Category Archives for "End of Day Analysis"

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

Mar 14

Why this time the breakout is real

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P 500 slipped a trivial amount Thursday, but more crucially, it held above the psychologically significant 2,800 level. This marks only the 3rd close above this milestone since early November and shows the market continues recovering from December’s brutal tumble.

A lot can change in seven days. A week ago prices fell eight out of the previous nine sessions and it slipped under the 200dma for the first time since mid-February. Traders were getting nervous as it looked like things were getting worse. But last Thursday night in my free blog post, I wrote the following:

“My preferred way of approaching these situations is selling and taking profits early. While other people are sitting through this weakness wondering if they should sell or keep holding, I’m looking at the market with a clear head and waiting for a great dip buying opportunity. When they’re getting scared out, I’m jumping in. If most people lose money in the market, shouldn’t we be doing the opposite of most people?”

And that opportunistic approach paid dividends Friday. The S&P 500 traded sharply lower Friday morning, but that was as bad as it got. In my Premium Analysis sent to subscribers Friday morning, I told them:

“Today’s close will be insightful. A strong recovery tells us owners remain confident and are still holding for higher prices. As long as they keep supply tight, prices will find a bottom quickly. But weak close means many of these owners are developing second-thoughts and their selling will add to the supply. One is bullish, the other is bearish.”

As it turned out, Bulls won the battle and prices closed well above the early lows. That bullish reversal was the start of this week’s strong rebound. That was the signal for dip buyers to jump in and for shorts to lock-in profits and get out of the way.

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But that was then and this is now. What you really want to know is what comes next.

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.

What the market is not doing is almost always more insightful than what it is doing. Last week the market refused to accelerate lower. Confident owners didn’t fall for the second-guessing and no matter what is going on around us, when most owners refuse to sell, prices find a bottom and bounce.

Move forward several days and while Wednesday’s lethargic break above 2,800 resistance was uninspiring, the important thing is we held this key level through the close…and then again Thursday. Prices tumble from unsustainable levels quickly and two closes above a significant milestone is a notable accomplishment.

Refusing to breakdown last week and holding above support this week are two significant accomplishments and definitely give the upper hand to bulls.

What this means going forward is that if bears want to break this market, it will take something even more significant than what we saw last week. Headlines have been far from great. European and Asian economies continue to slow. Trump’s negotiations with the Chinese are bogging down. Even the robust U.S. economy is slipping as last month’s employment missed the mark by a mile and other economic data was disappointing.

All of these headlines were perfect excuses for the market to keep tumbling lower. Yet here we stand, within a few points of six-month highs. If the market doesn’t care about these things, then neither should we.

This week’s muted reaction to reclaiming 2,800 shows this market lacks explosive upside, but the path of least resistance remains higher. The going will be slow, but expect higher prices over the near- and medium-term. While we always run the risk of being blindsided by the unexpected, it will need to be far larger than anything thrown at us thus far if it is going to derail this rebound.

That said, slow means lots of back and forth. Some days will be up, some days will be down, but the up will be a little bigger than the down. The only thing we need to fear is a shockingly bad headline that sends prices tumbling under 2,800 and the losses accelerate after that. A routine dip under 2,800 that bounces hours later is nothing to worry about. In fact, bouncing quickly would be yet another bullish sign that this market doesn’t want to sell off.

A market that refuses to go down will eventually go up.

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

Mar 07

Why we should have seen this coming

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

Thursday was another tough session for the S&P 500 as it lost ground for the fourth day in a row and seven out of the last eight. While the initial down-days were trivial and more sideways than down, the last few have started to add up and we now find ourselves at the lowest levels in nearly a month. This leaves us 70-points under Monday’s opening highs and is quickly on its way to being the biggest pullback of the year.

But none of this comes as a surprise to those of us that have been paying attention. Two weeks ago I wrote the following after the market finished higher nine out of the previous ten days:

“While almost everyone loves calm climbs higher, rather than be lulled into complacency, we should be getting nervous about what happens next. The market finishes higher 53% of trading days, meaning it falls the other 47%. If a person believes in reversion to the mean, and they should, expect this string of up-days to be offset at some point by a string of down-days.”

Barely two weeks later and we’ve strung seven out of eight losing days together. Who would have thought???

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But now that we’ve given up a big chunk of February’s gains, the question is what comes next.  Even though this is quickly becoming the biggest dip of the year, it still has a long ways to go before it qualifies as a legitimate pullback and even further if it wants to match the intensity of this year’s strong start.

The market loves symmetry and that means big moves in one direction (last fall’s collapse) are matched with equally large moves in the opposite direction (this year’s epic rebound). If these oversized gyrations continue, there could be a lot more downside over the next few weeks.

We are currently challenging, and finding support, at the 200dma. If that fails, then 2,700 is the next meaningful level. After that, maybe 2,650…..but more likely 2,600. If we fall that far, most likely we will tumble under 2,600 support before finding our footing. I’m not predicting that we fall that far, just pointing out that it is a very real possibility.

The goal isn’t to predict the future down to the day and dollar, but to understand the odds and be prepared for what is coming our way. It is a lot easier to sit through a dip and react rationally when we know what is coming. This allows us to craft our trading strategy with a clear head and not overreact and make poor decisions like everyone else in the crowd.

My preferred way of approaching these situations is selling and taking profits early. While other people are sitting through this weakness wondering if they should sell or keep holding, I’m looking at the market with a clear head and waiting for a great dip buying opportunity. When they’re getting scared out, I’m jumping in. If most people lose money in the market, shouldn’t we be doing the opposite of most people?

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Mar 05

Is the market’s mood changing?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Volatility is making a comeback. Monday’s wild swing produced the S&P 500’s biggest loss in nearly a month and the intraday price range was one of the widest of the year. Tuesday’s dip also marked the fifth loss out of the last six trading sessions.

Just going off of that description, you’d expect stocks to be down a lot. Fortunately, they only slipped half a percent from last week’s closing high. That said, this back and forth is definitely getting people’s attention. But none of this should come as a surprise. Last week I wrote:

“Widely watched resistance levels often turn into self-fulfilling prophecies. Prices rally up to resistance. Technical traders see this signal as a good place to take profits. Their profit-taking pressures prices, leading to a small pullback. Other traders see the weakness develop, so they start selling too, adding even more pressure. Prices keep slipping until either we run out of sellers, or they are attractive enough that dip buyers jump in and take advantage of the discounts.

Given how far the market’s come since the Christmas lows, it wouldn’t be a surprise to see the market take a break and catch its breath. In fact, that would be the normal and healthy thing to do. I would be far more concerned about the sustainability of this rebound if we keep racing ahead without resting.”

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Prices only slipped a fraction so far and it is encouraging to see supply dry up and dip buyers jump in so quickly. But this string of losses is definitely a new thing for a market that has done nothing but go up all year.

Everyone knows prices cannot rally at this rate forever. But they lose track of this fact in the moment. People love trends and they cannot help but imagine they continue as far as the eye can see. But just like every dip eventually bounces, every rally eventually stalls.

One of the bigger flags for me was Monday’s fizzled breakout following encouraging news coming out of US/Chinese trade negotiations. If you believe the headlines, the sides are quickly approaching a deal. Weeks ago, this news would have sent stocks flying 2% or 3%. Unfortunately, Monday morning they only managed to eke out a 0.4% opening gain before fizzling and shedding nearly 50-points. We were lucky a late-day rebound recovered a big chunk of those intraday losses, but that midday swoon demonstrates just how much selling potential is hiding in this market.

The biggest question is if Monday was nothing more than a momentary bout of indigestion. Or if it really is the first signs of a mood change. I certainly wish we could go up like this forever because that would make trading a million times easier, but we know that’s not the case. This rally will pause and even pullback, the only question is when.

While we can continue drifting higher over the near-term, the rebound from the Christmas lows consumed a ton of demand. The problem is that no matter how much better the news gets, eventually we stop going up because everyone who wanted to buy has already bought. This happens so frequently in the market it actually has its own cliche “buy the rumor, sell the news”.

The market is still acting well and the drift higher can continue over the near-term, but a lot of buying has already happened and there is a lot of air underneath us. Limited upside and lots of downside creates an almost tragic risk/reward. Long-term investors should ignore these near-term gyrations, but for a short-term trade, buying up here definitely borders on foolish.

The way I view this market from my years of experience, it is too late to buy, but too early to short. Prices are holding up well and it will take more than just weak price-action to convince confident owners to abandon their stocks. Most likely, the fatal blow with come from the trade deal. Failing to reach a deal will obviously send stocks tumbling. But even a deal could ultimately turn into a letdown if it isn’t as good as the market is hoping for. We very well could be on the verge of a “buy the rumor, sell the news” kind of trade.

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Feb 28

What it will take to finally break this market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 slipped Thursday morning, but those early losses were modest and failed to ignite wider selling.

The biggest headline was Trump walking out of negotiations with North Korea. This development has limited implications for the US economy and is why it didn’t affect the stock market. But could this foreshadow a potential outcome during Trump’s far more critical meeting with the Chinese president? Could all the hype and hope surrounding the imminent trade deal turn into a similar bust? Given the market’s resilience today, it doesn’t seem worried, but sometimes it takes more than a subtle hint to get the market’s attention.

Prices continue to hover underneath 2,800 resistance. Even though Monday’s breakout fizzled, only pulling back a small amount is actually a bullish signal. If prices were overbought and vulnerable to a larger pullback, it would have happened quickly. Instead, prices continue hovering near the highs as confident owners refuse to take profits because they are waiting for even higher prices. That tells us this market wants to go even higher.

But all of this is dependent on a stable headline environment. Owners’ bullishness by itself has been enough to hold us near the highs and the market is resisting the more traditional ebb and flow of prices. But given how far we’ve come and how many weak holders are still hanging on because they haven’t been shaken out during a routine pullback, one piece of damning news has the potential to unleash a torrent of selling. At the moment, the most likely culprit would be hitting a major snag in negotiations with the Chinese.

Things look great and a market that refuses to go down will eventually go up. But we are on thin ice and if any selling starts in earnest, there is a lot of air underneath us.

High probability of modest gains and small chance of big losses. How a person trades this is up to their trading style, risk tolerance, and time frame. Nimble day traders can keep squeezing nickels and dimes out of the upside. Anyone holding for years or decades should ignore these daily gyrations. But those of us that trade over days and weeks need to be more careful.

The path of least resistance remains higher, but the rate of gains is slowing and the upside is more limited. But as long as owners refuse to take profits, expect the market to keep drifting higher.

That said, given how far we’ve come, there is a good chance the next pullback will be larger than normal and is something we need to keep an eye on. The market loves symmetry and last year’s epic collapse resulted in this year’s historic rebound. But when this rally finally runs out of steam, expect the ensuing step back to rattle a lot of nerves. Everything looks great for the time being, but that will change in an instant. While a return of volatility will scare retail investors, I’m looking forward to the trading opportunities it will create.

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Feb 26

Are We Pausing or Stalling at Resistance?

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

The S&P 500 broke through the 2,800 milestone Monday after Trump officially postponed the March 1st Chinese tariff escalation. That put traders into a buying mood. Unfortunately, the enthusiasm was short-lived and we quickly slipped back under this widely followed level. We flirted with 2,800 resistance again Tuesday, but ultimately we were unable to close above it.

The market hit its head on 2,800 resistance last October, November, and December, each occurrence resulting in a significant tumble. Over the last two days, it has proven to be a stumbling block again. Will this time end differently than the last three? That is the question everyone is wondering.

Widely watched resistance levels often turn into self-fulfilling prophecies. Prices rally up to resistance. Technical traders see this signal as a good place to take profits. Their profit-taking pressures prices, leading to a small pullback. Other traders see the weakness develop, so they start selling too, adding even more pressure. Prices keep slipping until either we run out of sellers, or they are attractive enough that dip buyers jump in and take advantage of the discounts.

Given how far the market’s come since the Christmas lows, it wouldn’t be a surprise to see the market take a break and catch its breath. In fact, that would be the normal and healthy thing to do. I would be far more concerned about the sustainability of this rebound if we keep racing ahead without resting.

The daily back and forth is what keeps the market fresh. These gyrations squeeze out the weak and replace them with the confident. But we have had very little pausing and refreshing since this rebound began back in December. Unfortunately, that means a lot of weak hands are still holding on. Rather than flush them out in small, periodic pullbacks, the supply of weak hands is building up to the point where the next pullback could trigger a mass exodus and do a lot of damage.

In many ways, the market is like a forest. Small fires clear out the debris and keep it healthy. Wait too long between fires and too much fuel accumulates, meaning the next fire has the potential to be devastating. At the moment, everything is great and everyone is enjoying themselves. But all it takes is one spark to send everything up in smoke.

The challenge is knowing what that spark will be and when it will come. Until then, everything will be great. Prices will keep drifting higher until they don’t. Knowing what the market will do is the easy part because it keeps doing the same thing over and over again. The hard part is getting the timing right. That is where all the money is made. While we don’t know the timing of the next dip, that doesn’t mean we cannot prepare for it.

For our long-term positions, there is nothing to see or do here. If we are not selling for years, what happens over the next few weeks is meaningless and we can (and should) completely ignore these near-term gyrations. But for a short-term swing trade, we need to be careful up here. Given how far prices have come, the rewards left ahead of us are a lot smaller than the risk underneath us. The time to buy the discounts was weeks ago, not now that prices are far higher. If a trader is doing anything, they should be taking profits, not adding new money. We only make money when we sell our winners and that almost always involves selling too early. People who get greedy and hold too long often end up giving back all of their profits and then some.

To be clear, I’m definitely not bearish and am not predicting a collapse. I’ve just been doing this long enough to know that I should be cautious when everyone else is feeling good. I’m not calling a top, just warning people to be careful. A routine pullback to 2,600 is most definitely not a collapse, but it will feel like it if a person wasn’t prepared for it. The best way to avoid making poor trading decisions is to not be surprised by the normal and routine.

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Feb 21

The smarter alternative to chasing prices higher

By Jani Ziedins | End of Day Analysis

Free After-Hours Update:

On Thursday, the S&P 500 posted its biggest loss in two weeks. Of course, biggest is a relative term since we only gave up 0.35%. And the competition wasn’t all that fierce since there was only one other down day in that span.  But that is an indication of just how comfortable this climb higher has been.

Last fall’s plunge scared a lot of emotional investors out of the market, but now that fear is a distant memory. Long gone are predictions of global economic collapse. It been replaced by fear of being left behind. Last year’s fearful sellers turned into this year’s desperate buyers jumping on every dip in price, no matter how small. This desperate buying is why every bout of opening weakness has been gobbled up and we finished all these days higher.

But the thing to remember about emotional sellers is there are only so many of them. We saw that in late December when we ran out of sellers the day before Christmas. The market bottomed and prices rebounded, not because everything got better, but because we ran out of people willing to sell the fear.

And here we are nearly two months later. But instead of running out of sellers, we need to be worried about running out of buyers. Once all of last year’s fearful sellers finish buying back in, who is going to be the next buyer to keep chase prices higher?

While almost everyone loves calm climbs higher, rather than be lulled into complacency, we should be getting nervous about what happens next. The market finishes higher 53% of trading days, meaning it falls the other 47%. If a person believes in reversion to the mean, and they should, expect this string of up-days to be offset at some point by a string of down-days.

That said, claim the market is going to fall long enough and eventually you will be right. But in the market, we only make money when we get the timing right. Not only do we need to know what the market will do, we need to know when it will do it. And without a doubt, timing is the hardest part to get right.

But we don’t need to know exactly when something will happen to make money in the market. Trading successfully is about playing the odds and managing risk, not predicting the future.

Momentum is definitely higher and a trend is more likely to continue than reverse. But there always comes a point where it is no longer worth it. When the remaining reward shrinks and the risks grow.

Prices are quickly approaching major resistance above 2,800 and we haven’t had a meaningful pullback during this nearly 20% rally. How many points of profit are still above us? 30? 50? How many points of risk are between us and support? 180? Risking hundreds of points to make dozens hardly seems like a prudent trade.

The most nimble day traders can squeeze the last few dimes out of this rally, but the rest of us should definitely be growing defensive. Anyone still buying up here clearly doesn’t understand how markets work.

Don’t get me wrong, I’m definitely not bearish. But I don’t see any reason to be chasing prices higher after such a big run. While I don’t know exactly when the next pullback will happen, I do know it will fall through current levels. If we are returning to these prices at some point over the next few weeks, should we really feel pressured to buy today or risk getting left behind?

The biggest risk these late-buyers have is getting cold feet when prices inevitably dip under their buy point. Do they get scared again and bailout “before things get worse”? Sell last December’s plunge. Buy this February’s surge? Sell April’s dip? No wonder most people lose money in the market. If we want to make money, we should do the opposite. Buy when other people are fearful and sell when they are greedy.

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Feb 13

The difference between being right and being smart

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 popped Wednesday morning after word spread Trump was willing to sign Congress’s budget compromise. Avoiding another government shutdown eliminated a major risk in front of us and put traders into a buying mood. Unfortunately, that excitement didn’t carry into the close and prices finished near the intraday lows.

A 0.3% gain is still a 0.3% gain and it allowed us to reclaim the 50dma for the first time in more than two months. But if we wanted to be critical and look at the half-empty side, closing near the intraday lows on a good news day is most definitely noteworthy. One day doesn’t make a trend, but it is something to keep an eye on going forward. Almost every day since the Christmas bottom finished near the intraday highs and this late-day buying frenzy propelled us to these highs. But if that buying is waning, it could be an early indication the rebound is shifting into the next phase of the cycle.

The other reason to be cautious is things didn’t end well the previous three times the market retook the 50dma. While there is no comparison between now and where sentiment was last fall, widely followed technical levels have a tendency to turn into self-fulfilling prophecies. Technical traders expect prices to stall at overhead resistance, so they start taking profits proactively, launching the wave of selling that eventually leads to the dip in prices.

I’ve been warning traders to tread likely after the market rebounded nearly 20% from the December lows. And some people criticize me because prices have continued creeping higher. But I’m okay with that. People also criticized me for saying in December people should be buying those discounts, not selling them. By now hopefully everyone appreciates how that one turned out.

After doing this for so many years, I’ve long since gotten used to going against the crowd and actually find reassurance in the criticism because it means I’m on the right track. Nothing makes me more nervous than when everyone agrees with me.

And just because the market has been creeping higher the last few days and weeks doesn’t mean buying up here was the smart thing to do. Allow me to use a blackjack analogy. If a person hits on 18 and he gets a 3 card. That was a great call and he won the hand. But was that really the smart thing to do? While it worked great this time, how often will hitting on 18 backfire? Traders who last a long time in this business understand the monumental difference between being right on a an individual trade and trading smart. Unless you learn to trade to smart, you won’t last very long.

The market continues to act well and momentum is definitely higher, but anyone buying up here is being just as foolish as the guy hitting on 18. Unfortunately, that is the way most people trade. Those that were selling last December’s dip are now chasing 2019’s rebound. Sell low and buy high rarely works out.

Those with long-term investments should stick with their favorite positions. But those with trading profits should be shifting to a defensive mindset and thinking about taking profits if they haven’t already. This rebound priced in a lot of good news. That means there is far less upside left ahead of us and a lot of air underneath us if things don’t go according to plan.

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Feb 07

It was inevitable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 stumbled Thursday in one of the few misses since the Christmas rebound kicked off. Over the last few days, the index struggled to break through 200dma resistance and has slipped back to the psychologically significant 2,700 level.

While today’s tumble felt abrupt given how calm and steady the climb has been from December’s lows, a down day shouldn’t surprise anyone. As I wrote late last week:

“Everyone knows markets don’t move in straight lines and anyone who expects the market to keep racing higher clearly doesn’t understand how market work. While anything could happen, more often than not, hot markets cool off and pullbacks from overbought levels are a normal and healthy way of consolidating gains.”

We knew this was going to happen, we just didn’t know the when or the why.

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Thursday’s weakness started before the open when European economic data failed to meet expectations. That brought last year’s global growth fears back to the front. The only question is if this is just a single bout of indigestion, or if this will trigger another wave of second-guessing and defensive selling.

The nice thing about today’s dip is we found a bottom before lunchtime and closed well off the early lows. That is the opposite of last year’s dreadful price-action when early weakness triggered runaway selloffs. At least for the time being, investors appear more inclined to buy the dips than pile on the selling. But it takes more than one day to consolidate nearly 400-points of gains, so we have a long way to go before we can waive the all-clear flag.

I want to make one thing clear, I am most definitely not bearish and think the setup over the medium- and long-term looks good. But I am far less optimistic over the near-term. Markets move in waves and the Christmas rebound priced in a lot of good news. Hope that things will be less bad than feared. Unfortunately, the problem with hope is it leaves the door open to disappointment.

The crowd is always filled with emotions that swing between extremes. Last month’s collapse was built on fear of an economic collapse. This rebound started with hope that things were not as bad as feared and quickly morphed into fear of being left behind. And no doubt recent gains leave us vulnerable to another near-term reversal. Two steps forward, one step back. That’s the way the market always worked and there is no reason to expect something different to happen here.

I’m not predicting a crash or anything dramatic like that. Just a cooling off. Maybe that means some sideways trade. Maybe that means a dip back to support. Either way, it is very predictable and shouldn’t catch anyone off guard. But it will. Because it always does.

Everyone knows markets move in waves, but they always forget that fact in the moment. Every dip is seen as the start of something bigger. By rule, it has to. If it didn’t scare people out, then no one would sell and we wouldn’t dip. Even if this is the start of a very normal and routine pullback to support, expect to hear all kinds of people shouting doom-and-gloom and how we better get out now before it is too late.

Smart money buys discounts and sells premiums. It is definitely premature to call a one day dip a discount and we should be prepared for more. But as long as we know it’s coming, then it is a lot easier to maintain our composure and resist the urge to join the hysterical crowd. The market is acting well and there is nothing to do with our favorite long-term investments. But for our short-term swing-trades. This is a good time to get defensive and start taking profits if you haven’t already.

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Jan 31

Should we buying up here?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 closed January with a bang, finishing at the highest levels in nearly two months. These gains erased almost all of December’s losses. It’s been a wild ride, but one that wasn’t all that hard to predict.

Back in mid-December, I wrote the following about the market swoon and where prices were headed:

While I like these discounts, the looming Christmas and New Years holidays complicate the situation. What would normally be an attractive buying opportunity might struggle to get off the ground since big money is leaving for vacation. That puts impulsive retail investors in charge and that is rarely a good thing. Luckily, these little guys have small accounts and their emotional buying and selling doesn’t go very far. We saw the emotional selling from Thanksgiving week erased the following week when big money returned to work. And the same could happen here.

And that is exactly what happened. Big money left for vacation and fearful retail investors foolishly abandoned their stocks at steep discounts leading up to the Christmas holiday. But just when things seemed their most dire, retail investors ran out of things to sell and we’ve been bouncing higher ever since.

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But everyone knows it’s been a crazy ride. What readers really want to know is what comes next. And like almost everything in the market, the answer “depends”.

Timing is everything in the market. The only thing that determines whether we make money is when we buy and when we sell. This dependency means timeframe matters more than anything else.

The biggest paradox of the market is both bulls and bears can make money at the same time. A bull buys today while a bear shorts, and they both make money if they time their sales right. A bear with a short-term horizon can make money when prices dip next week, while the bull with a longer-term horizon rides the rebound higher over the next few months. They had opposite outlooks, but they both made money.

We currently find ourselves in that position. The market is acting really well and last month’s fears are quickly fading from memory. Anyone with a long-term investing horizon should have been buying this entire dip. The lower prices go, the better it is for them because they get more stocks for their money. What was true last month, is still true today. Unfortunately, too many investors foolishly listened to their gut and were selling the dip, not buying it.

But things get a little more complicated if we shorten our horizon and try to figure out what will happen next week. Everyone knows markets don’t move in straight lines and anyone who expects the market to keep racing higher clearly doesn’t understand how market work. While anything could happen, more often than not, hot markets cool off and pullbacks from overbought levels are a normal and healthy way of consolidating gains.

While momentum is still higher and we could keep drifting that way, there is a lot of air underneath us and each point higher takes away another point of upside. Increasing risks and decreasing rewards makes this is a better place to be taking short-term profits than adding new short-term money.

And while it sounds great that both bulls and bears can make money at the same time, there is no free lunch in the market and unfortunately, more often than not, both bulls and bears end up losing money because they trade impulsively and react to the market’s head fakes. If a person wants to give away money, follow the crowd by dumping stocks after they go down and buying them after they go up. And most people repeat that until they have nothing left. If you want to make money, don’t follow the crowd.

And just to be clearly, I’m most definitely not bearish here. I just think this rally will cool off and consolidate over the next few weeks and that will give us better prices to get in at.

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Jan 29

How to interpret and trade the market’s mixed signals

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Tuesday, the S&P 500 slipped fractionally, but more importantly, it continues holding this month’s 2,600 breakout.

Over the weekend, Trump and Congress agreed to a temporary budget that allowed government workers to return to work and collect back pay. That was a critical development for Federal workers who missed two paychecks, but the political situation is far from resolved and the market actually declined Monday.

As I wrote last week, the 10% rally from the December lows priced in a lot of optimism the problems triggering last month’s swoon would be resolved. Unfortunately, that also meant any compromise was already largely priced in and stocks actually fell Monday because our politicians only offered a temporary solution.

The other significant development is the U.S. government’s criminal probe into Huawei, one of China’s most important companies. No doubt this escalates trade war tensions between these two economic superpowers.

Both of these events could be interpreted as bearish, and that’s the way the market took it, with declines on Monday and Tuesday, but the silver lining is the losses were relatively restrained. Taken together, the last two days of selling didn’t even trim 1% of value and we are still above the psychologically significant 2,600 level. Based on how volatile the previous three months has been, this week’s dip was barely a tremor.

I like how well the market is holding 2,600 support. Prices tumble from overbought and unsustainable levels quickly. This is our third week above this level and shows real demand for stocks at these prices. If equities were fragile and vulnerable to a tumble, there have been more than enough triggers to send us crashing back to the lows. Instead, the market shrugs the negativity off and continues holding recent gains. This is a dramatic improvement from late last year where even the smallest hint of a problem hiccup would send traders scrambling for the exits.

While the market’s mood has done a 180, its not that investors changed their mind, but that we changed investors. Fearful owners sold their stocks at a steep discount to confident dip buyers willing to hold these risks. After enough turnover takes place, we run out of fearful sellers and confident dip buyers disregard flare-ups of recycled headlines. That’s how we go from 250-point free falls to 300-point rebounds.

The problem with 300-point rebounds is those rate of gains is clearly not sustainable for any length of time. And this two-week consolidation above 2,600 support is proof of that. The market needs a breather and there are two ways this plays out; the dramatic stepback, or a mind numbing sideways grind. One scares weak traders out, the other bores them out.

To this point the market has resisted invitations to pullback. Big money seems more interested in buying these discounts than selling the fear and that is keeping a floor under prices. But at the same time, big money hates chasing prices higher and we can see their reluctance show up in the stalled rebound. In many ways, their reluctance to buy after a big move higher is a self fulfilling prophecy that creates the very dip they are worried about. But given how well the market is trading, most likely any near-term dip will be a buying opportunity.

While there is no reason to abandon our favorite long-term investments, there is also no reason to chase prices higher. Either we dip under 2,600 over the next few days or weeks, or we trade sideways for a while. Neither setup creates a good short-term buy. Instead, we should be patient and wait for a better entry.

If the market fails to rally on good news and finishes at the lows for a few days in a row, that is a bearish signal and an inviting short entry. If prices fall under 2,600 support, but quickly find a bottom, then that is our signal to buy the dip. And if we keep grinding sideways, then we just sit and watch. We only want to hold the risk of owning stocks when we are getting paid for it. If stocks are drifting sideways, we’re not getting paid and should be watching safely from the sidelines. We only want to buy when the risk/reward is stacked in our favor and that is not the case at these levels.


Apple reported its first declining revenue and earnings in more than a decade. But everyone knew this was coming and is why the stock was down nearly 40% from the highs. But the thing about the risks is they were already incorporated into the price. And like most things in the market, it probably even over did it.

If after-hours trade is any indication, AAPL will pop nicely tomorrow as reality turns out less bad than feared. If these gains stick Wednesday, it would put AAPL at the highest levels in over a month and easily erase the early January tumble when Apple lowered its guidance. At this point, it looks that dreadful day when the crowd was rushing for the exits was actually one of the best entry points in over a year.

This is what I told subscribers the day after AAPL lowered guidance and the stock plunged to fresh lows:

“I suspect we have already heard the worst from AAPL and things will only improve from here. Hopefully, Tim Cook was smart enough to lower expectations so far yesterday that it will create an easy beat when they report earnings at the end of the month. With the worst of the bad news already out there, most likely things will start getting better from here. Even AAPL bears should be expecting a near-term bounce from these oversold levels.”

Since then, AAPL is up 15% from those lows.

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Jan 24

Why this rebound demands restraint

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Thursday, the S&P 500 bounced between modest gains and losses. The gov’t shutdown is dominating headlines and there is no end in sight, but the market doesn’t care and continues holding last week’s 2,600 breakout.

It’s been a wild ride from the Christmas lows, but so far the market is still acting well. Prices tumble from unsustainable levels quickly and holding 2,600 for more than a week is a good sign. Especially in the face of bearish headlines. If prices were grossly overbought, we would have tumbled by now.

That said, the last few weeks priced in a lot of good news in anticipation of breakthroughs with China and the shutdown. The problem with hope is it leaves us vulnerable to disappointment if things don’t go according to plan. While the market is acting well and trading like it wants to keep going higher, as long as we continue hovering near 2,600 support, we always run the risk of violating it. I remain cautiously optimistic, but I reserve the right to change my mind if conditions change.

But just because the market is acting well doesn’t mean this is a good time to add new money. Only a fool chases prices higher after a 10% move in a few short weeks. As I often write, markets move in waves. Understanding that principle in October, November, and December allowed us to profit nicely from sharp bounces on our way lower. And now that the market is recovering, we must acknowledge any rebound will include big drawdowns on our way higher. To expect anything different would going against the very nature of the market.

I don’t see any imminent warning signs of an impending collapse, but that still doesn’t mean this is a good time to be holding a short-term trade. No matter what happens next, the market will do something. Maybe it goes higher, or maybe it goes lower. One side will be right and the other side will be wrong. But just because the market will move doesn’t mean there is a good trade for us.

I buy when the odds are skewed in my favor. When the risks are small and the rewards large. Most of the time this happens when the market dips. Fearful sellers offer stocks at steep discounts. The more the indexes fall, the less risk there is because a big chunk of the downside has already been realized. And the lower we go, the greater the reward we collect when prices rebound.

But right now we have the opposite. The 10% rebound from the Christmas lows consumed a huge chunk of the upside. And now that prices are far more expensive, there is a lot more risk underneath us. Stocks are acting like they want to keep going higher over the near-term, but the limited upside remaining and heightened downside underneath means the risk/reward is now skewed against us.

Stocks are acting well and like they want to keep going higher over the near-term, but I’d rather be taking profits at these levels than adding new money. That said, this outlook only applies to my short-term trading account where my holding period is a few days or weeks. For our favorite buy-and-hold investments (think retirement accounts), there is no reason to sell and in fact, smart savers increased their contributions during this market volatility.

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

Jan 22

What to make of Tuesday’s dip and how to profit from it

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 slipped Tuesday, ending a string of four consecutive gains and posting the biggest loss in nearly three weeks.

It’s been a great run since the Christmas lows, with the index surging 10%. But as we know, markets don’t move in straight lines and a down day was inevitable. The question is if this is just one of those step backs before continuing higher, or if today’s weakness marks the end of the rebound.

Stocks have been surging despite December’s negative headlines sticking around. Nothing has been resolved in Trump’s trade war with China. Global growth continues to slow. The Fed is still planning further rate hikes. And the federal government has been shut down for a month with no end in sight.

Hardly seems like rally material, but that is exactly what happened. While the news has most definitely been bearish, it hasn’t been as bad as the crowd feared when they were scrambling for the exits at the end of last year.

Markets are prone to excess and that means oversized moves in both directions. Last summer we went a little too high. Then we fell too far in the fall. And now there is a good chance January’s rebound went a too far and it is time for a well-deserved rest. Even a pullback would be a normal and healthy way to process these gains.

Where we go from here largely depends on what happens next. Last week we reclaimed the widely followed 2,600 support level that propped the market up through October and November. While any near-term weakness will most likely dip under 2,600, how the market responds to such a violation will tell us what mood traders are in.

In December, fearful owners rushed to sell every hint of weakness. But the thing is, eventually we run out of fearful sellers. That’s because every person desperate to bailout ends up selling to a confident dip buyer who is willing to hold the risks. Out with the weak and in with the strong is how these things get turned around.

While bearish headlines are largely the same, and in some respects have even gotten worse, the market stopped caring. And not only has it stopped caring, it is acting as if everything has been getting better. But that is the way the market works. Buy the rumor sell the news. While we don’t have a resolution to any of the problems facing us, the market is assuming a solution is coming and anyone waiting for the confirmation will be too late.

But that assumes things turn out less bad than feared. There is an alternative outcome where the situation turns out worse than feared. And that is what it will take to send this market to fresh lows. But until that happens, expect every dip to bounce.

Having surged 300-points since Christmas, it is clearly too late to be chasing the rebound. Instead, we should be shifting to a defensive mindset and preparing for a consolidation. Savvy short-term traders have been taking profits into this strength. The most aggressive and nimble can try their hand at shorting this weakness. For the less bold, a dip under 2,600 support will likely find a bottom near 2,500 and that would be a great dip buying opportunity. If this market is healthy market, we shouldn’t get anywhere near the lows and retesting 2,400 would be a very bearish sign. Trade accordingly.

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Jan 10

How you could have seen December’s dip and bounce before it happened

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

What a difference a few days makes. Three weeks ago the financial world was collapsing and desperate sellers were scrambling for the exits. This week everything is peachy as the market erased the pre-Christmas bloodbath. But this isn’t a surprise to those of us that have been paying attention.

December 20th, I wrote the following:

“While I like these discounts, the looming holidays complicate the situation. What would normally be an attractive buying opportunity might struggle to get off the ground since big money already left for Aspen. Their absence puts impulsive retail investors in charge and that is rarely a good thing. Luckily, these little guys have small accounts and their emotional buying and selling cannot take us very far.

We saw similar emotional selling knock 100 points off the market during the Thanksgiving week. But a few days after the holiday, the market rallied 170-points when big money returned to work and started snapping up the discounts. No doubt we could see the same thing this time around.”

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The market one-upped the Thanksgiving rebound and recovered 250-points since the Christmas holiday. Those of us that kept our cool enjoyed the ride. Unfortunately, those that panicked are kicking themselves right now. But that is the way the market works. It rewards thoughtful and deliberate decisions while it punishes the impulsive and reactive.

The key to surviving periods like this is selling poor price-action, not fear. By the time fear is running through the herd, it is too late to sell because most of the damage has already been done. In fact, selling fear is often the exact wrong move to make because capitulation and a rebound is usually just around the corner.

So what is the difference between poor price-action and fear? Most of the time poor price-action shows up before the crowd gets nervous. This is the stalling when the market should be going up. But it is so subtle that most in the crowd missed it. We saw this in early December and I pointed it out in my December 13th blog post:

“the last three day’s has seen early gains fizzle and we closed well under the intraday highs. Multiple weak closes is never an encouraging sign. And as usual, the market is giving us conflicting signals. It is up to us to determine what it means.

I really like how decisively the market held support this week. But I’m disappointed we couldn’t add to those gains and these weak closes are a concern. What does this mean for what comes next? Unfortunately, this is one of those situations where we don’t have enough information and we need to see what the market does next.

A decisive rally Friday tells us all is well and we are on our way back up to 2,800. But a fourth weak close means a near-term test of 2,600 is ahead.”

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Everyone knows what happened next. But the thing to remember is the market was flashing these warning signs days before the crash through support. A savvy trader could have bailed out a full 300 points above the eventual bottom.

I will be the first to admit I have been, and continue to be, bullish. But just because I believe in the economy doesn’t mean I need to ride stocks down. The biggest advantage individual traders have is our size allows us dart in and out of the market with ease. We don’t need to ride these waves lower as long as we know what to look for.

But that was then and this is now. What most readers want to know is what comes next. And as I often remind people, the market doesn’t move in a straight line. The rebound from the Christmas lows has been a beautiful thing, but rebounds only go so far before they run out of gas. As expected, the rate of gains has slowed as we approached the prior lows near 2,600. What was once support has now turned into resistance.

I still believe in this market over the medium- and long-term, but things could get a little bumpy over the next few days and weeks. Last month’s fear turned into this month’s hope. Unfortunately, hope leaves us vulnerable to disappointment.

As always, the market can do one of three things; up, down, or sideways. Momentum is clearly higher and the longer we hold near 2,600 resistance, the more likely it is we will break through it. Trump striking a deal with Democrats and the Chinese will send prices surging higher. But if we don’t pause and consolidate recent gains, that breakout will be fragile and vulnerable to a pullback. I would be selling a sharp breakout, not buying it. This would be a buy the rumor, sell the news kind of thing.

Markets consolidate one of two ways. Either they take a step back, or they trade sideways for an extended period of time. Given how volatile the market has been and how much uncertainty there is in the headlines, boring, sideways trade seems highly unlikely. Instead, this market most likely needs to take a step back before continuing its climb higher. Whether that step-back starts Friday or waits until the 2,600 breakout fizzles is anyone’s guess, but at least we know what to expect and that helps us get ready to trade it.

I would rather be taking profits at these levels than adding new money. A near-term dip to 2,500 that bounces would be a great buying opportunity. An unsustainable breakout above 2,600 that fizzles could be an interesting shorting opportunty.

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