Category Archives for "End of Day Analysis"

Feb 28

While I’m still sticking with my short trade…but keeping it on a short leash

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished down 0.2% in Wednesday’s relatively quiet session.

As always, there are two ways to look at this week’s price action. The bulls will point to the index holding the vast majority of last Thursday’s 2% pop. The bear’s counterpoint is the rally stalled and is out of gas because it hasn’t been able to add to that pop.

At this point, both sides are stubbornly dug in, leaving us with this sideways draw just under all-time highs.

Too high? Or, not high enough? That’s the million-dollar question.

While both sides have valid arguments and could easily be right, as I wrote on Monday, my money is on the short side. Not because I think the bears are going to win, but because I could enter that trade in a low-risk way.

The rally stalled Friday afternoon, and that lethargic close gave me a short entry with a nearby stop above the intraday highs. If I was wrong, I would get dumped out for a fractional loss. But if the index falls into a very normal and healthy pullback to 5k support, that represents a 2% profit at even money and as much as 6% in a 3x trade.

Even if this short trade has 50/50 odds of working, the simple fact the reward is so much larger than the risk makes this a great trade.

Now, I have no idea if this trade will pay off in the end, but since putting it on last week, I’ve been able to lower my stops to my entry points, even further lowering my risk. I could very easily be wrong and get stopped out at my entry points, but if it doesn’t cost me anything, who cares? It’s like a free lottery ticket. Just because it didn’t pay off doesn’t mean scratching it off was a mistake.

While I’m still holding my short position and the market is moving ever so slowly in my direction, I am getting impatient. If the short trade is going to work, it needs to start working soon. If not, I will pull the plug before my stops get hit. When a trade isn’t working, our stops are our last line of defense, not our only defense.

If prices rally on Thursday, I will pull the plug and collect some trivial profits. While it’s not the trade I wanted, it is hard to complain about being wrong and still collecting a few bucks for my effort.

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Feb 27

Keep sticking with the low-risk/high-reward trade

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 added a modest 0.2% in another mostly irrelevant session as the index continues digesting last week’s big NVDA pop.

As popular as NVDA is as a momentum stock, its success is largely limited to the AI sector, and the company’s success doesn’t tell us much about what Main Street consumers are doing. That means NVDA’s success shouldn’t have a big influence on the board market the way a bellwether stock like AAPL or AMZN would. And no doubt that limited reach is why NVDA’s big results haven’t triggered a multiday rally.

Instead, we are stuck with three largely sideways sessions following last Thursday’s big gains. As I wrote Monday evening, there are two ways to interpret this sideways trade. Either the market is catching its breath before the next leg higher, or this is the last gasp of buying before the inevitable step back.

Both points of view have solid logic behind them, and I could easily see either scenario playing out. So what are we supposed to do as traders, flip a coin?

Nope, savvy traders look at the setup and pick the low-risk/high-reward trade. As I wrote Monday evening, I shorted the market. Not because I’m bearish, but because I could enter that trade with a stop near Friday’s highs. If the index continues slipping, I rake in a pile of profits. If prices bounce back above Friday’s highs, I close my position for a small loss and then change direction, buying the push to fresh highs, this time with a stop under this week’s lows.

As luck would have it, this trade has already worked well enough that I was able to lower my short stops to my entry points, making this nearly a free trade. At that point, it doesn’t really matter if I’m wrong because this is like a free lottery ticket. I make money if it pays out. If it doesn’t, I close my short near breakeven and get ready for the next trade, most likely buying a continued rally past last week’s highs.

Too high or not high enough? I don’t really care because I have a low-risk/high-reward trading plan that works in both directions.

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Feb 26

A low-risk short trade near 5,100

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped 0.4% Monday, following last week’s big run to record highs.

Impressive earnings from market darling NVDA sent the index flying 105 points last Thursday, but so far, the index is struggling to add to those big gains in the follow-up sessions.

Too high, or not high enough? That’s the million-dollar question.

Both sides have compelling arguments. Few things are more powerful than momentum, and this rally is red-hot. But on the other side, all good things must come to an end and this rally is no different.

At this point, I give a very slight near-term edge to the bears. Not because I think this rally is topping but because savvy traders can enter a low-risk/high-reward short trade at current levels.

The market is pausing at 5,100, giving us a low-risk shorting opportunity with a stop near Friday’s intraday highs. If momentum continues higher, we get stopped out for a small loss. On the other hand, a very vanilla pullback to 5k will produce profits of many multiples of that risk.

Low-risk, high-reward trades are what traders dream of, and here’s a good one.

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Feb 07

Now that we hit 5k, how to trade what comes next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added 0.8% on Wednesday, powering to yet another record close, including a midday push to 4,999.89.

That’s as close to 5k as one can get without actually touching it. As I wrote earlier this week in a post titled, “5k, here we come”:

Friday’s reclamation of 4,900 looks like the real deal, and 5k is up next. We might not go straight there, but the odds are good that if we’ve come this far, we will close the deal soon.

I have no idea what happens after we reach 5k, but until then, this market wants to go higher, not lower.

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For all practical purposes, the index hit 5k on Wednesday. So, now it is time to figure out what comes next.

I see three possibilities: up, down, or sideways. Wow, isn’t that insightful? Ha!

But, seriously, we have these three possibilities. Sideways is likely because the October rebound stalled momentarily at 4,400, 4,600, and 4,800, so another pause at 5k fits the pattern.

As for up, nothing would hurt the bears than another short squeeze. And to be honest, the market almost never gets rejected exactly at a widely followed level. Either we stall before or after. Since we didn’t stall before 5k, that means stalling after.

And lastly, down. No matter how impressive the October rebound has been, it has to end at some point. Why not end it at something as spectacular as 5k? That’s exactly what the NASDAQ did in March 2000, peaking at 5,048 before entering into a multi-year bear market.

As for what I think will happen, the market doesn’t care what I think, and the only choice we have is to follow the market’s lead. That said, it wouldn’t surprise me to see the market have another up day or two to decisively put its stamp on 5k before falling into another sideways consolidation, as it did at prior round milestones in recent months.

As for how to trade this, we collect worthwhile profits when we have them because if we allow ourselves to get greedy, the market will take everything back. That means lifting stops and locking in some partial profits while the crowd is the most optimistic.

Markets move in waves, and it’s been a good run. But that also means it is time to start collecting profits and getting ready for the next trade. Which, at this point, could be up, down, or sideways. Only time will tell. But anyone sitting on a pile of profits on the sidelines will be in the best position possible to jump on that next trade.

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Feb 06

5k, here we come

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

On Tuesday, the S&P 500 added 0.2% as the index finished four points shy of the all-time closing record.

So much for last week’s panicked selloff. Luckily, this week’s resilience didn’t surprise regular readers. As I wrote last week:

A market that refuses to go down will eventually go up. After a couple of failed selloffs lastlll week, it became increasingly obvious that if this market were going to fail, it would have failed by now.

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Now, I will be the first to admit that last week’s selloff dumped me out at my stops. No matter my outlook or how temporary I think a bout of selling will be, I always sell at my stops, no questions asked.

Sure, I could have held through last week’s dip, but that would have been undisciplined, and that trading strategy requires more luck than skill.

Since I don’t count on luck, I wasn’t willing to hold a violation of my stops. Good thing I’m a nimble trader and was ready and willing to buy the subsequent bounce 24 hours later.

Remember, just because our stops get hit doesn’t mean we give up on a trade. Sometimes it takes a few false starts before a trade finally works. Anyone who gave up last week missed out on a great trade.

As for what comes next, Friday’s reclimation of 4,900 looks like the real deal, and 5k is up next. We might not go straight there, but the odds are good that if we’ve come this far, we will close the deal soon.

I have no idea what happens after we reach 5k, but until then, this market wants to go higher, not lower.

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Jan 31

Why I don’t mind being wrong

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 crashed 1.6% on Wednesday, ouch!

It was a perfect storm between “disappointing” earnings from GOOGL and MSFT and Powell telling investors the Fed doesn’t have plans to cut rates in March. None of these things were bad; in fact, GOOGL and MSFT earnings were actually good. Unfortunately, stocks have gotten so expensive that good is no longer good enough, and anything short of great leads to disappointment.

As I wrote Monday, I bought the 4,900 breakout, so this wave of selling wasn’t great for my position. Luckily, I bought it early Monday and had a nice profit cushion protecting my backside. As I wrote readers Monday evening:

I have no idea how long this rally will last, but given Monday afternoon’s nice gains, my stops have already been lifted to my entry points, turning this into a low-risk trade.

If this turns out to be a climax top and prices crash next week, no big deal. I pull the plug at my stops and follow the market in the other direction. But until that actually happens, I’m riding Monday’s wave higher.

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Sure, I will be the first to admit buying Monday’s breakout was a mistake. But since I entered that trade early and lifted my stops to my entry points, this mistake didn’t cost me anything. It’s like a free lottery ticket. If it works, great. If it doesn’t, no big deal, I get out near breakeven and try again next time.

If a person can’t handle being wrong, this is definitely the wrong game to be playing. For the rest of us, we come at this with a proactive trading plan that protects us when things don’t work out.

And to be honest, I don’t even like calling Monday’s buy a mistake because it was a good trade, and I’d do it again every chance I get. Sure, it didn’t work this time. But do it often enough, and several of those trades will bring in nice profits.

Coincidentally enough, this is exactly what I did at the 4,400, 4,600, and 4,800 breakouts. Batting 0.750 isn’t bad. If that’s what being wrong looks like, I’m happy to be wrong.

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Jan 29

Why I flipped last week’s short positions to long positions on Monday

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 popped 0.8% on Friday, smashing the 4,900 barrier and setting yet another record close.

It is amazing how far we’ve come since the October lows when everything seemed broken. Now, the stock market can’t do anything wrong.

As regular readers will know, I was cautious last week as we were running into resistance near 4,900. But as was the case at 4,800, 4,700, 4,600, and 4,500, 4,900 resistance turned out to be little more than a speed bump.

I put on a short position last week after it looked like the index was getting rejected by 4,900 resistance. But as I often warn readers, shorting an uptrend is one of the hardest ways to make money in the market.  That means I approached last week’s short trade with risk management first and foremost. I started small, got in early, and kept a nearby stop.

As is obvious by nw, it didn’t take long for the market to knock me out of my position for a small loss.

When a trade doesn’t work, that forces us to reevaluate our outlook. As I often write, a market that refuses to go down will eventually go up. After a couple of failed selloffs last week, it became increasingly obvious that if this market were going to fail, it would have failed by now.

Last week’s attempted waves of selling continued Monday morning as the index briefly flirted with losses in early trade. But when the selling failed to stick, that told us bears were losing their grip, and the afternoon surge above 4,900 became all but inevitable.

This isn’t the trade I was looking for last week, but as a nimble, flexible trader, I follow the market wherever it takes me, and that meant buying Monday’s 4,900 breakout.

I have no idea how long this rally will last, but given Monday afternoon’s nice gains, my stops have already been lifted to my entry points, turning this into a low-risk trade.

If this turns out to be a climax top and prices crash next week, no big deal. I pull the plug at my stops and follow the market in the other direction. But until that actually happens, I’m riding Monday’s wave higher.

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Jan 24

Could Wednesday finally be the day bears have been waiting for?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 started Wednesday’s session with nice gains and even poked its head above 4,900 for the first time in history. Unfortunately, the index couldn’t hold those gains and skidded all the way back near breakeven by the close.

As I  often write, how we finish is far more important than how we start, and by that measure, Wednesday was an ugly session. Far worse than the benign 0.1% gain suggests.

Headlines didn’t change anyone’s mind. Instead, supply dried up when many investors started realizing just how high prices were getting. Without people willing to throw new money at the market, the rally stalled and prices retreated.

Of course, this was expected, as I wrote earlier in the week:

As for what comes next, I haven’t seen anything that suggests we are breaking out of the recent consolidation. And Monday’s lethargic follow-on buying confirms that muted outlook. I’m not calling for a crash or anything like that, just that we need to keep our expectations in check and take our profits early and often. In markets like this, profits don’t last long.

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This rally is being driven by Fear Of Missing Out, and prices are going further than anyone thought possible. But no matter how impressive it looks, gravity always wins in the end.

Now, don’t get me wrong, I’m not calling this a top, and momentum can keep this rally going for weeks and even months. Just ask all of the cynics who have been shorting this rally since the lower 4,000s. But no matter how good this looks, all good things must come to an end.

I have no idea if Wednesday’s intraday reversal is the crack that finally breaks this thing. But it was ominous enough that any nimble trader needs to be paying attention. Anyone overcome by greed and predicting weeks and months of gains is going to end up disappointed. The rest of us are collecting our profits and getting ready for the next trade.

The market is acting really, really well. That’s why I’m getting nervous.

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Jan 22

Why the breakout is already struggling

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added 0.2% on Monday, notching yet another record close.

As good as that sounds, the intraday price action was fairly disappointing. The index was up over 0.5% in the first hour of trade before a wave of profit-taking knocked it off of those initial highs.

As regular readers know, it’s not how we start but how we finish that matters most. And by that standard, Monday was not a good day. Rather than trigger another short-squeeze and wave of follow-on buying, supply dried up and prices slid from those early highs.

It is way too premature to call Monday morning’s highs a top, but the lack of follow-on buying is a concern. But none of this surprised readers. As I wrote last week, even with Friday’s breakout to new highs, the market was still stuck in a sideways consolidation:

Just because the market broke out of an ultra-tight, 100-point trading range doesn’t mean the recent consolidation is over. Stocks spend 60% of their time chopping sideways, so the odds are good Friday’s breakout was nothing more than a somewhat wider continuation of the recent sideways chop.

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Well, here we are, one session later, and Friday’s breakout is already stumbling.

As I wrote last week, Friday’s breakout was expected and very tradable, but rather than get greedy and hold for more, nimble swing traders are already locking in profits and getting ready for the next trade.

We are only in this to make money, and that means selling our winners before we want to. If we don’t, the temptation to hold too long takes over and we watch all of our profits escape. Who hasn’t done this before? Just ask all of the bears that were sitting on nice short profits less than a week ago.

As for what comes next, I haven’t seen anything that suggests we are breaking out of the recent consolidation. And Monday’s lethargic follow-on buying confirms that muted outlook. I’m not calling for a crash or anything like that, just that we need to keep our expectations in check and take our profits early and often. In markets like this, profits don’t last long.

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Jan 19

Why bulls shouldn’t be getting cocky

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 smashed through 4,800 resistance on Friday, adding 1.2% and sending bears scrambling for cover.

Does this mean the 2024 consolidation is already over? Nope. As I wrote Thursday evening, this breakout was expected, and it doesn’t change anything:

This 4,700/4,800 trading range is too tight to contain for much longer, but that doesn’t mean the next directional move is coming. Instead, the first few times we break out of this range, that move will stall and reverse as the consolidation simply looks for more elbow room between its swings. Continue anticipating reversals until we have a compelling reason to do otherwise.

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Just because the market broke out of an ultra-tight, 100-point trading range doesn’t mean the recent consolidation is over. Stocks spend 60% of their time chopping sideways, so the odds are good Friday’s breakout was nothing more than a somewhat wider continuation of the recent sideways chop.

Friday’s breakout was definitely buyable because it was going to trigger a short squeeze, which is why I bought it, but savvy traders are already planning their exit, not pressing their luck. The odds are very good we are not done with 4,700 support yet, and we will be retesting that level over the next few weeks.

Just as has been the case since early December, anyone holding too long will watch their nice profits evaporate during the next swing. Don’t be that guy. Remember, we only make money when we sell our winners, and it won’t be long before savvy traders are collecting these 4,800 breakout profits.

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Jan 18

Don’t make the costly mistake everyone else is making

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 b0unced back on Thursday, gaining 0.9%, easily erasing this week’s selling.

Last week, bulls were pilling in ahead of their widely predicted 4,800 breakout. This week bears were patting themselves on the back for shorting the next big breakdown. And as luck would have it, both sides got their trades exactly wrong. But what should one expect when making directional trades in a sideways market?

Luckily, readers of this blog saw this sideways meat grinder coming and resisted the urge to overtrade it. As I wrote two weeks ago:

If this market was overbought and vulnerable, [January 9th’s] opening losses were the perfect opportunity for bears to strike by opening the selling floodgates. Instead, most owners saw [January 9th’s] early losses, shrugged, and kept holding. That caused supply to dry up and prices to bounce.

We’ve come a long way from the October lows, and the market deserves a well-earned break. I’m not expecting a surge past 4,800 anytime soon and the market is settling in for a sideways grind under 4,800 resistance.

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Here we are, nearly two weeks later, and that’s exactly what happened. Markets spend 60% of their time trading sideways, yet that doesn’t stop everyone from predicting the next big directional move is just around the corner.

Not much is happening in the financial headlines, and these daily moves are nothing more than the market’s inability to sit still. The market does something every day, but these daily moves don’t mean anything, and the index is simply consolidating last year’s big gains by grinding sideways for a bit.

This will change at some point, but this is not that point, so we need to keep expectations low and anticipate more sideway chop for the foreseeable future. If prices were going to surge higher, they would have surged by now. If they were going to collapse, they would have collapsed. The fact we are doing nothing tells us the market doesn’t want to do anything.

This 4,700/4,800 trading range is too tight to contain for much longer, but that doesn’t mean the next directional move is coming. Instead, the first few times we break out of this range, that move will stall and reverse as the consolidation simply looks for more elbow room between its swings. Continue anticipating reversals until we have a compelling reason to do otherwise.

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Jan 17

The mistake bulls and bears keep making, part 2

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped another half percent on Monday as 4,800 resistance remains an impenetrable barrier.

Days of up followed by days of down sounds like a trading range to me. Luckily for readers, this is exactly what I forecast in last week’s Free Analysis:

Bulls and bears are jumping all over these gyrations that confirm their biases, only to have those trades blow up in their faces a few hours later. This market is entering a consolidation phase, and it will be a while before we get the next big, directional move. Keep that in mind the next time you are planning a trade.

In range-bound markets, we trade the reversals; we don’t bet on the continuations. Until the market decisively breaks out of the 4,700/4,800 trading range, be prepared for a lot more sideways chop.

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Trading ranges look seductively easy to trade in hindsight, but it is impossible to overstate the difficulty of standing your ground when it feels like the market is moving against you. This is one of those times where, if you wait long enough, both Bulls’ and Bears’ trades will show a profit. Unfortunately, it is never that easy. Instead, both sides lose their nerve and bailout for a loss before the profits show up. Buy high, sell low, repeat until broke.

Remember, successful trading isn’t about big winners. Everyone gets those. It is about keeping those profits in the follow-up trades, which is why I’m not anxious to press my luck here. Maybe we get a nice buyable bounce later this week, but with the market switching direction every day or two, it takes impeccable timing to get these trades exactly right, so be careful chasing these nickels and dimes. It would be a shame to allow haste and greed to cause us to give up our big pile of profits by irresponsibly overtrading this sideways chop.

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Jan 11

The mistake both bulls and bears keep making

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Thursday’s session pretty much where it started. But as quaint as that flat finish sounds, getting there was anything but a smooth ride.

Before the open, we got December’s CPI report showing inflation picked up a small amount from November. While not terrible, it leaves inflation above the Fed’s target and hints that rate cuts might not arrive as quickly as some investors hoped.

After opening with small gains, the selling hit hard, and the index shed nearly 60 points over a few hours. But when it looked like another big wave of selling was knocking us back to the January lows, supply dried up, and prices bounced.

Luckily, this sideways chop under 4,800 resistance doesn’t surprise regular readers. As I wrote in my Free Analysis Tuesday:

We’ve come a long way from the October lows, and the market deserves a well-earned break. I’m not expecting a surge past 4,800 anytime soon and the market is settling in for a sideways grind under 4,800 resistance. But as long as we keep getting more up than down, this is a better place to be owning stocks than it is to be shorting them.

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As luck would have it, we hit our head on 4,800 resistance and turned back. But equally expected was another aborted selloff that didn’t go anywhere.

Bulls and bears are jumping all over these gyrations that confirm their biases, only to have those trades blow up in their faces a few hours later. This market is entering a consolidation phase, and it will be a while before we get the next big, directional move. Keep that in mind the next time you are planning a trade.

In range-bound markets, we trade the reversals; we don’t bet on the continuations. Until the market decisively breaks out of the 4,700/4,800 trading range, be prepared for a lot more sideways chop.

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Jan 09

Why this rebound earned the benefit of the doubt

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped less than 0.2% Tuesday.

While a loss is a loss, this small give-back actually looks bullish for two reasons. First, we opened the session with much larger losses, and the market spent all morning climbing back from those opening lows. Second, giving back less than 0.2% of Monday’s towering 1.3% surge is barely a scratch.

Tuesday’s price action follows what I wrote in Monday’s free evening post:

Monday’s decisive bounce off of 4,700 support must be respected. At this point, last week’s step back is over, and the rally is resuming. That’s the only way to trade this. For a nimble trader, the bounce off of 4,700 was buyable. The non-stop, nearly straight-up rally through Monday’s session was paid for by tardy shorts getting squeezed out of their positions. Odds are good we will see more pressure applied to bears over the next few sessions.

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If this market was overbought and vulnerable, Tuesday’s opening losses were the perfect opportunity for bears to strike by opening the selling floodgates. Instead, most owners saw Tuesday’s early losses, shrugged, and kept holding. That caused supply to dry up and prices to bounce.

While two days of resilient trade is not conclusive (three if you count Friday’s draw), it sure is a good start. As I often write, something that refuses to go down will eventually go up. And so far, the market is refusing to resume last week’s selloff.

While last week’s selloff could return at any time, the first thing a bigger selloff needs to do is violate 4,700 support. As long as the index remains above this key level, last week’s selloff is dead.

We’ve come a long way from the October lows, and the market deserves a well-earned break. I’m not expecting a surge past 4,800 anytime soon and the market is settling in for a sideways grind under 4,800 resistance. But as long as we keep getting more up than down, this is a better place to be owning stocks than it is to be shorting them.

Everything will change if the index falls under 4,700 support. But until that happens, keep giving the market the benefit of the doubt.

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Jan 08

Why savvy shorts covered their positions Monday morning

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 surged 1.4% Monday, closing comfortably above 4,700 support as last week’s worries faded from memory.

Financial headlines haven’t changed, but the market is enjoying a bit of relief as Congress makes incremental progress toward avoiding a shutdown. Sometimes, that’s all it takes to cure a bout of selling. As the saying goes, buy the rumor, sell the news. And traders were definitely buying the rumor on Monday.

Time will tell if Monday’s strength proves durable, but often, it only takes removing the selling pressure for the market to regain its footing. We will learn more about the market’s mood on Tuesday, but so far, things look promising. One day doesn’t make a trend, but every trend starts with that first day.

As readers will recall, I put on a short position last week. Fortunately, I was prepared for something like Monday’s bounce. As I wrote last week:

At this point, the pullback deserves the benefit of the doubt. Anyone who shorted Tuesday or Wednesday morning is sitting on small but comfortable profits, and they can lower their stops to their entry points, greatly reducing their risk.

[S]horting a rally is one of the hardest ways to make money in the market, so this only applies to the most adventurous traders, but for the moment, this trade is working and we stick with it. The most important thing is respecting our stops. Just ask anyone who shorted “too high” at 4,400, 4,500, and 4,600. Don’t make the same mistake and pull the plug if the short trade stops working.

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With Monday’s buying erasing all of last week’s selloff, that obviously qualifies as the short trade no longer working. Savvy traders pulled the plug at their entry points. As the saying goes, no harm, no foul. This trade didn’t work, but it didn’t cost us anything. Does anyone complain about getting free lottery tickets, even when they don’t pay off? I sure don’t

As for what happens next, Monday’s decisive bounce off of 4,700 support must be respected. At this point, last week’s step back is over, and the rally is resuming. That’s the only way to trade this. For a nimble trader, the bounce off of 4,700 was buyable. The non-stop, nearly straight-up rally through Monday’s session was paid for by tardy shorts getting squeezed out of their positions. Odds are good we will see more pressure applied to bears over the next few sessions.

And if the selling returns, that’s okay, too. I’m willing to ride the next trade in either direction. Start small, get in early, keep a nearby stop, and only add to a position that’s working.

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Jan 04

Our short trade is working, but don’t get greedy

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 shed another 0.3% on Thursday, making this four down sessions in a row.

Financial headlines haven’t changed in a meaningful way since last week’s Santa Clause rally peaked, but no matter how good things seem, there always comes a point when we run out of new money to keep pushing prices even higher. It is starting to feel like October’s massive rebound finally reached that point of diminishing demand.

Now, don’t get me wrong, I’m not one of these cynics predicting a huge crash or anything like that. But I’ve been doing this long enough to know stocks move in waves. Every bit of up is eventually followed by a bit of down. The only question is how much down we get.

As I wrote in my Free After-Hours analysis on Wednesday:

At this point, the pullback deserves the benefit of the doubt. Anyone who shorted Tuesday or Wednesday morning is sitting on small but comfortable profits, and they can lower their stops to somewhere between Tuesday’s intraday highs and their entry points, greatly reducing their risk.

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Given Thursday’s declines, shorts should move their stops down to their entry points, making this a low-risk trade. This close under 4,700 support suggests we have more near-term weakness coming our way.

As I wrote above, I’m not at all bearish. This week’s step back is nothing more than supply and demand rebalancing from last week’s overbought levels. At this point, 4,600 support is very much in play. We might not get all the way back to this level, but my trading account is currently positioned to profit from more near-term weaknesses. This won’t be a straightforward or easy trade because it never is, but expect more down than up and keep giving this short trade the benefit of the doubt.

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Jan 03

How smart money is approaching this shorting opportunity

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped another 0.8% Wednesday, making this three down sessions in a row.

So much for the Santa Claus rally. All of last week’s profits are gone, and then some. As I warned readers in December, anyone who didn’t lock in profits risked giving it all back by holding too long. And that’s exactly what happened:

[S]mart traders are sitting on a big pile of profits they collected last week and are getting ready for the next big trade. Maybe that’s shorting the reversion trade later this week. Maybe that’s sitting in cash until something more interesting happens in January. Either way, anyone expecting these big gains to keep rolling in clearly doesn’t understand how markets work.

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Now that the index is teetering on 4,700 support, the crowd is wondering what comes next. The answer is easy: either stocks bounce…or they don’t.

The index broke the very steep and very straight-up rally from the October lows. Since the market loves symmetry, a rally that goes too far tends to be followed by a pullback that goes too far, too.

Unfortunately, as easy as that sounds, trading successfully is anything but easy. Expect lots of misleading bounces along the way (a sawtooth decline), which could start as early as Thursday. Remember, if this were easy, everyone would be rich.

At this point, the pullback deserves the benefit of the doubt. Anyone who shorted Tuesday or Wednesday morning is sitting on small but comfortable profits, and they can lower their stops to somewhere between Tuesday’s intraday highs and their entry points, greatly reducing their risk.

As I warned readers on Tuesday, shorting a rally is one of the hardest ways to make money in the market, so this only applies to the most adventurous traders, but for the moment, this trade is working and we stick with it. The most important thing is respecting our stops. Just ask anyone who shorted “too high” at 4,400, 4,500, and 4,600. Don’t make the same mistake and pull the plug if the short trade stops working.

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Jan 02

What to do now that Santa left town

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped 0.6% on Tuesday after the good feelings surrounding last week’s Santa Clause rally left town.

Headlines haven’t changed in a meaningful way, but the calendar rolled over, and we find ourselves in a new year and a new quarter. All of the repositioning that took place in the final weeks of 2023 is done, and professional investors are starting with a clean slate. Gone is the pressure to chase prices into year-end, and now these institutional money managers are free to trade the positions they believe in, not what they think investors want to see on their year-end statements. And so far, it seems like big money doesn’t want to chase anymore.

One day doesn’t make a trend, but these are the early hints that changes could be blowing our way.

I was on vacation last week, and as a personal rule, I didn’t trade, but now that I’m back in the office, it’s game on. I’m not ready to jump on the short bandwagon after a few hours of weakness, but if this sticks around, I’m happy to start with a small short and a nearby stop.

As I’ve written before, shorting an uptrend is one of the hardest ways to make money trading because it requires impeccable timing. But if we approach it with a good risk management strategy, we can take a shot relatively safely.

The index bounced off of the afternoon lows in the final minutes of the session, so I didn’t pull the trigger on a short position yet, but I will be watching and ready to short continued weakness on Wednesday.

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Dec 20

The more things change, the more they stay the same

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Markets take the stairs up and the elevator down. That phenomenon was in full effect Wednesday when one afternoon of losses wiped out a week’s worth of gains.

Luckily, my regular readers saw this coming. As I wrote in my free analysis two days ago: 

The bulls won again on Monday, but that doesn’t mean smart money was chasing these overbought levels. In fact, smart traders are sitting on a big pile of profits they collected last week and are getting ready for the next big trade. Maybe that’s shorting the reversion trade later this week. Maybe that’s sitting in cash until something more interesting happens in January. Either way, anyone expecting these big gains to keep rolling in clearly doesn’t understand how markets work.

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These things are so predictable, yet every time we find ourselves in the middle of these situations, the average trader cannot help but think, “This time is different.” Well, as Wednesday afternoon proved, the more things change, the more they stay the same.

While I was one of the first in line to buy the November rebound when that kicked off last month, I will fully admit I didn’t anticipate the huge size of this rebound. I was willing to stick through last week’s 4,600 breakout, but late last week was getting a little too rich for my blood, and I couldn’t help but start collecting some very worthwhile 3x ETF profits.

I was fully aware I was collecting profits too early, but since no one can consistently pick tops, that means we are left choosing between selling too early and holding too long.

Wednesday afternoon’s price action shows why I prefer being in cash when the next trade lands. While everyone else was filled with dread watching their profits vanish, I was primed and ready to jump aboard short bandwagon and profit from slow money’s pain.

I fully admit I sold the rally too early, but on days like this, I don’t mind.

As for what happens next, these are rarely one-day events, and it could get bumpy before it gets better. If you are not using trailing stops to protect your profits, this is a good time to start.

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Dec 18

Why smart money was watching Monday’s rally from the sidelines

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added a half percent Monday, on the first day of what will be a slow, holiday-affected week.

This will probably be the third slowest week of the year, following only Thanksgiving and next week between Christmas and New Year’s. For that reason, I don’t expect a lot of meaningful buying this week. Big money traders who wanted to buy ahead of year-end already bought. These managers have one foot out of the door and are not doing any serious work this week.

As I wrote during Thanksgiving, these holiday-affected sessions are vulnerable to elevated volatility as the retail traders and computers start doing wonky things without big money’s guiding hand.

At this point, I’m content watching this rally from the outside. Seven out of the last eight sessions ending in the green is a lot. The unfortunate thing for anyone buying these highs is the market has a habit of reverting to the mean. A stretch of down days to get us back to more normal levels wouldn’t surprise me at all.

Stocks move in waves, and bits of up are always followed by bits of down. Monday wasn’t that day. But it will be here soon enough, even if the selling does nothing but consign us to a sideways grind into January.

The bulls won again on Monday, but that doesn’t mean smart money was chasing these overbought levels. In fact, smart traders are sitting on a big pile of profits they collected last week and are getting ready for the next big trade. Maybe that’s shorting the reversion trade later this week. Maybe that’s sitting in cash until something more interesting happens in January. Either way, anyone expecting these big gains to keep rolling in clearly doesn’t understand how markets work.

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