kind of stuff seeing as how most of the damage has already been done to stocks.

Maybe this grinds sideways for a year or two, which wouldn’t be a big surprise. But fearing a 40% or 50% selloff from the highs doesn’t match our current economic situation.

As for how to trade this, while Thursday’s 3.3% decline sounds bad, stocks ground more sideways than anything following the gap lower at the open. That means few people were rushing to sell stocks through the day, which is the first thing that needs to happen before we find a bottom.

Maybe we get a little more selling on Friday, but everyone knows markets moves in waves and after falling more than 500 points over a handful of days, the next near-term bounce is just around the corner.

I covered my short Wednesday, which proved to be a little early, but that’s the way this goes sometimes. Once we realize only fools try to pick tops and bottoms, that means accepting we will always cash in a little too early or a little too late. That’s just the nature of the game.

But now that I’m out, I’m already looking to get back in. The next trading opportunity that excites me most is a nice bounce back to 4k resistance. It could start as soon as Friday, so be ready.

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Jun 15

What made Wednesday’s bounce so predictable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 bounced nicely after the Fed got aggressive and hiked interest rates by 0.75%.

The market’s reaction seems counter-intuitive, but lucky for readers of this blog, it was the most likely outcome I flagged in Tuesday evening’s free post:

While this latest tumble was largely spurred by expectations shifting to a 0.75% Fed rate hike this week, this could very easily turn into a “sell the rumor, buy the news” event. This latest wave of selling priced in most, if not all of the widely expected rate hike, so when the news becomes official Wednesday afternoon, there might not be much selling left to do. And when a large wave of follow-on selling fails to materialize, we often see prices rally in relief that things weren’t worse.

The most likely scenario is the index reflexively crashes immediately following the Fed’s announcement of a 0.75% rate hike, but not long after, the selling capitulates and prices bounce, giving us that oh-so-beautiful “V” bottom.

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While bears were expecting another large selloff, stocks bounced because all of the people who were afraid of a 0.75% rate hike sold over the previous four sessions, meaning there was no one left to actually sell the news. And more than that, some investors were actually reassured by the Fed’s aggressive stance on inflation. Attacking inflation harder in the short term will keep this from dragging on, or at least that’s the hope.

As for how to trade this, when the rate hike failed to trigger a larger wave of selling, that was my signal to lock in some really nice short profits and get ready to buy the bounce. I still think we have lower prices ahead of us over the medium and longer-term, but over the near-term, if Wednesday’s bounce holds Thursday, 4k resistance is the most likely next target.

Any bears with nice short profits should be getting real protective because those profits will disappear if they hold much longer. As easy as it is to reshort the market when the selling resumes, lock in some nice profits here and get ready for the next breakdown.

As for dip buyers, here is our chance for a quick 200-point rally. While that doesn’t seem like a lot, catch that 5% wave in a 3x ETF and now we’re talking real money for a few days of “work”.

Cover shorts, buy the bounce, and leave stops/reshort under Tuesday’s lows. That seems easy enough.

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Jun 14

What Tuesday’s small decline tells us about what’s coming next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped 0.4% Tuesday.

While a small loss usually isn’t something worth worrying about, these are not usual times. The lack of a meaningful bounce following Monday’s nearly 4% crash suggests the selling hasn’t capitulated yet and lower prices are still ahead of us.

I typically have a bullish bias when it comes to the market because stocks spend far more time going up than down. That means I’m always on the lookout for a bounce to buy, but Tuesday’s price action didn’t check my boxes.

As I often write, the market loves symmetry and this crash will almost certainly capitulate in a “V” bottom. Unfortunately, Tuesday’s modest slip lower doesn’t look anything like the start of a “V” bottom.

While this latest tumble was largely spurred by expectations shifting to a 0.75% Fed rate hike this week, this could very easily turn into a “sell the rumor, buy the news” event. This latest wave of selling priced in most, if not all of the widely expected rate hike, so when the news becomes official Wednesday afternoon, there might not be much selling left to do. And when a large wave of follow-on selling fails to materialize, we often see prices rally in relief that things weren’t worse.

The most likely scenario is the index reflexively crashes immediately following the Fed’s announcement of a 0.75% rate hike, but not long after, the selling capitulates and prices bounce, giving us that oh-so-beautiful “V” bottom.

And of course, another real possibility is the Fed is the one that capitulates and sticks to its previously telegraphed 0.5% move. That would also trigger a nice pop in the market. (Or counterintuitively, the market freaks out and stocks crash because investors start fearing the Fed lacks the courage to combat inflation.)

Will any of these things happen Wednesday afternoon? Only time will tell, but they are definitely scenarios we need to incorporate into our trading plan. If we can’t map out our responses ahead of time, how in the world are we going to do it in the heat of battle?

While we will likely see further selling before reaching the capitulation bottom, once that bounce takes hold, shorts need to get out of the way and everyone else needs to grab ahold because the move will be fast and hard. Maybe the rebound stalls at 4k resistance, but a 300-point rally in 3x ETF is enough to put a pile of cash in your trading account. You like cash, right?

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Jun 13

How savvy traders avoided all of this carnage, plus what the inevitable bounce will look like

By Jani Ziedins | End of Day Analysis


Free After-Hours Analysis:

Down 1%. Down 2.4%. Down 2.9%. Down 3.9%. In case anyone hasn’t been paying attention, it’s been a very painful several sessions for the S&P 500.

Luckily for readers of this blog, we were pulling the plug not long after this selloff first got started. As I wrote last Tuesday evening when the index closed at 4,160:

The best part about being a nimble trader is we can both stay safe and still be in a position to profit from the upside. As easy as buying back in is, there is no reason to stubbornly hold a dip. For as many times as being stubborn works, there are a dozen times it bites us in the ass. I would much rather sell and buy back in hours later than I would watch the losses pile up as I keep waiting for a bounce that never comes.

Now that the index is back above 4,150, I can spread my stops across the lower 4,100s. If we retest support again this week, there is no coming back from that and lower prices are ahead.

Little did I know that four sessions later, the S&P 500 would close at 3,750 after shedding more than 400 points along the way. But here’s the thing, I didn’t need to know how far this was going to fall in order to know it was a good idea to get out of the way. When the market violated my trailing stops above 4,100, I got out, no questions asked.

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We can pin this weakness on last week’s higher than expected inflation reading. Or bond futures predicting the Fed juicing interest rates 0.75% this week. Or maybe it’s $120/bbl oil and $5/gal gas. Or mortgage lenders quoting 6% interest rates. Or most likely, all of the above.

But as a trader, does it really matter? Stocks are falling and disciplined traders have no choice but to get out. Our trading accounts don’t care about the fundamental reasons.

And for the more aggressive trader, violating 4,100 support was the perfect invitation to throw on a short trade. Falling 10% over four sessions sounds shocking. But catch that wave in a 3x inverse ETF and now other people’s pain is our gain.

But avoiding losses and profiting from big declines takes discipline and a willingness to act. Savvy traders were pulling the plug before anyone realized something was wrong and we were putting our foot on the accelerator when the panic first started setting in. While most people are lying awake at night fearing the selloff will get worse, I’m wondering how much longer I should ride this wave before locking in my short profits. Which side of the coin would you rather be on?

As for what comes next, the selling has been brutal. But as I often write, the market loves symmetry, so the most likely outcome is a rip-your-face-off rebound from grossly oversold levels. Maybe the selloff ends in a dramatic “V” bottom after the Fed “only” raises rates by 0.5%. Or maybe we get another leg lower after they raise rates 0.75%. But either way, this is going to bounce hard and fast when it finally bounces, so be ready.

For the short trader, that means locking in profits quickly because a bounce back to 4k resistance will erase almost all of these really juicy profits. And for the nimble swing trader, buying the next bounce to 4k in a 3x ETF will put another wad of profits in our pocket.

Profiting from volatile markets isn’t hard as long as we have the confidence and discipline to trade proactively.


There is nothing positive to say about Bitcoin after this cryptocurrency plunged nearly 30% over the weekend. The best this can hope for is that it is getting so ugly it’s good. But we’re not there yet.

This cryptocurrency will bounce alongside the equity market, whenever that happens, but expect $30k to be a ceiling and any dip buyers should be locking in profits long before then. As attractive as these prices seem, it will be a long time before Bitcoin is investment-grade again.

Buy the bounce for a quick buck but nothing more.

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Jun 10

What savvy traders are expecting from this bloodbath next week

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Oof, that was an ugly week. The S&P 500 shed 5% over the last five sessions, with most of that coming during Thursday and Friday’s multi-percent bloodbaths.

The week started off well enough with the index challenging multi-month highs on Tuesday. But that turned out to be the high point of the week and it was all downhill from there. That said, the mad dash for the exits didn’t really begin until Thursday afternoon when 4,100 support failed. And as fast as things got moving, 4k didn’t stand a chance and that fell before the market even opened Friday morning.

With Friday’s close leaving us directly on top of 3,900 support, does anyone actually think this level stands a better chance of holding? I sure don’t…

As regular readers know, I’ve been a big proponent of buying and holding May’s bounce the last few weeks. And it was a great trade, with the index rallying nearly 10% from May’s intraday lows. (Catch that wave in a 3x ETF and we’re talking real money!)

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The rebound was acting well and 4,300 seemed within reach. But every seasoned trader always shows up to battle with an escape plan. No one is ever right all the time. In fact, most of us are wrong far more often than we care to admit. But if we want to succeed at this game, we always have a plan for being wrong.

For me, that safety net was my trailing stops near 4,100. I was confidently holding for higher prices but my trading plan wouldn’t allow me to get caught flatfooted under 4,100. By now, everyone knows all too well just how costly holding a little too long can get.

I locked in profits near 4,100 and when things really started falling apart, I flipped around and went short. It’s not the trade I was looking for, but it’s the trade the market gave me and I’m not one to look a gift horse in the mouth.

As for what comes next, this has been an emotional selloff and that means oversized moves…in both directions. This week’s tumble will most likely keep falling early next week, but once the selling capitulates, the bounce from oversold levels will be hard and fast.

Shorts need to be nimble and take profits quickly because the bounce will lop off a big chunk of their profits if they hold even a few hours too long. For those in cash, wait for the bounce, start small, get in early, and keep a stop under the lows. Pull the plug if the bounce fizzles and add more if it keeps working.

Monday will most likely be ugly. And Tuesday too. But a sharp bounce from oversold levels is coming, make sure your trading plan keeps you on the right side of it.

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Jun 09

How savvy bulls avoided Thursday’s carnage

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 proved again on Thursday that a lot can change in a few hours.

As I wrote Tuesday evening, everything looked great. An early 1% loss ran out of sellers and turned into an impressive 1% gain. Weak markets don’t do those things and I was content holding for the largely expected continuation to 4,300 resistance.

But hidden at the bottom of Tuesday’s overwhelmingly positive post, I had one small nugget that proved to be all too relevant on Thursday:

Now that the index is back above 4,150, I can spread my stops across the lower 4,100s. If we retest support again this week, there is no coming back from that and lower prices are ahead.

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Every good offensive plan starts with defense. If we don’t define our limits up front, we are trading without any and few things are more dangerous to our trading accounts.

As much as I liked Tuesday’s price action, I wasn’t willing to sit there unprotected. If Tuesday’s bounce was the real deal, it wouldn’t retest 4,100. Slipping back to support so soon after bouncing off of it means something is wrong. And as we found out Thursday, when things go wrong, they can go really wrong.

While everyone saw the market split wide open Thursday, most people missed the cracks that were already starting to show Wednesday afternoon. I didn’t like Wednesday’s fizzle and late retreat to 4,100 support. That convinced me to lock in some profits proactively. And Thursday morning’s stumble under 4,100 told me it was a better time to be safe than sorry.

I had no idea the market was going to shed nearly 100 points that afternoon. All I knew is the risk/reward was no longer in my favor. I liked the market and still thought 4,300 was the most likely outcome. But as easy as buying back in is, there is no reason to stick with a trade when it is flashing yellow. Because you know what? Flashing yellow turns into flashing red in the blink of an eye.

While most people were riding Thursday’s waterfall selloff lower, I was in cash and wondering if I should short the market. I was clearly wrong about 4,300, but as a nimble trader, I don’t mind being wrong. In fact, being wrong can be highly profitable if we are savvy enough to recognize it early and flip the script.

If I was wrong about 4,300 and 4,100 support, maybe I should be going the other way because if this breaks down, there is a lot of air underneath current prices. Rather than stubbornly stick to my prior position, I admitted defeat, pulled the plug, and joined the other side. No one likes being wrong, but I like making money a lot more than being right.

As for what comes next, it doesn’t look good. In fact, it looks dreadful. If the market doesn’t bounce hard at Friday’s open, get ready for more blood letting. Maybe the selling only lasts a few hours before capitulating. Or maybe we shed another 100+ points and challenge May’s lows. Either way, I don’t want to be standing in the way.

But as bad as this looks, the other thing I know is when this bounces, it is going to bounce hard. I don’t if that will happen, Friday or sometime next week, all I know is when this bounces, I’m covering my short and going long.

Either we ride this market or it rides us. You decide.

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Jun 07

Why a little tail-chasing can be good for our account values

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 tumbled at Tuesday’s open, easily undercutting 4,100 support. But within 10 minutes, the storm passed and it was all uphill from there. By the close, the morning’s 1% loss turned into a very respectable 1% gain.

If trading were easy, everyone would be rich. Sometimes the market needs to convince us we’re wrong moments before proving us right. It appears that’s all Tuesday’s momentary violation of 4,100 was, a little head fake before resuming May’s rebound.

The encouraging thing about the dip under support is it didn’t find many sellers. In fact, within minutes supply dried up and prices bounced. While I’d love to see the index charge higher every single day, the market doesn’t work that way. Sometimes we need to go through a few stepbacks before we can start the next leg higher.

As I wrote in Monday evening’s free post, I pulled the plug on a portion of my position Monday afternoon when early strength fizzled and the index closed at the intraday lows. While that weakness didn’t cross my stops, it was enough of a warning flag to convince me to take some risk off the table.

That caution appeared to be the right call when the index tumbled Tuesday morning. In fact, that gap jumped over some of my stops. But an opening gap is the single exception to my stop loss rule. Rather than reflexively sell the open, I give the market 15ish minutes to find its footing because more often than not, opening gaps bounce. Since I already took the biggest lump at the open, holding for a few more minutes to see if prices bounce doesn’t add a lot to my risk. If the selling continues, I get out a few points lower. If prices bounce, the early lows become my new stops and I keep holding.

As luck would have it, Tuesday’s early weakness bounced and I didn’t have to sell. And more impressively, when the index retook 4,100, I started adding back in what I sold the previous afternoon.

The market has a nasty habit of knowing exactly where our stops are and it loves violating them. But the best part about being a nimble trader is we can both stay safe and still be in a position to profit from the upside. As easy as buying back in is, there is no reason to stubbornly hold a dip. For as many times as being stubborn works, there are a dozen times it bites us in the ass. I would much rather sell and buy back in hours later than I would watch the losses pile up as I keep waiting for a bounce that never comes.

That sounds like a lot of effort for what amounted to an unnecessary trade, but protection against larger losses doesn’t come free. Just because holding worked this time doesn’t mean it will work next time. (Just ask all the people waiting for the market to bounce back above 4,500.)

Now that the index is back above 4,150, I can spread my stops across the lower 4,100s. If we retest support again this week, there is no coming back from that and lower prices are ahead. But since four tests of 4,100 support over the last five trading sessions failed to break the dam, it appears we are standing on solid ground and a continuation to 4,300 is the most likely outcome.

Keep holding for higher prices and continue lifting our trailing stops.

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Jun 06

How much longer will 4,100 support hold?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Monday 0.3% higher and remains above 4,100 support for the sixth session in a row.

While that sounds like a decent result, open the intraday chart and the situation looks a lot less encouraging. This is the second day in a row the index finished at the intraday lows and the fourth time that’s happened out of the last five sessions.

As I often remind readers, it’s not how we start but how we finish that matters most. While Monday finished in the green, that 0.3% close was well under the morning’s highs. The index popped 1.3% in early trade, buyers disappeared, and we finished at the intraday lows. That’s as ugly as it gets for a day that technically finishes green.

The index is still a handful of points above 4,100 support, but at this rate, a violation is all but inevitable.

I still think May’s rebound has the potential to challenge 4,300 over the next few weeks, but we need to tread carefully over the next few days. The market is far stronger than any of us and it doesn’t care what we think. If it wants to dip under 4,100 and retest 4k support, who am I to argue with it? I will gladly take profits near 4,100 and wait to buy the next bounce.

While my stops are spread under 4,100 support and they didn’t get violated by Monday’s late retreat, the weak closing price action convinced me to start peeling off some profits proactively. Buying back in is always a lot easier than praying the market bounces back to the levels I wish I sold at.

I shifted to a defensive posture and took some profits but I only peeled off a partial position. Rather than lurch all-in and all-out of the market, I like hedging my bets by moving in partial positions. If the index tumbles Tuesday, I took some profits at higher prices and have those funds safely in my pocket. On the other hand, if the index bounces back Tuesday, I’m still holding a partial position and can put the rest of my money back in. That’s a win-win in my book.

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Jun 02

Where did all the sellers go and what that means for where we’re headed next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday’s session got off to a rocky start after MSFT issued a revenue warning. That was enough to push the S&P 500 into the red for the third day in a row.

But as I often write, how we finish is far more important than how we start. And by that measure, Thursday turned out to be a fantastic session. Over the next several hours, the index surged 100 points, not only pulling itself out of that early hole but also erasing all of Tuesday’s and Wednesday’s losses, leaving us at the highest levels in nearly a month.

While headlines continue to be overwhelmingly negative and suggest lower stock prices, after two months of living under these storm clouds, it seems like we finally ran out of fearful owners willing to sell a retelling of those same old headlines.

No matter what the headlines are, eventually we reach a point where we exhaust the supply of sellers and that’s when those headlines stop mattering, ie the bad news gets priced in. A spike in oil prices. The Fed promising two more half-point hikes this summer. Inflation weighing on corporate earnings. It’s all a slightly different version of what we’ve been hearing for months.

As bad as things seem on the surface, we always reach a point where the market goes too far and prices bounce back despite the headlines. It took a while, but it seems like we finally passed that near-term capitulation point.

At this point, 4,300 is still very much on the table. Maybe this ultimately turns out to be nothing more than a dead-cat bounce on our way lower. But the near-term trend is decisively higher and that makes this a very buyable bounce.

Follow the headlines and we’d never buy anything. But do this long enough and it becomes obvious that even the most dreadful bear markets have big bounces on their way lower.

I’m not convinced this will be a particularly bad bear market. But even if that’s where we are headed, this is still a great near-term buying opportunity.

If this rebound stalls and retreats Friday or early next week, no problem, I pull the plug at my trailing stops, collect some handy profits and run. But until that happens, this is acting like it still wants to go higher and that means riding this wave as far as it will take me.

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