Category Archives for "End of Day Analysis"

Oct 08

Why you should have profited from this rebound

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Exactly two weeks ago the stock market was “on the verge of collapse”. Today things look far different. Amazing what a 250-points rebound will do for the market’s mood.

I caught grief on social media for claiming September’s dip was buyable. While the crowd insisted the next leg lower was imminent, I kept buying the bounces. The first bounce didn’t stick. But that’s not a big deal. If we start small, get in early, and get out early, the losses are minor. In fact, if we are good at this and move quickly, we can get out at breakeven, making these free trades. It’s hard to beat that risk/reward.

The second bounce didn’t stick and neither did the third. But all of this was expected and part of the plan. Sometimes the market bounces quickly. Other times it takes a few false starts before it gets its mojo back. This time the fourth bounce was the magic number.

No doubt a lot of optimistic dip-buyers gave up after the second or third failed bounce and they ended up missing the real one. That’s the way this goes sometimes. Just because a trade doesn’t work the first time doesn’t mean we should give up. As long as we focus on sensible entries and exits, we have the ability to test all of these rebounds with relatively low risk.

Long-term success in the market is nothing more than sticking to our trading plan and ignoring all the useless opinions surrounding us. Stick to what we know and we will always come out ahead in the end.

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Oct 07

The key level we need to be watching

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 reclaimed nearly all of yesterday afternoon’s tumble after traders realized Trump’s threats to suspend stimulus negotiations were more bark than bite. Within hours, Trump backpedaled and promised to sign any bill that put money into voter’s taxpayer’s pockets.

This reversal alleviated investors’ fears and prices quickly returned to recent highs. And we should have seen this coming. Yesterday evening I wrote, “the dip might even turn out so modest and fleeting it could be hard to take advantage of.” Well, there you go. Blink and you missed it.

Tonight we have the vice presidential debate. If there is anything more inconsequential than the vice presidential debate, I can’t think of it. So yeah, expect investors to forget about this nearly as quickly as bored voters flip the channel.

The market continues trading well and has been above 3,300 support for nearly two weeks. If stocks were fragile and vulnerable, we would have crashed by now. Instead, September’s pullback is just that, a pullback. Nothing unusual or alarming about a step-back and cooling off following a 6 month, nearly non-stop run from the March lows.  Two-steps forward, one-step back.

Expect the sideways chop to continue until the election. But as long as we get more up than down, things are going well. If the index crashes back under 3,300, we will have to reevaluate, but until then, there is nothing to stress about. (This is our last-line-of-defense stop-loss. That said, a savvy and nimble trader will recognize looming weakness and get out long before the market reaches our last-line-of-defense.)

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Oct 06

Is the market on the verge of crashing?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

Tuesday started out well enough. Early sideways trade transitioned into a decent afternoon rally. That is until Trump threw cold water on the market and surprised everyone by announcing all stimulus negotiations are suspended until after the election. That proclamation sent stocks crashing more than 2% from those afternoon highs in a matter of minutes.

If there is a silver lining to this afternoon’s tumble, stocks quickly found support between Monday’s open and Friday’s close and held in this region through the final hour of the day. The index slumped a little further in after-hours trade but not dramatically so. At least to this point, this looks more like concern than panic.

We will learn a lot more about the market’s mood Wednesday. Dramatic corrections like early September and huge crashes like last February get started and they don’t stop going for several days. If prices hold up reasonably well Wednesday afternoon, this latest development is not turning into the next crash.

For a fundamental analysis of the market’s disappointment, this is a delay and not a termination. A stimulus deal will eventually get done, it just won’t happen as quickly as investors were hoping. Delayed gratification leads to dips, not crashes. As long as the market remains above 3,300, stocks are in pretty good shape. And who knows, the dip might even turn out so modest and fleeting it could be hard to take advantage of.

As for how to trade this, the market has been acting well since September’s bottom and smart money was riding this wave higher. This afternoon’s sharp tumble threw a wrench into those plans. Even though stocks didn’t undercut recent lows near 3,320, it still made sense to take some risk off the table and lock-in a portion of our recent profits.

As I often remind readers, it is much better to be out of the market wishing you were in than in the market wishing you were out. There is nothing wrong with taking some risk off the table when we get blindsided by something we don’t fully understand. Our clearest thoughts and analysis comes when the pressure is off and sometimes it only takes selling a small fraction of our position to gain that clarity.

As for Wednesday, wait to see what happens tonight and tomorrow morning. If the market finds its footing, get back in. If we get hit by another round of reflexive selling, get out of the way and wait for the next bounce. My hard stop is near 3,320 and if we fall under that, I’m out no matter what*. (The lone exception is if we gap under that level at the open. I will give the market 15 minutes to find a bottom and bounce before selling.)

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Oct 05

The best time to buy ZM

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Zoom (ZM) is one of this year’s biggest Covid winners, up over 600% since January 1st. You have to be living under a rock if you haven’t heard of this company either because of their ubiquitous video conferencing app or its meteoric stock.

While ZM has been on a jaw-dropping run this year, more recently, prices have stalled under $500. Is this the end of the line for ZM? Or just another pause on our way higher?

A few weeks ago I told subscribers to be careful as the stock gapped up near $500 following blow-out earnings. While it’s great to own a stock on days like that, gaps are dangerous things because they have a tendency of retreating and filling. And that’s exactly what happened over the next several days.

One of the most obvious things about stocks is before they make a big move, they start with a small move. The most obvious signal ZM was in trouble was undercutting the gap’s intraday lows the next day. That was as clear of a signal to get out as they come.

And the thing to remember is just because we sell a stock doesn’t mean we are giving up on it. When the risk/reward moves against us, it makes sense to lock-in some of those heady profits.

A few days later the stock bottomed after filling in most of the gap during September’s larger equity pullback. But this stock was too hot to stay down long and prices quickly pushed back to $500. If a person still liked the stock, there was plenty of time to buy back in at lower prices and ride this one back to $500.

But as soon as the stock broke through $500 and retreated back under the psychological level, that told us it wasn’t quite ready for the next leg higher and it needed to consolidate recent gains. Take profits again at $500 and wait for the next breakout.

I don’t think this stock’s run is over, but I would be hesitant about buying it under $500. I’d rather wait for it to break above $500 first. As I often tell subscribers, it is better to be a little late than a lot early.

Jumping in at a clearly defined level allows me to set a nearby stop and limit my risk. If the entire market continues slumping, this stock could easily retest $400 support before climbing up to $600. There is no need to ride this down and be tempted into a poorly timed sale near the lows. I perfectly happily give up a few dollars if it allows me to get in at a better-defined level where I can manage my risk.

As I said, I still like this stock but I want to see it break $500 first. Start small, get in early, keep a nearby stop, and only add to what is working.

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Oct 01

How to get ready for what comes next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Thursday modestly higher and remained above 3,300 for the fourth consecutive session.

It’s been a good seven days for the index as it reclaimed 180-points from last Thursday’s lows. But these gains leave us near overhead resistance and the rate of buying has slowed down. That’s not a surprise. This remains a volatile period for stocks and every bit of up is typically followed by a bit of down.

Given the headline environment and downward price pressure, trading sideways is actually constructive. It’s only been a few days, but the longer we hold recent gains without retreating, the less likely another major fall becomes.

That said, a big chunk of recent buying came from short-squeezes forcing bears to buy against their will. While short-squeezes trigger some of the most impressive surges, they are not sustainable by themselves because A) most investors don’t short and B) these people are not buying because they want to buy. To keep going higher, we need to recruit an entirely new class of buyers, i.e. those with cash that have been avoiding this market to this point. That is a much harder sell.

If we hold these levels for a few more days, previously nervous owners regain their confidence and those with cash start having more faith in these levels. With the temporary short-squeeze and dip-buying already behind us, we need voluntary buyers to take over and keep pushing prices higher.

As for how to trade this, it’s pretty straight forward. Any breakout must cross 3,400 and any retreat will fall under 3,320. Those are our tripwires. Buy the breakout and short the breakdown. Start small, get in early, keep a nearby stop, and only add to what is working. If we stick to that plan, it doesn’t matter which way this goes next. Be prepared for a head-fake or two along the way but as long as we get in early and get out early, the risks are pretty low.

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Sep 30

How to trade this chop

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

It was an incredibly choppy 24-hours for the S&P 500.

It started with last night’s train-wreck of a debate. Stock futures swung wildly between 1% gains and 1% losses depending on who was saying what, but by the time the market opened this morning, prices returned to mostly unchanged.

So much for all the headline hype, but that’s not a surprise. Last night I told readers to ignore the noise coming from the debate because no matter what happened, it wouldn’t change anyone’s mind. And this morning, the market agreed with me.

That said, things got spicy after the open. Moments after it looked like it could be another ho-hum day, bulls took control and started squeezing the bears for the third time in a week. That one-way panic buying sent the index 50-points higher in just a few hours.

While bulls were congratulating busy themselves over their latest conquest, the thing we cannot forget is there is a huge difference between buying because people have to (shorts getting squeezed) and buying because people want to (compelling value).

Short-squeezes exhaust the supply of desperate bears very quickly. Combine that midday exhaustion with the Fed extending restrictions on big banks because of potential liquidy concerns and the stage was set for an afternoon retreat back to breakeven. Easy come easy go.

But this also isn’t a surprise. Last week I warned readers to expect extreme volatility in both directions for a while. Big moves in one direction are followed by big moves in the other direction.

If a person wants to trade this chop, make sure you get in early and take profits often. Missing entries and exits by a few hours is the difference between nice profits and humbling losses.

Every morning set tripwires in both directions that will trigger automatic purchases or sales. The thing about extreme volatility is it leads to strong intraday moves that are easy to profit from if we have the courage to jump aboard. Leave your bias at the door and be ready to ride this in whatever direction it wants to go.

And if that sounds like too much work or stress, don’t sweat it. There is nothing wrong with waiting for more sane trade to return. Often the best trade is waiting for the next trade.

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Sep 29

Do the debates matter to the market?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

It was a very mediocre day for the S&P 500 with prices slipping 0.5%. That said, 0.5% isn’t a big deal given the elevated volatility we’ve been living under since the beginning of September. Considering the widespread nervousness, “only” falling 0.5% could even be called a good day. That said, we need to see a few more resilient days like this to feel more comfortable about the floor under our feet. Overbought markets tumble quickly. If we are still at these levels by Friday, we can start to put a little more faith in these prices.

The big bogie between now and Friday is tonight’s presidential debate. How will this affect the market? The simplest answer is, it won’t. There are a couple of reasons why.

Let’s start with the fact this is a very polarized election. Most peoples’ minds are already made up and nothing that happens tonight will change who they vote for. Crash or soar, it won’t really make a difference for Biden or Trump. The people that loved them yesterday will love them tomorrow and those that hated them yesterday will still hate them tomorrow.

Second, the few people that haven’t made up their minds are clearly not paying attention to politics. If they don’t care enough to have an option, they almost certainly won’t care enough to be watching tonight’s debate (and most likely won’t even vote). I wouldn’t pay much attention to this group.

And finally, the market doesn’t really care about these intermediate points. A good debate by one or the other won’t create a lasting impact on the market because the market doesn’t care about debate performances, only who wins in November. As I already stated, very little can happen tonight to change the course of the election and it won’t affect the market in a meaningful way tomorrow.

That said, maybe we get a knee-jerk Wednesday morning if one candidate screws up badly. But expect that early move to fizzle and be forgotten by tomorrow afternoon. Unless someone commits the unforgivable gaffe of all gaffes, ignore the debate. Expect investors to go back to obsessing over their fear of heights a few hours after the open.

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Sep 28

Is the worst finally behind us?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

On Monday the S&P 500 extended Friday’s bounce and now finds itself 3.2% above Thursday’s close. Not bad for two days of work.

If you assumed there was some huge breakthrough that triggered this buying frenzy, you’d be wrong. The headlines this week are no different than the headlines last week when we were carving out fresh lows. But that’s the way emotional markets work. We didn’t need a reason to crash and we don’t need a reason to bounce.

Even though it feels great to put 150 points of breathing room between us and the recent lows, we should be careful about reading too much into this bounce. If this market can bounce for no reason, then it certainly can fall just as easily for no reason (again).

This remains a volatile market and that means large moves in both directions. As I wrote last week, things will look better once we reclaim and hold 3,320. So far that’s what we’ve done, but we still need to be wary of any dip under 3,300. I don’t expect a big crash, but this will be a choppy market for awhile. Trading this well means getting in early and taking profits early. Wait a few hours too long and those profits will evaporate.

If a person doesn’t feel like dealing with this volatility, there is no need to rush in now. Even if prices rally higher this week, no doubt the next dip will knock us back to these levels, if not even lower. Don’t feel pressured to chase. Just wait for the market to come to you. Often the best trade is waiting for the next trade.

And if a person really wants to short, wait for the next breakdown. No doubt it will be a multi-percent move. Just make sure you are ready to take profits quickly because the next bounce isn’t far away.

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Sep 24

Is it time to give up on the bounce?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

It was another tumultuous session for the S&P 500. The index opened in the red, but not to be deterred, dip-buyers came rushing in and prices recovered nearly half of Wednesday’s tumble. Unfortunately, the buyers couldn’t sustain that momentum and the index slumped back near breakeven by the close.

Under different circumstances, I would have been encouraged by the market’s early refusal to breakdown. But Wednesday’s dreadful reversal forces me to take a more critical view.

Previously, I was giving the bounce the benefit of doubt because every dip this summer bounced within days. Anyone who’s been doing this for a while knows a trend is far more likely to continue than reverse. I was even willing to accept Monday’s tumble under 3,300 support because the market finished well above the intraday lows. (How a day finishes is always far more important than how it starts.)

And then there was Wednesday. The day started well enough but those first few minutes were as good as it got and it was all downhill from there. Oversold markets bounce decisively, they don’t tumble in oneway selloffs. Meaning, this market isn’t oversold yet.

The morning’s bounce was a valiant effort but ultimately doomed to fail. There are still far too many nervous owners praying for a bounce and the supply of sellers is still too deep.

As I wrote yesterday:

I often say we cannot read too much into a single day’s price action. And that’s still true. But I am no longer giving this market the benefit of doubt. [Wednesday’s] dreadful price-action turned this into a show-me trade. Until we recover Wednesday’s highs, I will remain leery of this base. And if we fall under Monday’s lows, look out below.

Nothing happened on Thursday that changed my mind. This continues to be a show-me trade. Until the index gets back above 3,320, I will continue to treat any bounce with suspicion.

That doesn’t mean stocks are standing on the edge of a cliff and we will find ourselves down 20% percent next week. What we are seeing is a normal and healthy part of the basing process. I was originally looking for a quick bounce because that’s how the market has been acting all summer. But this time it looks like it will take longer to process recent gains.

If this market was a coiled spring and ready to pop, it would have happened by now. That tells me we should expect the choppy trade to continue. That means more fizzled bounces and failed breakdowns.

The best way to trade choppy markets is to always be prepared for the reversal. Get in early and take profits quickly. Anyone waiting for a bigger move in either direction will soon watch a nice profit turn into a big loser a few hours later.

If a person doesn’t have the time or risk tolerance to trade around this chop, there is nothing wrong with sitting this one out. Better trades are coming, we just need to be patient and wait for them. (That said, I would be leery of any slip under 3,200. We could still see another stumble or two before we find the real bottom. Remember, it is always better to be out of the market wishing you were in than in the market wishing you were out.)

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Sep 23

When potential turns rotten

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday was a dreadful day for the S&P 500. The index started with a small gain, unfortunately, that was as good as it got. By the close, the market shed 2.4% in the biggest loss since the early September tumble.

Anyone who’s been reading these posts knows I’ve been giving this market the benefit of doubt as it carved out a base near 3,300 support. Even Monday’s tumble under this level wasn’t a big deal because the index spent the rest of the day reclaiming a big chunk of those early losses. As most experienced traders know, it isn’t how the day starts, but how it finishes that matters most. To me, it looked like the market was finding its footing and getting ready for the umpteenth bounce since the March lows. Then today happened…

There is nothing good to say about Wednesday. It was a one-way selloff that never found a bottom. While the optimist might find some solace that it didn’t undercut Monday’s lows, that’s only because the selloff ran out of time. But hey, there’s always tomorrow! Ugh.

I often say we cannot read too much into a single day’s price action. And that’s still true. But I am no longer giving this market the benefit of doubt. Today’s dreadful price-action turned this into a show-me trade. Until we recover Wednesday’s highs, I will remain leery of this base. And if we fall under Monday’s lows, look out below.

As for how I traded this abomination, I came into the day long and was sitting on a profit cushion from this week’s early bounce. That gave me a little breathing room when prices started retreating shortly after the open. As I wrote yesterday:

By getting in early, I have a decent profit cushion to protect my backside. I will continue holding as long as we remain above my entry points. If prices retreat, no big deal. I get out and look for the next trade. If prices crash under Monday’s lows, I might even try a short.

Little did I know I would be putting my contingency plan to work a few hours later. But that’s why we have them. To protect us from bad things when the market goes the “wrong” way. I started peeling off my positions this morning and I was all the way out by early afternoon. Once it was obvious the index wasn’t finding a bottom, I even put on a short.

I’m not a fan of shorting a bull market, but there was nothing good about today and things could get even worse if we fall under Monday’s lows. Today proved there are still a lot of nervous owners left and it could get even worse tomorrow. That said, I’m happy to be wrong. If prices bounce and reclaim Wednesday’s highs, I’ll be ready to buy that bounce. But something tells me that won’t be happening for a while.

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Sep 22

Buyable dip or dead-cat bounce?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 notched its first gain following four consecutive losses. There wasn’t anything meaningful in the headlines driving Tuesday’s 1% pop. Instead, this strength was mostly a response to a little too much selling over the last week.

Everyone knows markets move in waves and it shouldn’t surprise anyone when the tide reverses after a string of days in the same direction. Is that all this is, a one day pop between two long stretches of down days? The cynics certainly think so. But I’m not sure the evidence supports that outlook.

First, we are in a long rally that goes back more than 6 months. This period includes countless dips that bounced back even higher. If the first dozen dips couldn’t break this rally, what makes this latest attempt any different?

Second, the market finished at the intraday highs the last two sessions. While Monday closed in the red, if you look under the hood, the price-action was actually quite bullish as institutional investors chased prices higher into the close. That wave of dip buying carried over to today and helped put together the first up-day in a week.

Third, if this market is going to crash, the first thing in needs to do is make a lower low. As long as we remain above Monday’s intraday lows, this should be treated as a buying opportunity. If we violate the lows, all bets are off and we can short until our heart’s content. Until then, this bounce deserves the benefit of doubt.

Up or down, there is enough emotion wound up in the market that the next move will be big. Maybe prices bounce decisively. Maybe they collapse. Either way, as long as we follow a thoughtful trading plan that puts us in the right spot at the right time, this will be a great ride.

As for what I’m doing, I bought Monday’s late strength and I added more on Tuesday. By getting in early, I have a decent profit cushion to protect my backside. I will continue holding as long as we remain above my entry points. If prices retreat, no big deal. I get out and look for the next trade. If prices crash under Monday’s lows, I might even try a short.

When it comes to the market, I don’t care which way it goes. The only thing that maters to me is I’m riding that next wave.

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Sep 17

The rebound attempt is dead; what to do next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 hit a rough patch Thursday, retreating nearly 1% and giving back a big chunk of this week’s gains. As bad as it felt, more importantly, the index remains above recent lows and 3,300 support.

At times, it felt like the market was in the middle of a spectacular collapse, especially when prices were down 1.5% and threatening to undercut recent lows. Fortunately, bears couldn’t deliver on those threats. I’m not saying they can’t finish the job tomorrow, but it is worth noting they couldn’t get it done today.

There were not any meaningful headlines driving this selling. Instead, this is simply a natural and periodic shift in sentiment. The market went up for a few months and now it is digesting those gains. Two-steps forward, one-step back. It doesn’t need to be any more complicated than that.

Today’s tumble kills the market’s second rebound attempt in as many weeks, but this isn’t a surprise. The probability of any individual bounce succeeding is relatively small. Sometimes the first bounce sticks. Other times it is the second, third, or fourth try that takes us higher.

If we knew which bounce was the real deal, this would be easy. Unfortunately, we only know what happens after it happens. In this case, the only thing we can conclusively say the first two bounces didn’t work. Will the third, fourth, or fifth attempt be any more successful? Only time will tell.

Up next is bounce number three. Will this one be the real deal? Maybe…maybe not. But statistically speaking, the third bounce tends to be the most successful. Just because the last two didn’t work doesn’t mean we should give up and quit. Unfortunately, that’s what a lot of dip buyers do. They get whipsawed a couple of times, become discouraged, and miss the real bounce.

As long as prices remain above 3,300, the market is grinding its way through the supply nervous sellers and the real bounce is just around the corner. Hold above 3,300 and I will continue giving this market the benefit of doubt. On the other hand, if prices crash under 3,300, all bets are off. But until then, I will keep looking for the next bounce. As I said, often the third time is the charm.

(It appears there was a glitch with my email delivery service and yesterday’s free analysis failed to send. If you missed it, check out: “What it looks like when I’m wrong“.)

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Sep 16

What it looks like when I’m wrong

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

If stock futures are any indication, Thursday is setting up to be a rough session. As I write this, S&P 500 futures are down more than 1%.

Normally, I don’t put much weight in overnight prices. Most of the time the U.S. leads the world, not the other way around. More often than not, a bad day in Asia will moderate by the time the sun reaches our shores. That said, this time feels different. Over the last three days, the S&P 500 gave back nice gains in disappointing afternoon closes. That tells us big money is not convinced and has been selling the strength, suggesting the market is ripe for a near-term pullback to support.

As I’ve been writing over the last week, I’ve been trading this bounce as if it were the real deal. But the entire time I was always prepared to be wrong. My trading plan has me start small and get in early. This approach leaves me with plenty of margin to be wrong. And in this case, it looks like I am on the verge of being wrong.

A third disappointing afternoon Wednesday convinced me to close a portion of my long position. If this was the real deal, prices should have raced higher, not stalled and retreated. While I’m still net long, my smaller position limits my exposure and I still have a profit cushion by getting in early to blunt any weakness on Thursday.

Trading successfully over the long-term isn’t about always being right, but carefully managing our risks when we are wrong. I got into this trade with a sensible plan if I was wrong and now I’m putting it to work.

While it looks like I will be wrong buying this bounce, it was still the right trade. I still believe in this market, but I don’t know if the first, second, or fifth bounce will be the one that finally takes off. That means I treat all of the bounces as if they are the real bounce. As long as I have a sensible plan for getting in and out, the risks are small and manageable. And more important, buying every dip guarantees I will be in the right place at the right time when this thing finally takes off. Until then, I don’t mind taking a few small and targeted losses along the way.

(While I’m still planning on buying the next bounce, if this turns into another panicked rush for the exits, I’ll be happy to short a break under 3,300 with a nearby stop and a plan to harvest profits quickly.)

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Sep 14

Should we trust this bounce?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 attempted its second rebound off of 3,300 support on Monday. Will this one be any more successful than last week’s fizzle?

Critics will jump on the declining volume, but personally, with as much volume as has moved to dark pools and is no longer counted, I don’t find volume to be anywhere nearly as useful as it was 10 or 20 years ago. In fact, it’s gotten to the point where I don’t even pay attention to volume. Light volume rallies pay just as well as heavy volume ones, so who am I to discriminate?

As I wrote in Friday’s free blog post, I was far more impressed with Friday’s resilient price action:

While the market remains 7% under last week’s highs and bears are the most confident they’ve been in months, their inability to extend the selloff on Friday is definitely noteworthy. We undercut the weekly lows and instead of triggering another avalanche of defensive selling, supply dried up and prices bounce back to breakeven. If this market really was fragile and vulnerable, these little cracks spiral into gaping holes, they don’t bounce back within hours.

I followed that up with:

It all comes down to Monday. A strong open is buyable with a stop near 3,310. If that strength fizzles and prices retreat, no big deal, we pull the plug and wait for the next bounce. But most likely, that strength will stick and even accelerate. Wait too long and there is a good chance you will miss the move.

So far so good. The index gapped higher at the open and it held those gains through the close. For the time being, we have no choice but to continue giving this market the benefit of doubt and that means buying this strength. Start small, get in early, keep a nearby stop, and only add to what is working.

Will the market trade well on Tuesday? If it does, keep adding to Monday’s positions. If it retreats under Monday’s open, no big deal, jump out and wait for the next bounce.

Social media is overflowing with opinions about whether this market will surge or crash. Personally, I don’t care what it does as long as it does something. Right now, it is acting like it wants to bounce and that means I’m buying it. If the sentiment reverses tomorrow and the index crashes under last week’s lows, I have no problem switching directions and following its lead.

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Sep 09

Is this bounce the real deal?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

After weeks of nothing but a boring grind higher, I finally have something interesting to write about. In fact, there is more going on than I have time for!

There are some spectacular things going on with TSLA, but I will save that discussion for another day. In the meantime, it looks like TSLA could claw its way back to $400 over the next few days, especially if the broad market bounces back from last week’s dip.

That segues me nicely to tonight’s main topic, the S&P 500’s impressive bounce this morning. There were not any meaningful headlines driving this strength, but that makes sense since there weren’t any meaningful headlines driving last week’s tumble. As I often say, the market loves symmetry and if we didn’t need news to fall, then we don’t need news to bounce. The herd got spooked last week and this week they realized that might have been an overreaction. Or so it seems.

One day’s price action is not enough to make a definitive proclamation, but it is enough for us to take notice. More important will be how traders respond Thursday. Do they keep buying the dip or does today’s strength fizzle and retreat back under Tuesday’s lows? In one scenario and the dip is already over. The other and lower prices are ahead.

This is an emotional market and that means both outcomes are likely. While I cannot say for sure what’s coming, that doesn’t mean we cannot create an intelligent trading plan that accounts for both outcomes.

Hopefully, regular readers of this blog recognized this morning’s bounce was our signal to put on an initial position. Starting small allows us to be more aggressive while also controlling our risk. If the initial position works, great, we add more. If the second addition works, even better and we add even more.

On the other hand, if the bounce fizzles and retreats Thursday, we have a profit cushion from today to absorb some of the fall and we get out at our stops. No big deal. And rather than give up, if we get squeezed out, that just means we were early and we need to try again. If this isn’t the real bounce, it will be the next one, or the one after that. Buy smart, limit our losses, and always be in a position to profit from the next big move. That’s the way savvy traders profit from these opportunities.

I bought Wednesday’s bounce as if it were the real deal. If I’m right, I keep adding to what is working and enjoy the ride higher. If I’m wrong, I take a small loss and try again. No big deal. Some people need to be right. Me, I’m only looking to make money.

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Sep 04

A straight forward trading plan for next week

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Friday was another bloodbath for the S&P 500 and the index plunged 3% in early trade. The market attempted a rebound shortly after the open, but once that fizzled and undercut Thursday’s lows, the flood gates opened and a tsunami of selling overwhelmed the market. That said, by the end of the day, the index managed to recover a big chunk of those losses.

What’s more important, a second wave of defensive selling and finishing in the red? Or the impressive bounce off the midday lows?

No doubt there are a lot of bears that will disagree with me, but I was impressed with Friday afternoon’s strength. Just when things appeared their bleakest, supply dried up and dip buyers came rushing in. This is especially noteworthy ahead of a long holiday weekend. Investors typically prefer conservative positions when they cannot trade for three days, but this time the discounts were just too attractive for dip buyers to resist.

While it is naive to believe this tumble will be forgotten next week, if the index remains above Friday’s low on Tuesday, there is a good chance this won’t get much worse and this is just another dip-buying opportunity on our way higher.

Without a doubt, volatility will remain elevated and we could even retest Friday’s lows at some point later next week, but we should continue giving this rally the benefit of doubt. Crash under Friday’s lows on accelerating volume and we will be forced to reconsider our outlook, but anything short of that and we should be treating this dip as a buying opportunity.

Hopefully, everyone used their trailing stops to lock-in healthy profits somewhere between 3,500 and 3,450. That means we are sitting on a pile of cash and eagerly looking for the next trading opportunity. Friday’s midday bounce was a good entry point for an initial position and closing well above the lows gave us a second entry point.

Tuesday morning our stops should be near Friday’s lows and if the market trades well Tuesday, we can add more. If we locked-in some profits near 3,500 and are buying back in near 3,400, that’s not a bad trade even if it means sitting through some near-term volatility and whipsaws.

At this point, the only thing that would give me second thoughts is a quick retreat under Friday’s lows. If Friday’s midday bounce fails that quickly, the selling isn’t done and the most aggressive trader can short the index when we fall under Friday’s lows with a stop just above this level.

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Sep 03

Ouch, that hurt! What this means and how to trade it

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Well, that was dramatic. The S&P 500 shed 3.5% Thursday in the second-largest decline since the depths of the Coronavirus crash. Only June 11th’s 6% crash was worse.

As awful as this tumble felt, it helps to keep things in perspective. This afternoon the S&P 500 closed at 3,455 after plunging 125 points. This same 3,455 was an all-time high last week. That’s right, up until a few days ago, the market has never been this high. It doesn’t seem so bad when we put it that way.

As with all things in the market, there are two ways to look at this situation. 3,455 is still a very high number and the vast majority of stock owners are still sitting on a mountain of profits. If they shrug this off like they did on June 12th, the worst could already be behind us. On the other hand, the pessimist will point out just how much clear air remains underneath us. The next major support level is all the way back at 3k and falling another 400-points would hurt…a lot.

What’s a trader to do in a station like this? Lucky for regular readers of this blog, I told everyone exactly what to do last night:

The great thing about euphoric accelerations is they tend to be one-way moves, meaning we can easily follow this rally higher with a trailing stop. Keep it 50-100 points behind the market and we should safely navigate any near-term whipsaws. And you know what? If we get stopped out prematurely, there is no rule prohibiting us from getting back in. If a false alarm squeezes us out, no problem, just jump back in when prices recover.

I sure a heck didn’t expect today’s bloodbath, but I already had a plan in place to deal with it.

I don’t mention this as often as I should, but I like keeping my stops spread out. Today I had multiple stops between 3,500 and 3,450. This strategy helps me mitigate the inevitable whipsaws. If my first level gets hit and the market bounces, no big deal. Most of my position is still intact and I only miss a little bit before buying back in. If on the other hand, the selloff accelerates, I lock in some of my profits higher up and can actually make money buying back in at lower levels. Anyway, this is what works well for me and helps mitigate the frustration when the market undercuts my stops by 10 cents before bouncing.

As I wrote yesterday, I like this market and paradoxically, today’s dip actually makes me feel better about it. I was growing concerned about this relentless climb and the lack of a meaningful down day. Healthy and sustainable rallies take a step back for every two steps forward they take. If prices bottom and bounce soon, that is an incredibly bullish indication that confirms these prices are legitimate there is more life left in this rally. On the other hand, if prices continue falling, no big deal, my stops were already triggered and I am sitting on a mountain of cash. When the next trading opportunity presents itself, I will be ready for it.

At this point, I don’t see a reason to give up on this market and I will be looking for the next entry point to buy back in. But if the selling accelerates Friday and into next week, I have no problem switching my outlook and following the market’s lead. That’s the best part of being a nimble and flexible trader, I often make more money when I’m wrong.

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Sep 02

The only way to trade bubbles

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

This market is on fire. The S&P 500 has been up 9 out of the last 10 sessions. Today’s 1.5% pop is the biggest gain in more than two months, meaning the rate of gains is accelerating, not slowing down. But the real star of the show is tech and momentum stocks with double-digit gains becoming the norm.

While a lot of people are nervous because it feels like this market is getting frothy, and I’m one of them, the thing to remember is bubbles last longer and go further than even the most bullish cheerleaders thought possible. I wouldn’t feel comfortable buying stocks at these ridiculously extended levels, but I sure am glad I’m holding positions with huge profits and I continuing to participate in this runup. And for the time being, I have no interest in selling. I’m following this rally higher with a trailing stop. I have no idea how much further it will go, but I definitely want to be apart of it.

The greatest strength we have as independent traders is the nimbleness of our size. We do in seconds what it takes institutions weeks and months to accomplish. This market is getting absurdly expensive, but we are nimble enough to ride this wave higher and be able to get out right after it rolls over. We don’t need to predict the future if we are fast enough (and disciplined enough!) to react to the market in real-time.

The great thing about euphoric accelerations is they tend to be one-way moves, meaning we can easily follow this rally higher with a trailing stop. Keep it 50-100 points behind the market and we should safely navigate any near-term whipsaws. And you know what? If we get stopped out prematurely, there is no rule prohibiting us from getting back in. If a false alarm squeezes us out, no problem, just jump back in when prices recover.

Stick to the above plan and see how much further this frothiness takes us. No doubt the top is still a good distance above us.

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Aug 31

How we should position ourselves in September.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

August was the sixth month since March Covid lows and it certainly feels like the rebound should be running out of momentum. But is it?

Out of the 21 trading days in August, the S&P 500 finished green 16 times. Of those five red days, most were less than a quarter percent loss. Add it all together and August finished a very impressive 7% higher. Trade that with a 3x ETF and August was a 20% month! Not bad, not bad at all.

Sometimes it feels like we are too late. Other times we worry the market is already too high. But as I often write, things that are high tend to get even higher. And that has definitely been the case with this Covid rebound. Last month’s irrational highs got even more irrational this month. Anyone still waiting for the “inevitable” pullback is still waiting.

What does September have in store for us? Most likely more of the same. A trend is far more likely to continue than reverse. While the next step-back is just around the corner (it could start at any moment), we don’t trade that outlook until the stepback is actually upon us. Until then, keep giving this market the benefit of doubt.

At this point, there is nothing to do other than keep following this rally higher with trailing stops near 3,440. While I am concerned about last week’s acceleration, if this is the start of a climax top, these things usually get far more frenzied before the collapse.

I don’t love the market at these elevated levels, but at the moment, it is doing everything it needs to do to keep me in it. As long as this keeps going higher, I will continue holding and following it higher with a trailing stop. But if this fizzles, I will be happy to lock-in 50% profits since the June lows (3x ETF). All good trades eventually come to an end and so will this one.

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Aug 26

Should we be afraid of missing the next rally?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday was a good day for the S&P 500 as it pushed toward 3,500 for the first time in history. As bad as the real world is around us, no one in the stock market seems to care. Investors are far more concerned about missing this latest runup than they are about what could go wrong this fall. And who can blame them? Anyone that bought June’s dip using a 3x ETF is up more than 50% in only two months.

While anyone can point out great trades after they happen, it if far more useful (and profitable) to see these trades coming before they make their big move. Lucky for regular readers of this blog, this is exactly what I told them June 11th when the market collapsed 6% in a single session:

This pullback was long overdue, but this was just a normal and healthy step-back on our way back to all-time highs. This is not the start of some much bigger collapse. Expect this selloff to bounce like every dip that came before it this spring. If the bounce doesn’t occur Friday, then look for it early next week.

Two months later, here we are, standing at those all-time highs. Trading isn’t hard if we know what to look for. While that post helped readers two months ago, it is old news and now everyone wants to know what comes next.

While I loved riding this wave higher, it’s gotten a little too easy and obvious. Buying June’s dip was hard and that’s why it worked. On the other hand, buying this breakout to record highs is far too obvious. In fact, most people are more afraid of missing the next leg higher than they fear the next dip lower. And that’s exactly what makes me so nervous right now.

Everyone cognitively knows stocks go up and stocks go down, but all too often people forget these simplest ideas in the moment. As great as things feel right now, this is not the time to fear being left behind. It is the time to fear holding something that could go down.

I’m not ready to pull the plug on this breakout just yet, but I keep moving my trailing stops up. With profits this big, it would be foolish to let greed wipe all of those away. I don’t mind riding this higher for a few more days or weeks, but I’m definitely itching to lock-in my profits and get ready for the next trade.

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