Category Archives for "End of Day Analysis"

Dec 02

Why smart money is sticking with the October rebound

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 tumbled -1.5% Friday morning after the monthly employment report beat expectations.

If this reflexive selling felt strange, you are not alone and the stock market spent all Friday rallying back from those opening levels, erasing virtually all of them by the close.

Apparently some investors still believe “good is bad”, but as we saw Friday, the majority of the market doesn’t agree.

Inflation is steering the Fed’s interest rate policy decisions and if the Fed can bring inflation down without crushing employment, all the better. This is the widely hoped-for “soft landing”. Is it possible? Maybe, maybe not, but with inflation headed in the right direction while employment remains robust, that suggests this Goldilocks scenario is still possible.

At this point, the market remains in a half-full mood and that means it is not buying the bearish interpretation of November’s better-than-expected employment. Until something changes, that means the path of least resistance remains higher.

If this market wanted to go down, there have been more than enough excuses to send prices tumbling. The simple fact we remain near multi-month highs tells us the ground under our feet is solid and Friday’s rebound confirms it.

Quite simply, if this market was truly fragile and vulnerable, it would have crashed by now.

Sometimes the hardest thing to do is to stick with a winning trade when everyone around us is telling us why we are wrong. But since we trade the market, not opinion, this counter-intuitive strength is far more important than what anyone else says. The simple fact prices keep going up when the crowd thinks it should be going down is our signal to stick with it.

We will run out of buyers at some point, but this is not that point.

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Nov 17

When is a loss bullish?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday was another wild session for the S&P 500. Overnight futures traders abandoned ship and sent the index tumbling at the open. But rather than join the dash for the exits, big money started buying those discounts and it was all uphill from there.

As I often remind readers, it’s not how we start but how we finish that matters most. And by that measure, Thursday’s 0.3% loss was actually a very bullish performance. Rather than join the selling, most owners shrugged and kept holding. That resilience is always a good sign. If this market was overbought and as fragile as the cynics claim, we would have opened low and kept falling. Instead, the selling stalled out of the gate and the index recovered almost all of those early losses by the close. For a down day, it doesn’t get much better than that.

The market loves to convince us we are wrong moments before proving us right. And now that we moved past the “convincing us we are wrong” part, it is time to get on with “proving us right”. As I said above, if this market was weak, we would be challenging the lows, not bouncing back toward the highs. 4,100 is still very much in the cards.

As for trading this morning’s weakness, if a person was tricked out by those early losses, there is nothing wrong with that. More important is we stay nimble and open-minded after getting out. Sometimes the next buying opportunity is only hours away. And today was one of those days. As easy as it is to get back in, we should never let ourselves get left behind if the market tricked us with one of these false alarms.

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Nov 16

Why this isn’t the top

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped 0.8% Wednesday, giving back all of Tuesday’s gains and leaving us stuck under 4k resistance for the fourth session in a row.

As I’ve written previously, it is not a surprise to see the October rebound stall at prior resistance levels as the cynics inevitably claim the index is too high and on the verge of collapsing. But one of the first things experienced traders tell new traders is, “Never try to pick tops.” That’s because what looks like a top is almost never the top. And I have a strong suspicion that this week’s “top” is nothing but another pause on our way higher.

Everyone knows markets move in waves, but that never stops people from calling every down day the start of the next big selloff. As much as I’d love to see prices rally every single day, everyone knows that’s not possible. So why overreact when we get one of those inevitable red sessions?

At this point, I don’t see anything out of the ordinary about Wednesday’s losses and this week’s struggles with 4k resistance. In fact, this price action actually looks constructive because across several days of testing the weekly lows, every single time supply dried up and prices bounced. That’s a characteristic of a strong market, not a weak one.

If this rebound was as fragile and overbought as the critics claim, we would be crashing back to the lows, not stubbornly hanging out near multi-month highs. Follow the market’s lead and ignore the noise.

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Nov 15

The simple mistake that keeps costing bears money

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Tuesday was another back-and-forth session for the S&P 500. The index exploded above the psychologically significant 4k level when another monthly inflation reading came out better than expected. Unfortunately, that early enthusiasm fizzled and the index retreated back to breakeven just after lunchtime. But just when the cynics thought they finally won a battle, an afternoon rebound reclaimed +0.9% of those early gains.

The cynics thought they finally broke the October rebound when they kicked it back under 4k. For a bear that believed this rebound was nothing more than smoke and mirrors, that retreat under 4k was too good to resist and the shorts piled in hard and fast.

But there is a very good reason all new traders are warned against picking tops. The biggest problem bears have to deal with is the odds are simply not in their favor. This rebound has been charging ahead for over a month and Tuesday set yet another multi-month high. That means anyone betting against this rebound has been losing piles and piles of money for weeks.

Sure, this rebound will stall and retreat like all of the others that came before it, but was Tuesday that day? No, probably not. Think about it this way, if something continues dozens of times but it can only reverse once, what are the odds that today is that single day when it finally reverses? Yeah, not very good.

Of course I would prefer to see the market go up every single day, but everyone knows that’s not realistic. Yet every time the market slips a few points, the crowd can’t resist labeling it a top.

It always takes stocks time to push through prior resistance levels because that’s where people love to call tops. But as I wrote previously, this market wants to challenge 4,100. If it was as weak and fragile as the critics claim, we would have already failed by now. As much as people hate chasing a market that’s gone up, the contrarian trade is betting on the continuation and not joining the chorus rooting against it.

The headlines are improving and the bears are losing the argument. Maybe things will get worse, but for that to happen, we need to see things actually start getting worse. We never trade what could happen, we trade what is happening. And right now this market keeps telling us it wants to go higher.

Protect our profits by moving stops up to the mid-3,900s and keep holding for higher prices. And remember, as soon as we get out, always be ready to get back in if the dip proved to be a false alarm.

This rebound will continue countless times and it will die only once, which side do you want to bet on?

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Nov 11

Why this rebound still has room to run

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

After some early flirtations with breakeven, the S&P 500 finished Friday on solid ground, adding 1% to Thursday’s towering gains and the index closed at the highest level since early September.

We finally got some good news on inflation Thursday morning and that sent stocks popping like a cork. As I’ve been writing for a while, inflation has been moderating as this spring’s willy-nilly price hikes have given way to price-sensitive consumers pushing back and hunting for the best deals. Add to this the glut of inventory that built up following the post-pandemic over-ordering and few businesses have the courage to keep raising prices this fall.

As fast as stocks shot up Thursday, it’s tempting to think this surge went too-far too-fast, but that only applies to long and extended runups. Thursday was a single session on the heels of multiple large down days, so we are nowhere near overbought right now and this pop still has room to run. I’m not talking about many hundreds of points, but once we get through 4k, it won’t take long to challenge 4,100.

Sometimes the market needs to convince us we are wrong before it can prove us right, and Wednesday’s post-election selloff definitely did a good job of challenging my conviction. But the art of trading is knowing when to admit defeat and when to get stubborn. And Wednesday was one of those stubborn days.

Now, I’m most definitely not advocating stubbornly holding a tumble under our stops, but there are times when we see the market breakdown in a way we didn’t expect and that tells us to pull the plug long before our stops get hit. But I fully expected Wednesday’s knee-jerk selloff to exhaust itself quickly because this is a Fed driven market that doesn’t care about politics. And Thursday’stowering reversal confirmed the Fed is far more important than who controls Congress.

Even though Wednesday’s dip went a little further than I expected and squeezed me out at my highest stops, I wasn’t worried about the rest of my positions and was willing to continue holding them. If stocks crashed Thursday, I would have admitted defeat and pulled the plug. But lucky for me, stocks went the other direction on Thursday and my conviction was rewarded handsomely.

As I said, there is never an excuse to hold under our stops, but sometimes we have to know when to pull the plug early and when to stand our ground. Wednesday was definitely a stand-our-ground kind of day.

And trust me, as easy as that is to say today, it was anything but easy to do on Wednesday. But that’s where our analysis and trading plan help us stick with what we should be doing.

As for what comes next, keep holding the rebound and lift our stops to the lower 3,900s. 4,100 will be here soon enough.

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Nov 10

Why smart money ignored the election

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added a towering 5.4% Thursday, making this one of the biggest up days in stock market history.

As much as I expected inflation to start moderating, I never expected the market to react in such an oversized way to what was a fairly modest change in inflation. But the trend is everything and Thursday morning’s inflation reading suggests our inflation fever is finally breaking.

Netting out Wednesday’s -2% post-election hangover, we’re “only” up 3.4% from Tuesday’s close, which is still a lot, but a tad more reasonable. And more importantly, Thursday’s gains put the rally to 4k back on track. (And at this rate, we could be there Friday morning!)

As much as bears tried to punish stocks for Republicans’ underperformance in the midterm elections, as I wrote Tuesday evening, this market isn’t concerned with politics.

The stock market really isn’t concerned with politics this time around because it knows the Fed is the one controlling the economy. By Wednesday afternoon, expect the election to be old news for the market and it will go back to what it was doing before, which is obsessing over inflation and rate hikes.

If the market’s attention is going back to what it was doing before the election took over the airwaves, that means October’s rebound is back on and 4k is within reach.

Well, it turns out my Wednesday afternoon forecast was a tad premature, but hopefully, most readers can forgive me for being off by a few hours.

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As expected, the only thing that matters to this market is inflation and rate hikes and Thursday morning’s lower-than-expected inflation reading means the Fed doesn’t need to move as aggressively with future rate hikes.

Sometimes it is better to be lucky than good and Thursday was one of those days. I was fairly certain Wednesday’s election-fueled selloff would fade quickly. What I didn’t expect was Thursday’s historic gains following a “less bad than expected” inflation report, but that’s the way this game goes sometimes. The important thing is recognizing the direction the wind was blowing because we can’t get lucky if we don’t know which side of the street to stand on.

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Nov 09

The levelheaded way to approach Wednesday’s selloff

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The Republican’s widely anticipated “red wave” turned out to be little more than a “red ripple”.

As is often the case, the market’s reflex is to buy Republican victories and sell Democrat wins. And Wednesday was no different with the index tumbling 2% following the latest Republican letdown.

While this politically skewed view of the stock market is easily debunked by looking at historical performance under different administrations, that doesn’t stop partisan investors from sour grapes selling in the hours and days after an election.

Now, I will be honest, I had no issue with stocks slipping in a knee-jerk reflex to the Republican fumble, but I thought the market would find its footing and move past the election by Wednesday afternoon. A split government is a split government and Republicans don’t need large majorities or even both houses to stifle the Democrat’s legislative agenda. But obviously, the market saw it differently and the selling continued through the afternoon.

There are two possible explanations for this:

If the market’s latest rebound from the October lows was built on expectations of a “red wave”, that means there is a lot of air underneath us since this “red wave” failed to materialize. Partisans buying the rumor and then the rumor turning out to be wrong is a recipe for falling stock prices.

On the other hand, maybe Wednesday’s one-way selloff was little more than the herd following each other off the cliff. Few things shatter confidence like screens filled with red and Wednesday’s stumble could be nothing more than selling because other people are selling. Lucky for us, selling without a meaningful catalyst tends to exhaust itself fairly quickly.

At this point, either scenario is equally likely. Fortunately, the two possible explanations for Wednesday’s weakness will quickly diverge from each other. If there were high expectations of a red wave priced into the market, the selling will continue for days and even weeks, pushing us all the way back to the October lows near 3,500. But if Wednesday was nothing more than reflexive selling that got a little carried away, supply will dry up and prices will bounce as soon as Thursday.

Buy a bounce Thursday because it means we are headed to 4k and sell/short a further breakdown because it means 3,500 is just around the corner. It really is that easy.

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Nov 08

Why the election doesn’t matter to the stock market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Tuesday was another wild ride for the S&P 500 as the index bounced between 3,780 and 3,860 before finally settling in the middle of the range, posting a respectable 0.6% gain.

The talk of the day is obviously focused on the election. Republicans are widely expected to take the House while control of the Senate is up in the air and odds are good a runoff or recount could delay the outcome for this chamber for days if not weeks.

But if Republicans gain control of the House, that means a split government and control of the Senate isn’t necessary to grind things to a halt. And while people complain about a dysfunctional government, the stock market loves gridlock because it means no one is changing the rules in the middle of the game. As far as the market is concerned, bad rules that can be counted on and priced in are better than rules in flux where no one is sure how things will turn out.

The market could experience further reflexive knee jerks over the next handful of hours as it frets over “voting irregularities” and such, but as I wrote previously, the stock market really isn’t concerned with politics this time around because it knows the Fed is the one controlling the economy. By Wednesday afternoon, expect the election to be old news for the market and it will go back to what it was doing before, which is obsessing over inflation and rate hikes.

If the market’s attention is going back to what it was doing before the election took over the airwaves, that means October’s rebound is back on and 4k is within reach.

As always, use trailing stops to protect our profits, but at this point, October’s rebound remains holdable with stops above Friday’s lows. Until we fall below that level, the rebound is alive and well.

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Nov 07

How savvy traders are approaching the election

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 continued Friday’s late bounce on Monday as it added another 1%.

Economic headlines remain mostly the same as everyone looks forward to Tuesday’s elections. But for as much coverage as the election is getting, we shouldn’t expect Tuesday’s result to move the markets in a meaningful and lasting way. Partisan politics aside, stocks have rallied and fallen under Republicans just like they have under Democrats. Remember, we trade the market, not politics, so leave that Red and Blue stuff out of this. This economy rests in the Fed’s hands and it doesn’t matter who is in charge of Congress.

If the election were not happening Tuesday, I would be buying Friday’s rebound. But since we have an election on Tuesday, I’m buying Friday’s rebound. See what I did there? I trade the market, not politics, and right now the market is telling me it is time to buy the bounce, so that’s exactly what I doing.

Now, don’t get me wrong, I’m not saying the election will have zero impact on the market. No doubt we will get a knee-jerk bounce Wednesday morning following a “Red Wave” and prices will slip a little if we get a “Blue Wave”, but after that initial reflex of partisan volatility, expect the election to be old news by lunchtime.

I’m buying and adding to Friday’s rebound with stops spread around Friday’s intraday lows. If prices fall under my stops, I’m out. If the rally continues, I’m adding more and lifting my stops. Let other people second-guess the headlines.

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Nov 04

Friday was the bounce we were looking for

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Friday was another wild session for the S&P 500 as the index popped +1.8% in early trade, crashed back to breakeven before lunchtime, and then surged +1.4% into the close.

The economy added another quarter million jobs in October and we haven’t fallen into a meaningful slowdown yet. That’s both good and bad depending on which side of the fence a person is standing on. A strong economy is good for corporate profits, but too strong means even more rate hikes are ahead of us. And that’s what traders spent all day arguing over.

Friday’s midday retreat was a concern because it suggested dip buyers were MIA. But but after that slump failed to trigger an even larger breakdown and the selling stalled near breakeven, buyers finally decided to show up a few hours later. As the saying goes, better late than never.

How we finish is always more important than how we start, so by that measure, Friday was a good session. The midday breakdown couldn’t build momentum and that tells us the ground under our feet is fairly solid. If this really was a house of cards, we would have crashed to fresh lows. The fact we are still standing tells us the market is a lot more resilient than the critics claim.

As I wrote Thursday evening, I expected this week’s Fed-fueled selloff to bounce relatively soon and that’s exactly what we got:

While we’ve seen a lot of big selloffs this year, each echo gets weaker than the one that came before it. Meaning odds are good this week’s selloff will bounce a lot sooner than many people expect. For someone that’s short this weakness, that means standing near the exits and being ready to lock in profits as soon as the selling capitulates, which could come as early as Friday afternoon.

Friday was a good day, but we need to keep this strength up next week because a retest of the lows means the bounce is dead. Friday’s bounce is buyable with stops near 3,700. Add more if the rebound continues next week and pull the plug if we slip back to our stops.

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Nov 03

When to start looking for a bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 shed another 1% Thursday, adding to Wednesday’s Fed-fueled 2.5% losses and leaving the index down 4.6% for the week. Ouch!

As bad as this feels, unfortunately, it appears there are still more losses left in this “pain trade”.

Thursday was one of those tipping points where the market was telling us what it wants to do next. And the uninspiring price action told us dip buyers are not ready to bail us out yet.

The index opened Thursday down 1%, rallied from those early lows, and even spent a portion of the session threatening to turn green. Finishing green would have been a very bullish reversal, but instead, a wave of selling knocked us back from those midday highs. As long-time readers of this blog know, how we finish matters most. Big institutions place their trade at the end of the day and rather than buying these discounts, big money was selling and running for cover.

As I wrote Wednesday evening, even though I came into the Fed decision with a long position, as soon as that midday rally broke down, there was no arguing with the market and it was time to pull the plug. And when trading a binary outcome, if we find ourselves on the wrong side, it only makes sense to change sides. So I shorted Wednesday’s breakdown and held that position through Thursday.

But just as important, as soon as I’m out, I’m always on the lookout for the next bounce. While we’ve seen a lot of big selloffs this year, each echo gets weaker than the one that came before it. Meaning odds are good this week’s selloff will bounce a lot sooner than many people expect. For someone that’s short this weakness, that means standing near the exits and being ready to lock in profits as soon as the selling capitulates, which could come as early as Friday afternoon.

I will continue holding this short as long as the market keeps falling, but I’m already lowering my trailing stops and it won’t take much convincing to get me to lock in these profits.

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Nov 02

Why bulls didn’t need to lose money on Wednesday

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday was Fed day and it didn’t disappoint.

After spending the morning in the red, the S&P 500 turned positive after the Fed raised interest rates by the widely expected 0.75% and said the rate of future hikes would slow. Unfortunately, the relief proved fleeting and an hour later stocks tumbled from those midday highs, ultimately finishing the day down 2.5%.

As I wrote yesterday, my guess was the index would rally if the Fed did what it said it was going to do, but after a few weeks of up, investors had higher expectations and that left stocks vulnerable to disappointment. When Powell’s comments suggested rates could peak higher than previously expected, investors started pulling the plug and once the wave of selling started, there was no stopping it.

Lucky for me, I’m not a stubborn trader. While I was pleased to see the initial push into the green, when the air started coming out of that rally less than an hour later, that was my signal something was off. And after falling into the red, the market’s disappointment became undeniable and all bets were off.

Buy strength and sell weakness was the plan coming into the day and we knew the odds of a head-fake were high. As it turned out, the initial strength was the head fake and the reversal into the red was our signal to get out and for the most aggressive to short the market.

While that sounds easy in hindsight, nothing in the market is ever easy. During that midday surge, bulls were beating their chest and bears were running for cover. And an hour later, the script flipped. Easy come easy go. But as nimble traders, we are perfectly suited to turn on a dime alongside the market.

When a trade stops working, we pull the plug, no excuses. And in volatile markets like this, a dramatic reversal becomes our invitation to throw on a trade in the opposite direction.

Being flexible enough to switch our outlook midstream is never easy, but it sure is a lot more profitable than sticking with a losing trade. With practice, you will be able to do it too.

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Nov 01

The smart-money trade headed into the Fed’s rate-hike announcement

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 squandered a really nice +1% open Tuesday and finished -0.4% in the red. Ouch.

While this performance would normally give me pause near recent highs because this price action often suggests a near-term top, we can’t read the same into Tuesday’s fizzle simply because everyone is so fixated on Wednesday’s interest rate announcement. Rather than hint at what’s coming next, Tuesday’s fizzle was nothing more than the market entering a holding pattern as we wait for the Fed’s next big move.

A 0.75% rate hike on Wednesday is a virtual lock. What’s less certain is what happens in December with the Fed previously signaling a modest slowdown to more conventional 0.5% rate hikes. If the Fed maintains that outlook, expect stocks to rally in anticipation of rate hikes tapering off in the early part of 2023. On the other hand, if the Fed tells us they need to remain aggressive, ie another 0.75% hike is coming next month, expect stocks to tumble as the light at the end of the tunnel gets extinguished.

My best guess is the Fed will stick to their prior guidance and telegraph a 0.5% hike in December and a gradual slowing of hikes next year. But that’s just a guess. Good thing I’m a nimble trader and will trade the market as it comes at me. Regardless of what I think, I will be buying strength Wednesday afternoon or selling weakness.

From a purely selfish point of view, I’d actually like to see the market disappointed Wednesday because there is a lot more downside at these levels than upside. Shoring a selloff back to the October lows would be far more profitable than buying a continuation up to 4k resistance. But I don’t get to choose, which means I’m taking whatever the market gives me.

The market often throws off a head-fake or two following such a widely anticipated news event, but 30ish minutes after the announcement, the market won’t able to hide its true intentions and that’s when we buy strength or short the weakness. Smart money will be jumping aboard early and enjoying the ride.

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Oct 31

The smart way to approach this week’s Fed meeting

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 dropped three-quarters of a percent on Monday, but those losses pale in comparison to Friday’s towering +2.5% gains.

Two steps forward, one step back. As much as people love trying to pick tops by proclaiming every red day is the start of the next big crash, the simple truth is the market spends far more time going up than down. In reality, most red days are little more than filler between up days and odds are good Monday’s losses are nothing more than one of those filler days in the October rebound.

Now, everything could change Tuesday, but as long as we remain above 3,800, the latest rebound is alive and well. At this point, 4k is very much in play and we could be challenging this key level in a few days.

Of course, everyone is looking forward to Wednesday’s Fed meeting and the widely expected 0.75% rate hike. But since everyone has seen this hike coming for weeks, if not months, don’t expect Wednesday’s rate change to move markets. Instead, traders will be focused on what the Fed hints is coming next year.

By this point, most people have given up hope that rates will start coming down next year. But any guidance in how high rates might get in 2023 will go a long way to determining how optimistic or pessimistic investors will be in the final months of 2022.

Lucky for us, we are nimble traders, so we don’t need to be concerned about what’s coming in January, let alone later in 2023 or even 2024. We buy strength, we sell weakness, and we repeat as many times as the market allows us. Let other people worry about what will happen next year. Instead, trade and profit off of what is happening right in front of us.

Expect some volatility surrounding the Fed’s rate announcement, but this one will be less important than the ones that came before it, so expect a little less volatility than we got before. And has been the case for a while, this will trigger a multi-day directional move. Wait 30 minutes for the market to make up its mind, but once the next move starts, grab on and enjoy the ride.

I’m expecting the relief rally to continue, but I don’t mind being wrong if that means I get to make even more money shorting the next big selloff.

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Oct 28

Why bears better get out of the way!

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 surged 2.5% Friday, finishing the week at multi-month highs and easily brushing off bruising earnings reports from GOOGL, META, and AMZN.

With three of the biggest and most important tech stocks deep in the red this week, you’d think the market would have rolled over and be racing toward the 2022 lows. But you’d be wrong.

As much as I don’t always agree with, or even understand, what the market is thinking, the simple truth is the market is far larger than I am and it doesn’t care what I think. Rather than disagree and argue with the market, I tell myself, “Okay, if that’s what it really wants to do, I’m happy to follow along.”

After doing this for decades, one of the most important lessons I’ve learned is to never question the market when it is doing something unexpected. That means the forces acting under the surface are so strong they overpower common sense and conventional wisdom. And if the mysterious phenomenon is that powerful, you better watch out because it will run over anyone that gets in its way.

Two days ago I was preparing to lock in some really nice profits if this rebound stalled and retreated back under 3,800. It’s not that I expected a bigger pullback, just that it’s been a good run and we only make money when we sell our winners. As easy as it is to buy back in, there is no reason to stubbornly hold a position if the rebound was cooling off.

Lucky for me, the market never tested my stops under 3,800, but even if it did, the first thing I do after I get out is to start looking for the next opportunity to get in. And Friday morning’s counterintuitive strength would have been that signal to jump back in.

When something doesn’t make sense, it means there is a lot of power behind the market and we better grab on. At this point, 4k is very much in play. What happens when we get there is still up for debate, but at the very least, we should expect the market to get into the upper 3,900s over the next few days and weeks.

From there, we can judge the market’s price action and figure out its next move. But a nearly 500-point rebound from the October lows and it wouldn’t be a surprise to see a little profit-taking weight on the market after we get near 4k.

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Oct 26

What smart money is preparing to do at these levels

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday was another wild session for the S&P 500 as an early 35-point loss rallied 60 points from those early lows. As good as that felt, the relief was short-lived and the index gave back all of those gains through the afternoon, ultimately finishing near the intraday lows.

But this shouldn’t surprise anyone. This remains a volatile market and that means oversized moves in both directions.

The waves of second-guessing were brought about by disappointing earnings reports from GOOGL and MSFT. While these results didn’t really change anyone’s outlook, it was enough to remind prospective buyers that our problems are a long way from being resolved.

But this exhale was expected. Everyone knows stocks don’t move in straight lines and even the biggest rallies have red days. And let’s be honest, no one is expecting October’s bounce to turn into one of the biggest rallies.

Stocks go up and stocks go down, that’s what they do. But as long as there is more up than down, then everything is still going according to plan.

All of that said, those of us that bought near the October lows are sitting on a large pile of profits in our leveraged ETFs. As nice as it feels to watch those profits grow, they are not real until we sell. This is the point in a trade where we shift our mindset from offense to defense. With profits this large, making sure we protect what we have is far more important than squeezing a little more profit out of the market.

Now, don’t get me wrong, I’m not saying we should panic-sell everything because stocks had one red day. That would be ridiculous. But it helps if we shift from a binary mindset (in or out) to one that allows us to think in shades of gray. Don’t be bearish or bullish. Don’t move all-in to all-out. Instead, look at the market in terms of risk.

Risk is a function of height, meaning buying October’s lows was far safer than what it felt like. And now that we’re at the October highs, things are definitely riskier than they were two weeks ago.

I don’t know what Thursday or Friday has in store for us, but I will be approaching those sessions with a defensive mindset. With this much profit in hand, it is better to start peeling off some profits a little too early than get greedy and watch all of those profits evaporate by holding too long.

I’m willing to keep holding Thursday if the rally continues, but I will be looking for any excuse to start locking in some profits. As easy as it is to buy back in, there is no reason to hold through the next step back no matter how innocently it starts off.

I still think 4k is in the cards and as soon as I sell, the first thing I do is start looking for the next entry point. But if I sell a partial position and the market goes higher without me, that’s fine too. Only fools try to squeeze every last dime out of the market.

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Oct 24

Why bears will keep getting this trade wrong

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Monday at the highest levels in over a month. Not bad for a market the crowd fully expected to be crashing to fresh lows.

As I wrote two weeks ago, before the September inflation report:

The market likes to throw in a few head fakes immediately after the [inflation report] lands, but within 30 minutes, the pent-up supply and demand will be too strong to continue the charade and the market will be tracking straight and true for the next big, multi-day move. All we have to do is grab on and enjoy the ride.

Well, here we are, nearly two weeks later and the index is up 300-points from those October lows. That’s an 8.6% gain in straight money and 25.7% in the 3x ETF I like trading. Not bad for a couple of weeks’ worth of “work”.

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Now that the index is running up against 3,800 resistance, readers want to know what comes next. Easy, higher prices.

Sure, we might have a minor step back over the next day or two, but markets almost never turn around exactly at support. Since we just kissed overhead resistance on Monday, that means we still have a little more room to run even if this rebound is on the verge of stalling out.

But this isn’t about to stall out. As I often write, the market loves symmetry and that huge selloff from the September highs will result in an equal impressive rebound. Sure, maybe lower prices are ahead of us over the longer term, but never forget the biggest and fastest rallies occur during bear markets, and the last time I checked, this was still a bear market.

The next noteworthy hurdle is the 50dma and 4k is after that. We won’t know what happens at those levels until we get there and can evaluate the price action. But at this point, the rebound looks solid. If prices were fragile and vulnerable to a collapse, the September inflation report was more than enough to send us tumbling lower. Instead, prices bounced hard and that’s all we needed to know what direction this market wants to go.

Don’t fight a trade that’s working. There is nothing to do here except keep holding and lifting our trailing stops. Don’t overthink this.

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Oct 18

Why this rebound still has room to run

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Tuesday +1% higher, making this the third gain out of the last four sessions. And equally encouraging, the index is challenging the October highs, not bad for a market that was making multi-year lows only a few days ago.

Nothing much improved since last Thursday when September’s inflation report remained stubbornly high. But when bearishness is near historic levels, we don’t need good news to fuel a relief rally, simply being less bad than feared can be the spark that ignites a rebound from oversold levels. And let me tell you, Thursday’s bullish +5% intraday reversal was one hell of a spark.

Lucky for readers of this blog, we knew something big was coming even if we couldn’t be confident in the direction. As I wrote last Tuesday:

A big trade is around the corner, we just need to be patient and wait for it to come to us. Don’t let these meaningless, near-term gyrations throw you off. But once it gets here, don’t be afraid to grab hold because there will be lots of easy and fast profits to be had.

Everyone knows markets move in waves and it’s been a long and mostly one-way fall from the September highs, so even bears should have been prepared for a fast and hard bounce. Too bad greed and hubris cloud a person’s judgment.

Anyone can point out what’s obvious after it happened, but what readers really want to know is what comes next. Easy, there is no reason to assume the buying is anywhere near close to being done. The market loves symmetry and it’s been a dramatic and oversized fall from the September highs, so it is only reasonable to expect a similarly dramatic and meaningful rebound.

Now, don’t get me wrong, I’m not claiming symmetry means are headed back to the September highs, just that we should expect an equally dramatic and meaningful rebound to recover from these oversold levels. And it will take a lot more than three days of buying to balance out two months of nearly non-stop selling.

And this should go without saying, but markets don’t move in straight lines and this remains a volatile market, meaning we should expect lots of back and forth. But over the next few weeks, expect more up than down. In fact, a good bit more up than down. But don’t get complacent because those down days will be enough to make us doubt ourselves. We don’t need to look any further than Friday to see how strong the second-guessing can be. But as I said earlier, we are still in the early days of this rebound.

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Oct 13

The obvious trade that everyone missed Thursday

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Well…that was unexpected. People predicted a lot of different outcomes for Tuesday’s session following the monthly inflation report, but I guarantee no one saw a -2% open in the S&P 500 turning into a nearly +3% finish.

This was the kind of day where everyone was right. The bears got the crash they predicted and the bulls got the strong rebound they predicted. The ironic thing about days where everyone is right is almost everyone loses money.

The bulls saw the early tape move against them and bailed out before things got worse. And just when bears thought everything was going their way, the market stole all of their profits and left them with a black eye instead.

Everyone was right and somehow, most people still managed to lose money. Funny how that works.

Lucky for me, I wasn’t trying to game the inflation report. As I wrote Wednesday evening:

I’m not placing trades ahead of the inflation report. This is one of those cases where I’d rather be a little late than a lot sorry, so I’m happy sitting in cash and waiting for the market to tell me what it wants to do next instead of joining everyone else in the game of guessing and gambling on the outcome.

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I fully expected to give up some profits by missing the opening move, either higher or lower. But that’s the price I was willing to pay for a lower-risk trade. What I didn’t expect is that sitting on the sidelines Thursday morning would allow me to make even more money!

I came into Thursday with a bullish bias simply because stocks were at the lowest levels of the year and bears had a much higher bar to clear to extend the selloff than bulls had to trigger a relief rally on “less bad than feared”.

Premarket futures proved my optimism wrong and I was glad I didn’t follow my bullish bias Wednesday evening.

Lucky for me, I didn’t run for the bunkers after the open like everyone else. Big gaps tend to bounce because large institutions often disagree with overnight futures. And as it turned out, Tuesday was one of those days. Rather than abandon ship when the inflation report was largely in line with the previous reports, big money looked at those opening discounts and couldn’t resist the temptation to snap them up. And that was the moment everything turned around.

As for my personal positions, when the early weakness failed to trigger a follow-on wave of selling, that was my signal to buy the early stability with a stop under the opening lows. (Start small, get in early, keep a nearby stop, and only add to a trade that’s working.) And when prices started rallying, that told me to keep adding more and lifting my stops.

I would have been thrilled with a -2% open turning into a -0.5% finish. That’s a great trade and a very bullish reversal. But once these fevers break, there is no telling how far they can go. After a month of non-stop selling since the September highs, that rubber band was stretched too far and it was ready to snap back. Thursday’s capitulation and subsequent rebound was all we needed for those tardy dip buyers to finally show up and save the day.

I knew Thursday was going to be important, but I never expected it to be this dramatic. At this point, there is nothing to do other than keep holding on and lifting our trailing stops. The market likes symmetry and the next rebound will be as dramatic as the selloff from the September highs.

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Oct 12

How savvy traders are positioned ahead of Thursday’s inflation report

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Wednesday in the red for the sixth session in a row. As bad as that sounds, the index only lost -0.3% in an almost trivial down day given recent volatility.

As I’ve been telling readers over the last several sessions, the market is stuck in a holding pattern ahead of Thursday’s monthly inflation report and we can’t read anything into this price action. The real move will follow Thursday’s inflation report, which will be one of three things; higher than expected, lower than expected, and the middle ground, meets expectations.

Higher and lower than expected inflation will result in a big stock move in the opposite direction. A break in inflation will send stocks flying, while stubbornly high inflation will trigger the next big selloff. (God help us if inflation spikes to a fresh high!)

What about “meets expectation”? Well, that largely depends on where the market is, and right now we are at the lowest levels of the year, meaning expectations are fairly pessimistic. Some would say overly pessimistic. At these repressed prices, we are setting up for a relief rally if inflation comes in “less bad than feared”.

Stocks rally in two cases, beats and meets expectations, and they fall in one, misses expectations. Those are fairly favorable odds for a rally Thursday afternoon.

That said, even if bulls have the edge with stocks at the lowest prices of the year, I’m not placing trades ahead of the inflation report. This is one of those cases where I’d rather be a little late than a lot sorry, so I’m happy sitting in cash and waiting for the market to tell me what it wants to do next instead of joining everyone else in the game of guessing and gambling on the outcome.

The market likes to throw in a few head fakes immediately after the news lands, but within 30 minutes, the pent-up supply and demand will be too strong to continue the charade and the market will be tracking straight and true for the next big, multi-day move. All we have to do is grab on and enjoy the ride.

Buy strength and sell weakness, it doesn’t get any simpler than this.

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