Category Archives for "End of Day Analysis"

May 13

Are things about to get a lot worse?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update: Special Edition

I normally publish free blog posts on Tuesday and Thursday evenings, but Monday’s dramatic tumble warrants a special edition.

TL;DR: At the end.

The S&P 500 tumbled Monday in the second largest drop of the year, shedding 2.5% after Trump and China escalated their trade war to the next level. Last week Trump followed through on threats to increase tariffs to 25% and China retaliated this weekend with reciprocal tariffs. As bad as it sounds, stocks are still holding critical 2,800 support, even if just barely.

While dramatic, no one should have been surprised by Monday’s tumble. On May 2nd when prices were near all-time highs, I told readers to be mindful of a larger pullback to support;

“If prices tumble under 2,900 and finish near the day’s lows, that is a very bearish development and it means further selling is ahead of us. The most obvious next level of support is 2,850. After that, far more meaningful support is back at 2,800. While it would feel scary, either of these would be reasonable levels to test in a normal and routine pullback. Two steps forward, one step back.”

Here we are 11 days later and traders are running around like the world is ending. The thing to remember is these things are not nearly as scary when we see them coming and can develop an intelligent trading plan ahead of time.

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Markets go up and markets go down. That’s what they do and everyone knows it. Pullbacks to support happen all the time and shouldn’t surprise anyone. Yet they always do. By rule, they have to. If they didn’t, no one would sell and we wouldn’t dip in the first place. Every dip, no matter how trivial it looks after the fact, always felt real in the moment.

And now that we find ourselves at support, we have to ask ourselves if this is just another routine, buyable dip. As I already stated, every dip feels like it is about to get a lot bigger. That’s the only reason people sell the dip. Yet every dip in history ended in a bounce. And every time that bounce happened when people were the most pessimistic.

A funny thing happens when pessimism climaxes. That is the point when everyone who could be scared out of the market is finally scared out of the market. When the crowd finally gives up hope is the exact point when we run out of sellers, supply dries up, and prices bounce.

Are we at that point now? In a normal market, yes, we are moments away from the bounce. Maybe prices dip under 2,800 before supply dries up and prices bounce. Or maybe we already hit that capitulation point Monday afternoon. Either way, we are only talking about a handful of points either way. A dip buyer would be sitting on nice profits next week or the week after even if they got in a little too early or a little too late.

But that is only if this is a normal market and this is a routine pullback to support. That means the million dollar question is if this pullback is normal or abnormal.

The edge case occurs when things get wonky and the market goes into full-blown panic mode. Not only do the typical Chicken Littles run around claiming the sky is falling, but the far more confident dip buyers have second thoughts. That is what happened last year when prices tumbled more than 400 points in December.

Could that happen here? Sure. It can happen anywhere at any time and is one of the biggest risks to owning stocks. But as bad as it is, these panics are rare.

The line in the sand is 2,800. This support level stretches back to last fall’s big selloff and was major resistance for several months. Once prices finally break through resistance, it becomes support. And right now it is our lifeline.

Hold this level for a few days and all is good. The things about stock crashes is they are brutally quick. They happen before people have time to think and make rational trading decisions. This is the land of sell first and ask questions later. But if that is how this works and the market holds 2,800 support for several days, then we can be fairly certain the emotional selling died up. At least as far as last week’s headlines are concerned. Meaning it would take a new round of headlines to knock us lower.

But here is the thing about this latest round of trade war headlines, how much worse can they get? Both sides are already taxing so much they are quickly running out of new things to tax. Even if this doesn’t get solved, we are not far from the point where this cannot get any worse simply because both sides are running out of options to make it worse.

In my opinion, the headlines over the last seven days were the worst of what we will see. The market was blindsided by this escalation since it was anticipating a deal. But after the shock wears off and the market comes to terms with these headlines, most of the downside will have already been realized.

The thing to remember about falling stock prices is they are actually less risky to buy. That’s because a lot of the damage has already been realized. People are afraid of falling off of buildings, not falling off the ground. Yet paradoxically in the stock market, people are most comfortable on the top of tall buildings and most afraid when standing on the ground. Even though prices could fall a little further tomorrow and the day after, it is still far less risky to buy today’s dip than last week’s highs.


Most Likely Next Move: This is a buyable dip and if the market didn’t bottom Monday, it will happen Tuesday or Wednesday.

Trading Plan: People pray for a dip so they can get in at cheaper prices. But every time the market answers their prayers, they lose their nerve. Don’t lose your nerve.

If I’m Wrong: Prices tumble under 2,800 support and the reactive selling intensifies instead of dries up. Dipping under 2,800 is okay as long as we bounce back above not long after. But if we crash through support and finish the day at the lows, fear is taking over. But rather than fear the fall, take comfort in knowing even better bargains are coming.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

May 09

A plan to trade Trump’s trade war

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday was another rocky session for the S&P 500. China countered Trump’s trade war rhetoric with some of their own. That threw cold water on global stocks overnight and the S&P 500 tumbled at the open, crashing through minor support at 2,850. While it looked like it was going to be another ugly day, Trump lifted hopes when he said a deal was still possible, sending a wave of relief through our markets and erasing a big chunk of those initial losses.

This is a headline-driven market and nothing else matters. Trump’s self-imposed deadline is Friday and no matter what happens, expect something dramatic. If Trump strikes a deal, stocks will surge in relief. If talks break down and Trump follows through with his punitive tariffs,  markets will tumble. While that is stating the obvious, the most likely outcome is a combination of the above, a postponement and continued negotiations. That is half-full enough to keep the optimists in the stock market and half-empty enough to keep wary traders from buying the dip.

While the market’s next move hinges on what Trump and the Chinese do, those outcomes will have less impact over the medium- and long-term. Trump started his trade wars last year and has long said he is willing to tax everything imported from China at 25%. The market lived under these clouds for a long time and the risks have not prevented stocks from rallying to all-time highs. No doubt the same will happen this time too.

Even if Trump escalates the trade war for the umpteenth time, the market will react, get used to it, and then move on. Good news, bad news, it all gets priced in and then forgotten. Trump’s trade war is no different.

Up, down, or sideways, the next question is how to trade this. Personally, I don’t have any insight into whether Trump and the Chinese will strike a deal Friday or not. I don’t try to predict the headlines and I’m not going to start now. That said, how the market reacts to these headlines will give us something good to trade.

If a deal is reached: All is forgiven. The stock market is off to the races and we should stick with what has been working, which is buy-and-hold. The market will rally in relief as one more risk falls by the wayside.

If negotiations continue in a constructive way: The market will rally some as we avoid the worst case scenario. The market is buyable for anyone with a longer-term investment horizon. But as we’ve seen countless times over the last 12 months, there is lots of back and forth during these protracted negotiations. That means we should expect some dips and gyrations along the way as the inevitable snags drag us down. That means better prices might be ahead of us if someone wants to take advantage of a short-term move. As long as the market trades sideways and remains volatile, buy the dips and sell the rips.

And if talks fail: Let the market tumble. But rather than fear the collapse, get ready to buy the inevitable oversold condition. Emotional traders make poor decisions and that includes selling stocks at unreasonably low prices. Their pain becomes our gain. (You remembered to keep some cash handy to buy the dip right?)

Get a resolution and prices will quickly return to the highs. Protracted negotiations mean we could see further weakness. And a busted deal will lead to a sharp, but buyable selloff.

It is cliche, but only because it is true, “Plan your trade, and trade your plan.”

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AAPL $AMZN

May 07

When this dip stops being buyable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

It’s been a volatile few sessions for the S&P 500. It started last week when the Fed disappointed investors after telling us rate cuts were not being considered in response to slowing global growth. Then this weekend Trump shocked markets by announcing he was slapping additional tariffs on China.

So much for the easy glide higher. But we always knew the good times could not last and a bout of volatility was inevitable. We couldn’t predict the why and when, but the fact this happened shouldn’t surprise anyone.

The question everyone wants to be answered is if this is just a quick bout of indigestion. Or if this is the start of a larger pullback. For that, we need to dig deeper and look at the evidence.

Last week’s dip due to the Fed’s disappointment was fleeting and by Friday, prices had already returned to the highs. That decisive resilience told us those worries were not a serious threat to this market. But this week’s tumble following Trump’s trade war escalation is far less compelling.

Stock owners always run the risk of new and unexpected headlines. But this latest round of trade war rhetoric is not new and it is not unexpected. The trade war started more than a year ago and six months ago Trump threatened to tax everything coming out of China at 25%. But these headlines fell off the front pages during this year’s historic rebound and traders had largely forgotten about them…..until this week.

There are two reasons I don’t think this latest escalation is a big deal:

First, last year’s trade wars didn’t break the economy. Meaning a further escalation will probably also have a limited impact. These developments are most definitely not helpful, but they are not crippling either. We need to be wary of a tipping point where a little extra has an oversized effect, but assuming we avoid that, the next round of tariffs will have as limited of an impact as the previous rounds.

Second, it is widely known Trump judges his presidency by the performance of the stock market. As he shifts into reelection mode, he will be far more pragmatic and won’t take risks that damage his chances. While he might act tough, if this starts dragging down the stock market, expect him to back off pretty quickly.

No doubt lingering uncertainty will drive near-term volatility, but it will be far less dramatic than last year. Most of the people who fear trade war headlines bailed out last year and were replaced by confident dip buyers.

The next meaningful support level is 2,850 and the 50dma. That was a near-term bottom for Tuesday’s selling. Break that and far more durable support rests underneath us at 2,800. If that fails to hold, then we need to reevaluate all of our assumptions. But until then, this is just another buyable dip on our way higher. People always pray for a pullback, but when the market gods answer their prayers, they are too scared to buy the discounts.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

May 02

Should stock owners be worried?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

It’s been a dramatic two days for the S&P 500. Between Wednesday afternoon and Thursday morning, the index shed more than 50 points over a few short hours of trading. That volatility was a radical departure from the gentile glide higher trades have grown accustomed to.

Wednesday the Fed reiterated its policy of keeping interested rates steady, but it disappointed some investors when it said it was not considering rate reductions in response to slowing global and domestic growth. That disappointment triggered a two-day wave of reflexive selling that didn’t stop until we tumbled to 2,900 support.

Everyone loves a market that goes up nearly every day with dips measured in hours instead of days. These periods of calm spoil investors. But the inevitable arrival of volatility shouldn’t surprise anyone. And to be honest, Wednesday’s initial 0.75% decline and Thursday’s 0.21% followup loss barely qualify as volatility in conventional markets. This week’s moves only feel dramatic because of how calm things have been.

There are two ways to interpret this hiccup. Either it is an aberration that will vanish as quickly as it hit. Or this is the first jolt at the start of a bumpier ride.

Thursday morning started well enough with dip buyers rushing in and pushing prices above Wednesday’s lows, unfortunately, the lift was short-lived and prices quickly tumbled to new lows. The resulting selling picked up speed and didn’t stop until we exhausted supply almost exactly at 2,900 support.

The most encouraging development Thursday is prices closed well off the lows. The morning freefall bounced off near-term support and after that, traders were far more inclined to buy the weakness than continue selling it.

While this pullback is small, 2019 has been a year of small pullbacks. The thing about trends is they are far more likely to continue than reverse. (they continue countless times, but reverse only once) As long as we keep holding above 2,900 support, I will keep giving the benefit of doubt to this rally.

But if prices tumble under 2,900 Friday and finish near the day’s lows, that is a very bearish development and it means further selling is ahead of us. The most obvious next level of support is 2,850. After that, far more meaningful support is back at 2,800. While it would feel scary, either of these would be reasonable levels to test in a normal and routine pullback. Two steps forward, one step back.

What a person does in any of the above scenarios should already have been decided. Smart traders plan their exit before they even enter a trade. That’s when they decide if it will be a quick trade or a long-term investment. Whether they will sell into strength on the way up, or use a trailing stop to lock-in profits before the fall. There are many ways to trade, the important thing is to make those decisions during the clarity that comes before a position is put on. In the heat of battle, even the most experienced trader is vulnerable to making an impulsive decision if they don’t have a plan.

My personal preference is to sell early on the way up. That way I have cash on hand and am looking for a buying opportunity when everyone else is scared and worried about bigger losses. But that is what works for me. You need to decide what works for you. And no matter what you do, plan your trade and trade your plan.

I’d love to see this dip go further because that creates even more profit opportunity for swing-trade. Unfortunately, I don’t think I’ll be that lucky and this will bounce quickly like every other dip this year.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Apr 23

All-Time Highs!

By Jani Ziedins | End of Day Analysis

Free After-Hours Update

The S&P 500 surged to the highest levels in history on Tuesday. This completed the final chapter in 2018’s sharp, but brief correction and it is officially in the history books. The upside is we can start talking about something else……starting tomorrow.

As is often the case, the market is attracted to levels the crowd is fixated on. This occurs on both the low and high side. Obvious support levels get breached while obvious resistance levels are broken through. That’s why it is no surprise we got here. But the lingering question remains, what happens next?

Recent strength came from corporate earnings being less bad than feared. As often is the case, reality ends up being better than the naysayers predict. And while there is no end in sight for Trump’s trade wars, these headlines are ancient news. If they haven’t affected us yet, they are not going to start anytime soon.

Over a month ago I wrote the following after the market crashed through 2,800 support.

“Last week’s dip was the perfect setup to trigger a bigger selloff if that is what this market was inclined to do. We’ve come a long way since the December lows and a pullback is a normal and healthy thing to do following such a strong move. But rather than use the excuse to lock-in profits, most owners stood their ground and refused to sell.”

Conventional wisdom tells us complacent markets are vulnerable to collapse. What it fails to mention is how long complacency lasts before the collapse. And as we are finding out, complacency can last a long, long time.

The thing we have to remember about complacent traders is they are not afraid of anything. The obvious problem is if complacent traders don’t sell spooky headlines, where does the supply come from that fuels the big dips?

As this market is proving, that lack of supply nips every dip in the bud. This year’s biggest pullbacks barely lasted more than a few days. This bull market will die like all the others that came before it. I have no idea when that will happen, but it is acting well enough at the moment to continue giving it the benefit of doubt.

As I wrote last week, this remains a buy-and-hold market:

“This continues to be a buy-and-hold market. Those with the patience to stick with their favorite long-term investments have been rewarded as the profits came to them.  Unfortunately, the environment has been less good for swing-traders since the dips and bounces have been so fleeting. Sometimes the best trade is to not trade. And that has been the case here. Profiting from these small gyrations takes impeccable timing and is all too easy to get wrong.”

Nothing has changed since then. Stick with what has been working and that is buy-and-hold. That said, keep a little cash available for the next trading opportunity. We cannot buy a dip if we don’t have any money.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Apr 16

Why boring is good

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P 500 finished Tuesday almost exactly where it started. And not only that, this was the third close in pretty much the same spot. Regardless of what is going on around us, the market is very content at this level and reluctant to leave it.

How a person interprets this lack of movement largely depends on how they view the market. Bulls call it resting. While bears claim it is stalling. Which is it? That’s what we are going to figure out.

Last week I wrote the following:

“If this market was overbought, fragile, and vulnerable to collapse, [last] Tuesday’s headlines and dip were more than enough to kick off an avalanche of selling. The fact prices held up tells us the ground under our feet is solid and there is a lot of support at these prices. This continues to be a strong market and the path of least resistance remains higher.

That said, we burned through a lot of demand since the start of the year and it is no surprise the rate of gains is slowing. We are quickly transitioning to more sideways than up as we approach the old highs. That means we need to be patient and expect a little more back-and-forth.”

And so far this is exactly what happened. Prices resisted the temptation to tumble while at the same time struggling to find the energy to continue higher.

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This week’s lethargic price action doesn’t change anything. In fact, it confirms and reinforces what I thought previously.

It is far easier for a market to tumble than it is to go up. Given how quickly prices fall, simply holding steady is an encouraging and constructive sign. If this market was going to breakdown, it would have happened by now on any number of bearish headlines and negative price action we’ve seen over the last few days, weeks, and months. The defiant act of resisting the temptation to fall proves this market is far more resilient than the critics and cynics want you to believe.

And having survived so many attacks from trade war, rate hikes, and slowing growth headlines, that tells us most of these headlines have already been priced in. If the first, second, and third retelling of these headlines didn’t break this market, why should we fear the fourth, fifth, or sixth? The simple answer is we shouldn’t. And so far that’s proven to be the right call. The longer a headline sticks around and the more people talk about it, the less it matters. If the market doesn’t care about these things, then neither should we.

Prices have been rallying on a reality that is turning out far less bad than feared late last year. Given how dire predictions of doom and gloom were last fall, it didn’t take much to beat those expectations. And even in the face of slowing global growth, the market is still enjoying relief that things could have been so much worse.

That said, “less bad than feared” was good enough to get us back to the highs. But to keep going, we need to transition to “good” headlines. At this point, we’re not there yet and is why the rally has stagnated. We can rest easier because we are not standing on the edge of a precipice, but we shouldn’t expect an explosive move higher either.

This continues to be a buy-and-hold market. Those with the patience to stick with their favorite long-term investments have been rewarded as the profits came to them.  Unfortunately, the environment has been less good for swing-traders since the dips and bounces have been so fleeting. Sometimes the best trade is to not trade. And that has been the case here. Profiting from these small gyrations takes impeccable timing and is all too easy to get wrong.

Continue sitting on your favorite long-term investments. But keep a little cash handy for when the next opportunity pops up. We cannot take advantage of the next dip if all our money is tied up in stocks. Even though things are pretty boring right now, without a doubt, they will get a lot more exciting when we least expect it. Be ready.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Apr 11

As expected, a whole lot of nothing

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday was a boring session for the S&P 500 as it did a lot of nothing and finished exactly flat. But boring is good. Bear markets are filled with emotion and volatility. They move so fast people don’t have time to think or make rational trading decisions. Contrast that with this market where we barely moved 10 points in a week.

The most dramatic move occurred Tuesday after Trump revived trade war fears when he threatened Europe with new tariffs. But that 0.6% loss failed to build momentum and the next two days finished green.

But this isn’t a surprise. I wrote the following Tuesday evening:

“Despite [Tuesday’s] weakness, I still like this market. It has been challenged by countless bearish headlines and weak price-action. Yet, every time these dips fail to build momentum. We fear what we don’t know, not what everyone has been talking about for months. If these headlines were going to break this market, it would have happened a long time ago. If the market doesn’t care, then neither should we.”

Two days later and Tuesday’s bearish headlines and market dip are long forgotten.

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If this market was overbought, fragile, and vulnerable to collapse, Tuesday’s headlines and dip were more than enough to kick off an avalanche of selling. The fact prices held up tells us the ground under our feet is solid and there is a lot of support at these prices. This continues to be a strong market and the path of least resistance remains higher.

That said, we burned through a lot of demand since the start of the year and it is no surprise the rate of gains is slowing. We are quickly transitioning to more sideways than up as we approach the old highs. That means we need to be patient and expect a little more back-and-forth.

Down days like Tuesday are a normal and healthy part of every move higher. Resist the urge to assume every day’s gyration means something. Most of the time the market’s moves are meaningless noise. Yet that doesn’t stop people from predicting every up-day is the start of the next surge higher and any dip lower is the beginning of the next collapse.

As I said, if this market was going to collapse, it would have happened by now. But at the same time, the rate of gains definitely slowing. Combine these two ideas and we have a market that is doing a lot of nothing. It is okay to keep holding our favorite buy-and-hold investments, but for a trade, there isn’t much to do.

We want to trade when the odds and risk/reward are stacked in our favor. We want to trade when the market is handing out money. But a lot of the time, the smartest trade is to not trade. Holding risk of the unexpected for a 10-point profit over a week is simply not worth it. We only want to own stocks when we are getting paid and right now the market is being stingy. Better trading opportunities are coming, we just have to be patient. Until then, don’t let these meaningless gyrations fool you into making poorly timed trades.

Note: The above only applies to short-term trades. This market is acting well and there is nothing to do with our favorite buy-and-hold investments expect sit on them and patiently wait for the profits come to us.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Apr 09

We knew the dip coming, but what’s next?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P 500 stumbled Tuesday, breaking an eight-session win streak. Investors were unnerved after Trump announced a fresh round of EU tariffs, reigniting trade war fears. And right on cue, the EU said it was ready to implement retaliatory tariffs against the US.

So much for the trade situation getting better. But even though trade war headlines flared up again, the index shedding 0.6% is a fairly benign response. It certainly doesn’t measure up to the fear that gripped equity markets last year.

Today’s muted reaction is not a surprise for those of us that have been paying attention. We know most owners who fear Trump’s trade wars bailed out a long time ago. And not only did these fearful sellers already abandon the market, they sold to confident dip buyers who demonstrated a clear willingness to jump in front of these headlines.

If these confident dip buyers weren’t scared then, there is no reason to think they will get scared now. No matter what the cliches say about confidence, confident owners don’t sell, and when they refuse to sell, supply remains tight.

While tight supply is preventing any of this year’s modest dips from growing into something bigger, supply is only half the equation. The problem we is as prices approach last year’s highs, a huge chunk of demand has already been satiated during this amazing run. While most of this year’s rebound was fueled by “less bad than feared”, as we approach the old highs, “less bad” is no longer good enough and we need headlines to shift to “good” to continue marching higher.

I said as much last week when I predicted more back and forth was ahead of us:

“while the path of least resistance remains higher, the rate of gains is clearly slowing. The easy money has already been made. Now things get a lot more choppy. And choppy means challenging. Breakouts fizzle and breakdowns bounce.

Chasing these daily gyrations will most likely end in losses as people buy the strength and sell the ensuing weakness. Repeat that a few too many times and the losses will start to add up. This market needs to be traded proactively, not reactively. Don’t fall for its tricks.”

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Even though most of us understand the markets move sideways more often than they go up or down, almost everyone comes to the markets with a preexisting bias. Either people are bullish or bearish about current levels and they believe any move in their direction is the real deal. If they are bulls, they buy the breakout. If they are bearish, they short the breakdown. But not long after they react to the market’s move, it fizzles and reverses. Once prices start moving against these reactive traders, they lose their nerve and pull the plug. Buy high, sell low is a horrible way to trade. Unfortunately, most people fall for the market’s tricks and end up losing money.

Despite Tuesday’s weakness, I still like this market. This it has been challenged by countless bearish headlines and weak price-action. Yet, every time these dips fail to build momentum. We fear what we don’t know, not what everyone has been talking about for months. If these headlines were going to break this market, it would have happened a long time ago. If the market doesn’t care, then neither should we. The

This market is transitioning to more sideways than up. That means we need to be more careful with our purchases and stop-losses. In fact, for most people, they would be better off not trading this chop. Either buy-and-hold your favorite positions and wait for the slow grind higher to continue, or stay out and wait for the risk/reward to skew more in our favor.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Apr 02

Don’t fall for the market’s tricks

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

Little more than a week ago, the S&P 500 tumbled in the second largest down day of the year. By most accounts, that was an incredibly ominous sign and put many traders on the defensive. Yet only a handful of days later, the index finds itself at the highest levels in six months and within 3% of all-time highs.

While this swift rebound caught a lot of traders off guard, you would have seen this coming if you knew what to look for. Two day’s after that tumble, when the market was still flirting with the lows and threatening to violate 2,800 support, I wrote the following:

“Selling dried up and prices bounced. While we are not in the clear yet, every hour that passes without tumbling lower decreases the probability we will tumble lower. While we only recovered a sliver of last week’s losses, the fact the selloff stopped in its tracks is a big win. Market crashes are breathtakingly quick and the longer we hold these levels, the less likely a continuation lower becomes. I like the way the market is acting and the path of least resistance remains higher.”

I wrote that last Tuesday and today the market closed 50-points higher.

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While it was nice to see this rebound coming ahead of time, it is already in the rearview mirror and what readers really want to know is what comes next. Fortunately, the market has been telling us what it wants to do for a while.

Between the 1.9% plunge two weeks ago and last week’s repeated violations of 2,800 support, the market had more than enough excuses to tumble lower. The bearish headlines of slowing global growth and the weak price action would have crushed us if this market was fragile and vulnerable, yet here we stand. Rather than run scared, most owners shrugged and kept holding. The resulting tight supply ended the selloff made it easy for prices to bounce.

Last year’s epic collapse chased off a lot of scared owners. They chose to sell their stocks at steep discounts “before things got worse”. But at the same time they were rushing out of the market, confident dip buyers were rushing in. Those confident dip buyers are the same ones holding today. If they were not afraid of these headlines then, why would they be bothered by them now? They wouldn’t, and is why every attempted dip this year on recycled headlines failed to make a dent.

That said, while the path of least resistance remains higher, the rate of gains is clearly slowing. The easy money has already been made. Now things get a lot more choppy. And choppy means challenging. Breakouts fizzle and breakdowns bounce. React to these moves and you will end up buying high and selling low.

Choppy, sideways markets are best either held or avoided. This is a good time for longer-term buy-and-hold. Or simply sitting out and waiting for a better risk/reward skew. Chasing these daily gyrations will most likely end in losses as people buy the strength and sell the ensuing weakness. Repeat that a few too many times and the losses will start to add up. This market needs to be traded proactively, not reactively. Don’t fall for its tricks.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AAPL $AMZN

Mar 26

Why Friday’s collapse is failing to deliver the goods

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

Last Friday’s 2% tumble in the S&P 500 was the second largest down day of the year and the biggest threat yet to 2019’s stunning rebound. The only constructive thing we could say about Friday’s devastation is the collapse stopped right at 2,800 support. But as worrisome as Friday felt, two days later we are still hanging on to this critical support level.

Weak economic data kicked off Friday’s selling in Europe and the carnage continued when US markets opened. But the thing about these headlines is they didn’t reveal anything investors didn’t already know. Last year’s huge correction was fueled by the fear of slowing global growth and by now everyone knows this is a problem.

The thing to remember about news is the more people that know about it, the less important it is. We saw a truckload of selling last year in October, November, and December. Nervous owners abandoned the market like rats jumping off a sinking ship. But the thing about all that selling is those fearful owners were replaced by confident dip buyers. While one person jumped out, another person jumped in. These dip buyers demonstrated a willingness to buy stocks in that negative headline environment. If they didn’t mind the headlines then, what are the chances are they will mind them now?

And that is why every negative headline and modest dip this year has been met with indifference. Confident owners are not afraid. When they don’t care about recycled headlines, the market doesn’t care. When the market doesn’t care, then neither should we.

While Friday was noteworthy, the real test of support came Monday when we dipped under 2,800. But rather than trigger an avalanche of defensive selling, supply dried up and we finished Monday flat. While it is hard to get excited over flat, given how ugly Friday was, flat is pretty darn impressive.

Market collapses are brutally quick. They move faster than people think because the panicked crowd sells first and asks questions later. But rather than hit the sell button Monday, most traders stood around and waited to see what everyone else was doing. By nature, investors are an optimistic bunch. They prefer holding stocks for higher prices and are always reluctant to let them go prematurely. That is why it is no surprise when you give investors a little breathing room, the anxious selling pressure evaporates.

While it is easy to identify these things after they happened. It isn’t that hard to do beforehand if you know what to look for. This is the analysis I shared with Premium Subscribers last Friday just after lunchtime:

“Today’s weak price movement doesn’t set off any alarm bells yet. We’ve heard this story many times before and this is most likely just another retelling. 2,800 is our line in the sand. Dipping under it is okay, but only if supply dries up and prices bounce back not long after. I will be a lot more concerned if we slip under 2,800 and the selling accelerates.”

Three days later and that is exactly what happened. Selling dried up and prices bounced. While we are not in the clear yet, every hour that passes without tumbling lower decreases the probability we will tumble lower. While we only recovered a sliver of last week’s losses, the fact the selloff stopped in its tracks is a big win. Market crashes are breathtakingly quick and the longer we hold these levels, the less likely a continuation lower becomes.

I like the way the market is acting and the path of least resistance remains higher. That said, the rate of gains is slowing and that means we should expect more of back and forth. While I’d love to see the market surge higher every day, down days are a very normal and healthy part of every move higher. Resist the temptation to join the herd overreacting to every bump in the road.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM