Category Archives for "End of Day Analysis"

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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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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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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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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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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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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Why stocks didn’t fall even further Tuesday

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 skidded Tuesday, making this the fifth losing session in a row and the index closed at fresh 2022 lows.

If that description is all you heard, you’d assume this was another -3% or -4% bloodbath given the way things have been going lately. But no, the best this fifth-loss-in-a-row could manage was -0.6%, barely more than half a percent.

But Tuesday’s limited selling isn’t a surprise for readers of this blog. As I wrote Monday evening:

With the latest inflation readings just days away on Thursday, that leaves the market in a holding pattern until then. Since Friday’s selloff put the market back into a half-empty mood, that likely means further weakness near recent lows, but don’t expect a crash until after the inflation data is released on Thursday. (If one is going to happen.)

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Knowing nothing much was going to come from Tuesday’s early violation of the lows made this a decent time to be locking in profits on our shorts positions, which is exactly what I was doing Tuesday. (We can’t make money until we sell our winners.)

I’m not one of those people pretending like I know what’s going to happen Thursday. As far as I’m concerned, the odds of stocks popping on moderating inflation are as good as stocks crashing if inflation remains stubbornly high.

Without an edge, I’m happy to watch this unfold from the sidelines and then jump aboard the resulting move after it starts happening. If that’s another crash lower, great, I’m putting my short positions back on. If stocks race higher, even better, I jump aboard that rally and let those profits come to me.

I’m agnostic and don’t care what happens as long as something happens. (That’s the trader in me talking. The human being in me is hoping for a quick resolution to this inflation/recession mess so it affects the fewest number of people possible.)

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.

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What to expect headed into Thursday’s monthly inflation report

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 skidded another -0.8% Monday as investors continue reacting negatively to Friday’s fairly positive employment report. As I wrote previously, these market reactions are rarely one-day events and today was no exception.

Economic headlines haven’t changed in a meaningful way over the last several weeks as inflation remains stubbornly high and the measurable fallout from the Fed’s aggressive rate hikes have yet to be felt by most of the economy.

Later this week we get September’s inflation report and no doubt that will drive the next big move in the stock market. A material slowdown in inflation and stocks are off to the races. Remain near existing levels and stocks will tumble. (And God help us if inflation surges to new highs!)

With the latest inflation readings just days away on Thursday, that leaves the market in a holding pattern until then. Since Friday’s selloff put the market back into a half-empty mood, that likely means further weakness near recent lows, but don’t expect a crash until after the inflation data is released on Thursday. (If one is going to happen.)

Last week got off to a great start. We bought the bounce early, collected a few bucks after it started stumbling Thursday afternoon, and now many of us find ourselves short following Friday’s big tumble.

At this point, there isn’t a lot to do other than lower our trailing stops to at least our entry points and then start looking for the next bounce.

If we get a decisive bounce Tuesday, it could be time to start taking profits in those short positions. That said, I don’t expect anything big in either direction until after we get Thursday’s monthly inflation. The most likely trade for Tuesday is a continuation of Monday’s exhale that tests the 2022 lows ahead of the inflation data.

Hold shorts Tuesday and see what happens. If this bounces decisively, we cover and go long.

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How to be wrong and still make money

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 crashed 2.8% Friday after the monthly employment report showed robust hiring.

Solid employment and a strongly negative reaction means we are back in the bizarro world of “good news is bad”. Obviously, investors are far more concerned about interest rates than unemployment, so anything that hints at the Fed continuing to raise rates sends traders scrambling for cover.

I will be the first to admit that I came into this week bullish. As I wrote last Friday:

At the very least, we should be lightening up our short positions because greed never pays. But more than that, this thing is a tightly compressed spring poised to rip. Wait for that bounce to start and then jump aboard. As I often remind readers, the biggest and fastest rallies occur during bear markets. And the last time I checked, we are still in a bear market.

Two sessions later and the S&P 500 added 5%. But a few days after that and almost all of those gains had been wiped out. (Sign up for my FREE email alerts so you don’t miss the market’s next big move)

Does that mean buying Monday’s rebound was a mistake? Absolutely not. As independent traders, our greatest strength is the nimbleness of our size. That means we can buy one day’s bounce, collect those profits a few days later, and even switch direction and short the next drop.

While this week’s 5% rebound proved fleeting, it was still a very profitable trade for those of us that had the courage to jump aboard. As I wrote Thursday evening:

Thursday’s weak close convinced me to peel off some of those profits to reduce my risk headed into the employment report. As much as I think the next move will be higher, there are no guarantees in the market and we only make money when we sell our winners. As easy as it is to buy back in, it felt foolish to wager all of my recent profits on the outcome of Friday’s employment report.

As soon as stocks pop Friday morning, I’m more than happy to jump back in. And if the market goes in the other direction, that’s fine too, I lock in my remaining profits and go short.

As luck would have it, the bears won the day. I dumped my remaining longs for a still respectable profit and went short Friday morning. (Sign up for my FREE email alerts so you don’t miss the market’s next big move)

Sure, it would have been nicer to lock in all of my profits Thursday, but what I missed selling Friday morning, I more than made up shorting Friday’s tumble lower.

While Bulls and Bears are busy arguing about who is right, I’m over here following the market’s lead and making money no matter which way we go.

As for next week, expect the selloff to continue and even exceed the 2022 lows. But as is always the case, as soon as I get out, the first thing I’m doing is looking for the next buyable bounce. Just because this week’s bounce didn’t work doesn’t mean the next one won’t.

A bounce off of 3,500 would be a great entry point. And if that one doesn’t work, no big deal, I collect some quick profits and get to try again next time.

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How to trade the monthly employment report

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped 1% Thursday in a mirror image of Wednesday’s resilient price action.

Instead of opening weak and climbing all day, the index started Thursday strong and spent the rest of the session skidding lower. Wednesday was half-full and Thursday half-empty. And so continues the swinging pendulum of sentiment.

Friday morning we get the monthly employment report. While normally a big deal, this one is building up to be especially important as it decides what comes next, either extending this week’s rebound or resuming the September selloff.

As volatile as the market has been, whatever happens Friday morning, the resulting move will almost certainly be large and enduring.

Odds favor a rally since we’ve gotten a whole lot of down since the August highs and bearishness remains near all-time highs. That skew gives us a truckload of fuel to propel a rally higher. But as is always the case, selling begets selling and few things shatter confidence like screens filled with red, so another waterfall of selling is always possible.

While I have a natural bullish bias and think the latest wave of selling has taken us a little too low, I’m happy to ride the next wave in whichever direction it takes us.

I don’t trade the initial knee-jerk reaction to a big headline event, but 30 minutes later and the market cannot help but reveal its hand and there is nothing for us to do except jump aboard and hang on. Up or down, I’m game either way.

I’m still hanging on to a portion of my long positions from Monday’s rebound, but Thursday’s weak close convinced me to peel off some of those profits to reduce my risk headed into the employment report.

As much as I think the next move will be higher, there are no guarantees in the market and we only make money when we sell our winners. As easy as it is to buy back in, it felt foolish to wager all of my recent profits on the outcome of Friday’s employment report.

But as soon as stocks pop Friday morning, I’m more than happy to jump back in. And if the market goes in the other direction, that’s fine too, I lock in my remaining profits and go short.

Buying this week’s rebound early and sitting on a pile of profits makes this a win-win situation for me.

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When a loss is bullish

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

While Wednesday’s session ended down a seemingly trivial -0.2%, that modest decline disguised a massively volatile session with the index gapping -1% lower at the open and early selling pushing the index all the way down to -1.8%. But just before all hope was lost, a one-way wave of buying erased nearly all of those losses by the close.

Following the biggest two-day gain in years, it wasn’t a surprise to see some profit-taking and bears reentering their short positions Wednesday morning. More important than the fairly vanilla step back from Tuesday’s close was how the market reacted to those early losses. Was this week’s rebound built on bedrock, or a foundation of sand? Well, it didn’t take long to find out.

Nearly as quickly as that wave of selling arrived, it vanished and the index spent the rest of the session rallying back to breakeven. That’s not the behavior you expect from a fragile and vulnerable rebound. If this really was a foundation built on sand, Wednesday morning’s selloff was more than enough to send us tumbling back to the lows.

As difficult as it is to keep holding after a 5% surge in two days, especially given the complete lack of improvement in economic headlines, the market is clearly telling us it wants to go higher, not lower. If we were going to crash, Wednesday morning’s bloodbath was the perfect invitation. The fact we escaped with hardly a scratch is all the proof I need to keep holding my long positions for higher prices.

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Why bears have no one to blame but themselves

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 exploded 3% higher Tuesday, adding to Monday’s huge 2.6% gains.

Economic headlines remain the same, which is to say awful. But after seven weeks of non-stop selling, a near-term bounce was inevitable.

As I often remind readers, the market loves symmetry and that means this rebound will be nearly as impressive as the preceding selloff. And boy has it gotten off to a banger of a start!

Unfortunately for bears, the rebound’s foundation is built on their corpses, with a short squeeze providing a majority of the lift over the last two days. But bears only have themselves to blame for their lost profits. As I wrote last week:

As always, no matter how overdone the selling has gotten, the market can always get even more oversold. But it is getting harder and harder to scratch out those last few points to the downside and when this pops, boy is it going to pop.

At the very least, we should be lightening up our short positions because greed never pays. But more than that, this thing is a tightly compressed spring poised to rip. Wait for that bounce to start and then jump aboard.

As I often remind readers, the biggest and fastest rallies occur during bear markets. And the last time I checked, we are still in a bear market.

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Bears ignored all of the warnings and they are paying the price today. And things will probably get worse for them before they get better because this rebound isn’t showing any signs of letting up.

As for those of us that are on the profitable side of the rebound, there is nothing for us to do except keep holding and lifting our stops, now spread around Tuesday’s opening levels.

This really isn’t that hard when we know what to pay attention to.

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This is what happens when too many people stand on the same side of a boat

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 bounced back violently Monday, adding 2.7% and easily erasing all of Friday’s losses. The index even got close to reclaiming Thursday’s losses as well.

Not bad for a market many had left for dead a few days ago. But that’s the way this usually goes. The S&P 500 only had a single up day out of the previous nine sessions. The crowd largely came to the conclusion the U.S. economy is doomed and they were selling stocks ahead of the inevitable collapse.

But as is usually the case when too many investors find themselves on one side of a boat, it capsizes. No matter what someone believes is coming next, everyone knows the market moves in waves, and after six weeks of brutal selling, even bears should have been expecting a bounce.

And this is exactly what I wrote in Friday evening’s post titled, “The worse this looks, the more I like it!“:

Sure, anything is possible and we could fall again next week, but the next bounce is a lot closer than most people think. The AAII sentiment survey is over 60% bearish and at a 12-month high, while the historical average is all the way back at 30%. If a person believes in trading against the crowd, sentiments has rarely been this skewed in the bearish direction.

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While Monday’s bounce was a great start, the other important factor to keep in mind is the market loves symmetry, meaning as dramatic as the autumn selloff has been, we should expect a similarly impressive bounce off of the lows.

I’m not here to say the bear market is over, and in fact, we could see lower prices over the coming months. But as far as the near-term prognosis goes, remember, the biggest and sharpest rallies occur during bear markets. So even if bears are right, we should still be bracing for further waves of buying and short covering.

I really liked Monday’s rebound, and this bounce has the best odds of succeeding yet. But there are no guarantees in the market and this bounce could fail like the others that came before it. But rather than give up, we pull the plug at our stops and as soon as we are out, we start looking for the next buyable bounce. Sometimes they arrive as soon as a few hours later.

I was looking for the bounce and loaded up early Monday. By getting in early, I’m already sitting on a pile of profits, allowing me to move my stops above my entry points, making this a low-risk trade. If it works, great! If it doesn’t, no big deal, I pull the plug, collect some profits, and try this again next time.

But at this point, this feels like the real deal.

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The worse this looks, the more I like it!

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 attempted another bounce Friday morning. Unfortunately, that late morning buying proved fleeting and the index slipped into the red by the close, setting yet another fresh 52-week low.

Friday’s loss makes it -2.9% for the week and the sixth weekly decline out of the last seven. That hurts, but it definitely feels like the selling is losing momentum near the old lows.

Monday’s close was the first fresh 52-week low since this summer. Following Monday, we set a further three 52-week lows. But as dire as four 52-week lows in a week sound, the market dropped less than half a percent on average since Monday’s close. While not good, this is far from panic territory.

There are two ways to interpret this. Either the market is finally running out of sellers after six weeks of exhaustive selling. Or this week’s reasonably stable trade was nothing more than the calm before the next storm.

If stocks were a lot higher, I would be far more worried about further selling. But after the market shed more than 700 points in seven weeks, we have a lot less to worry about because it can’t give back those 700 points again.

Sure, anything is possible and we could fall again next week, but the next bounce is a lot closer than most people think. The AAII sentiment survey is over 60% bearish and at a 12-month high, while the historical average is all the way back at 30%. If a person believes in trading against the crowd, sentiments has rarely been this skewed in the bearish direction.

As always, no matter how overdone the selling has gotten, the market can always get even more oversold. But it is getting harder and harder to scratch out those last few points to the downside and when this pops, boy is it going to pop.

At the very least, we should be lightening up our short positions because greed never pays. But more than that, this thing is a tightly compressed spring poised to rip. Wait for that bounce to start and then jump aboard.

As I often remind readers, the biggest and fastest rallies occur during bear markets. And the last time I checked, we are still in a bear market.

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Why I’m glad I was wrong about Wednesday’s bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 tumbled 2% Thursday, giving back all of Wednesday’s gains.

As they say, easy come, easy go. This remains a volatile market and that means oversized moves in both directions.

The nice thing about Thursday’s selling is it didn’t crash through recent lows. The bad thing about Thursday’s selling is…it didn’t crash through recent lows.

As disappointing as Thursday’s implosion felt following Wednesday’s super encouraging bounce, this still doesn’t count as real capitulatory selling because we didn’t crash through support and fall in one of the biggest losing sessions of the entire pullback.

Now, that doesn’t mean we don’t need capitulation to bounce, but it sure helps.

As for my latest trade, as I wrote Wednesday evening, I liked that bounce and bought it. While that sounds like a huge mistake given how Thursday turned out, it really wasn’t all that bad.

A big part of my trading strategy is buying bounces early and that meant jumping aboard Wednesday’s bounce not long after the open. And it’s a good thing I got in early because Thursday’s poor open was still above my initial entry points, meaning those positions hadn’t even turned red yet.

And just because I bought Wednesday’s bounce doesn’t mean I was naive to the possibility it could fail. In fact, I was fully prepared for Thursday’s retreat. As I wrote Wednesday evening:

Odds are good this bounce will fizzle and we will get to do this all over again in a few days, but since I have no way of knowing if the first, second, or third bounce attempt will turn into the real one, the only thing I can do is buy all of them. Start small, get in early, keep a nearby stop, and only add to a trade that is working and our risks are actually quite low. If this doesn’t work, no big deal, I pull the plug and try again next time, but so far so good.

Hope for the best, prepare for the worst. There is no better way to navigate markets.

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As for what comes next, well, as I alluded to above, I would love to see one last dramatic wave of capitulation selling before bouncing. That will confirm the bottom is in and set up a fantastic buying opportunity.

Barring that capitulation, the only thing we can do is simply wait for the next bounce and try again. (Start small, get in early, keep a nearby stop, and only add to a position that’s working.)

As much as it seems like Thursday’s decline was bad for me, I actually don’t mind. In fact, I revel in the opportunity to buy stocks at even lower prices. Only amateurs get discouraged and give up. Savvy traders pull the plug and get right back after it.

If we don’t bounce Friday, then look for one on Monday. And if not Monday, then Tuesday or Wednesday. As dramatic as the selling has been, the market loves symmetry and the inevitable rebound will be equally impressive.

Make sure you don’t miss out because it will be some of the easiest and fastest money you make all year.

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Stocks bounce after all hope is gone

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 popped 2% Wednesday, snapping a six-day losing streak.

Even in this overwhelmingly bearish environment, seven down days was a little too much and a bounce was inevitable. But this isn’t a surprise for readers of this blog. As I wrote Tuesday:

When the market doesn’t do what it is supposed to do, in this case, devolving into a panicked dash for the exits, we have to sit up and take notice. As bad as things feel near the lows, maybe we really are finally running out of fearful sellers and are on the verge of bouncing on the resulting lack of supply.

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Markets go up and markets go down, that’s what they do. After a month and a half of falling, we are due for some up. How much up is anyone’s guess and we won’t know until after it is all over, but in the meantime, Wednesday was the start of the buyable bounce we’ve been waiting for and the earlier we jump aboard these bounces, the less risky they become.

Economic data has been mostly stable even if coming on the disappointing side of what some investors were hoping for. The lack of meaningful fundamental changes means this remains a sentiment-driven trade and as quickly as sentiment sours, it can bounce back once stocks stop falling.

While Wednesday might not be the real bounce, by starting small and getting in early, we quickly build up a profit cushion to protect our backside. By Wednesday afternoon, we savvy traders were already adding more and nudging their trailing stops closer to their entry points. While not a free trade yet, it is looking pretty good.

Odds are good this bounce will fizzle and we will get to do this all over again in a few days, but since I have no way of knowing if the first, second, or third bounce attempt will turn into the real one, the only thing I can do is buy all of them.

Start small, get in early, keep a nearby stop, and only add to a trade that is working and our risks are actually quite low. If this doesn’t work, no big deal, I pull the plug and try again next time., but so far so good.

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Why violating the 2022 lows could be a good thing

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped another quarter percent Tuesday, making this six losing sessions in a row.

Compared to the size of losses we’ve been experiencing lately, a quarter-percent decline almost feels like an up day, especially for a session that violated the 2022 lows.

Undercutting a widely watched level typically unleashes a big wave of reactionary selling, but this time the selling stalled and prices drifted sideways through the afternoon. This was not the price action we’d expect for such a monumental day, but the market has a nasty habit of doing the least expected.

This muted selling is most likely due to the majority of fearful owners bailing out ahead of the widely expected violation of the 2022 lows. If everyone sells in anticipation of an event, there is no one left to sell when it actually happens.

When the market doesn’t do what it is supposed to do, in this case, devolving into a panicked dash for the exits, we have to sit up and take notice. As bad as things feel near the lows, maybe we really are finally running out of fearful sellers and are on the verge of bouncing on the resulting lack of supply.

As volatile as this market has been, there is no way this falls asleep and simply drifts sideways into year-end. Instead, we are standing on a tipping point. Either the selloff continues, prices bounce, or the most likely option, a little more selling before bouncing hard.

But either way, it is hard for bears to explain Tuesday’s refusal to crash through the 2022 lows. Maybe the panic selling is a few hours delayed and will show up in force Wednesday. But if it doesn’t, we have to wonder how much selling is left in this latest down wave.

I’m happy to ride my short position lower, but at the same time, I’m paranoid and ready to lock in these profits because I know when this bounces, it will happen hard and fast. Holding a few hours too long will get very expensive very quickly.

As for how to trade this, hold the short as long as the selloff keeps going, but be ready to cover and even go long the moment the market starts rallying. The next bounce is close, we just don’t know if it will arrive Wednesday,  later this week, or early next week. But it is coming.

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Why this market is not as risky as most people believe

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 skidded on Monday for the fifth session in a row and the eighth time out of the last ten.

Needless to say, it’s been a rough couple of weeks as the index shed nearly 500 points and is now challenging the summer lows.

Economic headlines remain mostly the same and nothing shocking or even unexpected happened over the last two weeks. Instead, sentiment simply swung from half-full to half-empty as investors looked down and developed a fear of heights. There is nothing more complicated about it than that. Owners lost their nerve and sold because they got scared.

But now that the market is retesting the 2022 lows, the most important thing to remember is that risk is actually at the lowest levels of the year. It sure doesn’t feel that way as waves of panic selling hit the market, but risk is a function of height and these are the lowest prices all year.

Undoubtedly prices can fall further, but this latest 500-point retreat can no longer hurt us because it already happened and we don’t need to be afraid of it.

We always give the edge to momentum and the trend, which is clearly lower. But at some point we are going to run out of sellers and the market is going to bounce because it always does.

We could tumble in one last dramatic violation of support before this latest round of selling capitulates. But bounce off of the lows or violate them, either way, the end will be here soon. If not Tuesday or Wednesday, then later this week or early next week.

I’m currently short the market, but I’m paranoid and standing next to the exits When this finally bounces, it will be hard and fast and I don’t want to give back all of these nice profits.

And more than just short profits, when this bounces, I want to switch direction and grab ahold of the next rally. Remember, the biggest and fastest rallies occur during bear markets. (Start small, get in early, keep a nearby stop, and only add to a trade that’s working.)

Stocks look horrible and they feel even worse, but that tells us this wave of selling is getting close to exhausting itself and the bounce is just around the corner.

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Why I’m holding stocks ahead of the Fed’s rate-hike

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped 1.1% Tuesday after it failed to hold Monday’s nice gains.

While it would have been more fun to watch stocks rally for a second day in a row, testing and bouncing off of recent lows isn’t a bad consolidation prize.

The first bounce in any attempted rebound rarely succeeds and Monday’s fizzled bounce fits that description. But encouragingly, even though the index undercut Monday’s lows on Tuesday, the selling stalled almost immediately. That tells us there isn’t a lot of extra supply sitting underneath the market. Instead, most owners seem content holding through a minor violation of recent lows. And when owners don’t reflexively sell, supply dries up and prices bounce, which is what we saw Tuesday afternoon.

Even though the index finished more than 1% in the negative, Tuesday was actually fairly constructive. As anyone that’s been doing this for a while can tell you, the first thing a downtrend needs to get turned around is to stop going down. And at least for the last couple of sessions, this market stopped going down.

No one knows for sure what the market will do Wednesday after the Fed announces the next rate hike and lays out its expectations for the next few months, but seeing prices 550 points under recent highs means a big portion of the near-term downside has already been realized.

As scary as buying feels right now, the market has been acting decently the last two sessions and these reduced prices mean the risks of buying here are equally reduced.

Now, I’ll be honest, I’m not excited to be buying this near-term stability, but that’s the way all of my best trades feel in the beginning. (It’s the easy trades that typically cause the biggest problems.)

As much as I think stocks will rally after the Fed’s statement turns out “less bad than feared”, if the waves of selling return, I’m more than happy to admit I’m wrong, pull the plug, and even go short again if the selling accelerates.

Long but standing next to the exits is the way I’m approaching Wednesday.

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Why smart money was buying Monday’s bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 bounced Monday, adding a respectable 0.7% and ending a two-day losing streak. That said, Monday’s gains still leave the index near multi-month lows and August’s relief rally is ancient history.

All eyes are squarely on the Fed and Wednesday’s interest rate decision. But more important than what they do this week, investors are mostly interested in hearing the Fed’s plans for future hikes. Will it be a return of the dovish commentary that kicked off the summer rally? Or will Powell stick with his assertive tone that triggered this fall swoon?

My money is on Powell standing his ground. But there is a big difference when he says these things at 4,300 and when he says the same thing at 3,900. One price incorporated a lot of optimism and left us vulnerable to disappointment. The other is bracing for a stern talking too and it won’t catch many people off guard.

If prices were still at 4,300, I would be concerned about what the Fed says on Wednesday. But 400 points lower, there is already a lot of disappointment reflected in these levels and we could actually see stocks rebound on “less bad than feared” if Powell sticks to what he said in Jackson Hole last month.

Markets are always swinging between “too low” and “too high”. The August rally obviously got a little too carried away. But now that we are closer to the summer lows than the highs, there is a lot less risk in buying these levels.

I never buy dips, but I will be the first in line when prices bounce. And Monday’s bounce off of the opening lows was a great opportunity to get in because it allowed us to manage our risks by placing a very sensible stop nearby. If the bounce keeps going Tuesday, great, we add more and move up our stops. If the selling returns, no big deal, we pull the plug on our partial position at Monday’s intraday lows and start looking for the next bounce.

While it feels foolish to buy ahead of the Fed’s next rate hike, the best trades always start this way. By the time it feels good, it will be too late.

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