Category Archives for "End of Day Analysis"

Aug 08

Why Tuesday’s early wave selling didn’t go anywhere

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

It’s been a choppy few sessions as the S&P 500 takes a step back from 4,600 resistance.

Between a sluggish Chinese economy and renewed scrutiny of regional banks, overnight futures traders were not in a good mood Tuesday morning and the index skidded more than 1% in early trade. But as ominous as that open felt, most investors shrugged and didn’t sell. The initial wave of selling stalled 90 minutes after the open and the index bounced more than 30 points by the close. Even though the session ultimately closed down 0.4%, considering how the session started, it was a good day for bulls.

As I’ve written in previous posts, the domestic equity market hasn’t cared about China in years and the regional banking crisis is old news. If these events hadn’t taken us down previously, there is little reason to think Tuesday’s headline reruns would turn out any differently. While any headline can trigger momentary bouts of second-guessing near recent highs, we need something truly new and unexpected to flip the market’s stubbornly half-full mood.

At this point, this latest test of 4,500 support looks like nothing more than a vanilla step back following a big run higher. Without a doubt, the selling can resume, but given this afternoon’s nice bounce, it doesn’t look like this is the end of the uptrend.

For the nimble, Tuesday’s bounce was buyable with a stop under those early lows. If the bounce continues on Wednesday, add more and lift stops. If the selling returns, get out and wait for the next opportunity. This is an easy setup for those with the courage to take advantage of the market’s momentary second-guessing.

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Aug 03

Why the debt downgrade selloff could already be over

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped another quarter percent Thursday, adding to Wednesday’s US debt downgrade selloff.

But as far as selloffs go, Thursday’s decline was fairly benign. The index hit its lowest point early in the morning, and prices were comfortably above those initial levels for the remainder of the session, even getting into the green for a bit.

Lucky for readers, Thursday’s midday bounce wasn’t a surprise:

We traveled this road 12 years ago, the last time US debt was downgraded. That 2011 episode launched a meaningful, multi-month selloff in stocks. Are we in store for the same thing this time? No, probably not.

Novel events trigger fear and uncertainty because no one knows what is going to happen and with nothing to go on, people often fear the worst. But since we’ve already been down this downgrade path, there will be far less uncertainty this time.

Less uncertainty = less anxiety = less impulsive selling

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Runaway selloffs, well…runaway. They crash day after day and don’t look back. Thursday’s price-action was the opposite of runaway selling. The index opened low, and rather than rush for the exits, dip-buyers gobbled up the discounts and bid up prices.

The thing about panicked selloffs is we need panic. Thursday’s constructive trade took a load of pressure off of nervous owners. Another reassuring session like this on Friday and the 2023 US debt downgrade crash is already over.

Savvy traders recognized early Thursday that the next wave of selling wasn’t coming, and rather than argue with the market, they collected profits and got ready for the next trade.

Now, don’t get me wrong, we could definitely fall into another hole of impulsive selling on Friday, but at this point, the odds of that happening are not very good. If owners were going to panic, it should have happened on Thursday. Another flattish session on Friday and most owners will be breathing a sigh of relief since most investors are reluctant to sell their favorite stocks at a discount.

As for how to trade Friday, savvy traders are already in cash and ready to jump on the next trading opportunity. If the aggressive selling returns Friday morning, short that with a stop above Thursday’s close. On the other hand, if prices turn green on Friday, buy the bounce with a stop under Thursday’s lows.

As I wrote earlier in the week, I was positioned for this selloff, and it turned into a great trade with 3x leverage. But if the selloff is already showing signs of bouncing, it is time to collect profits and get ready for what comes next. I don’t care what happens as long as my trading plan keeps me on the right side of the market.

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Aug 02

Why savvy traders were ready and waiting for Wednesday’s tumble

By Jani Ziedins | End of Day Analysis

Free After-Hours Update: 

The S&P 500 tumbled Wednesday after a rating agency downgraded US debt.

We traveled this road 12 years ago, the last time US debt was downgraded. That 2011 episode launched a meaningful, multi-month selloff in stocks. Are we in store for the same thing this time? No, probably not.

Novel events trigger fear and uncertainty because no one knows what is going to happen and with nothing to go on, people often fear the worst. But since we’ve already been down this downgrade path, there will be far less uncertainty this time.

Less uncertainty = less anxiety = less impulsive selling

But just because we won’t fall into another spiral of impulsive selling doesn’t mean this event cannot drag down equity prices over the near term. The market experienced a whole lot of up lately, and no matter the reason, these lofty prices left us vulnerable to a very routine and even healthy step back.

As I wrote on Monday:

At this point, I’m looking at 4,600 as a tipping point. Either we keep going higher, or we don’t. If the rally resumes later this week or next week, I will buy back in. But if the market is finally ready to take a break and cool off, I’m happy to short the step back to 4,400 support.

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There is no way I could have predicted this debt downgrade, but when stocks are this elevated, the next wave of selling is never far away.

Now that we have a potential catalyst to kick off the next wave of profit-taking, it is finally time to start challenging “too high.” Remember, smart traders never short strength, we wait until that strength starts crumbling.

Savvy traders were shorting Wednesday morning’s weakness. By getting in early, our stops are already adjusted to our entry points, making this a low-risk trade.

By being proactive, we limited our risks. If we are wrong, we won’t lose much. But if we are right, there are a whole lot of profits headed our way. Low risk and big rewards are the trades we dream of.

If the selling continues on Thursday, we can add more to our short position and lower our stops, giving ourselves even more protection. On the other hand, if prices bounce above Wednesday’s intraday highs, it is time to start pulling off our shorts. And if we rally back to Tuesday’s close, the selloff is already over and it is time to start buying the bounce.

I still think this weakness has room to run and 4,200 is a very realistic target. But I’m not married to that outlook and will change my views as soon as the market proves me wrong by bouncing back near recent highs.

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Jul 31

Is 4,600 finally too high?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 is pausing under 4,600 as it continues proving all of the cynics wrong.

Too high or not high enough? That’s the million-dollar question.

As high as stock prices feel at 4,600, people were making the same argument at 4,500, 4,400, 4,300, and even 4,200, and we know how that turned out.

At the same time, while high is more likely to get even higher, all good things eventually come to an end.

As a nimble trader, I don’t have an allegiance to either side in this debate. The run to 4,600 was a good one, but rather than greedily hold for higher prices, I collect worthwhile profits and get ready for the next trade. The market resolved to the upside at 4,200, 4,300, 4,400, and 4,500, and if we see the same thing at 4,600, I’m more than happy to buy the next breakout.

But until this actually starts rallying, I’m content sitting on my pile of profits on the sidelines. At this point, I’m looking at 4,600 as a tipping point. Either we keep going higher, or we don’t. If the rally resumes later this week or next week, I will buy back in. But if the market is finally ready to take a break and cool off, I’m happy to short the step back to 4,400 support.

Rally up to 4,700 or slip back to 4,400; it doesn’t really matter to me what happens next. All I’m doing is waiting for the market to reveal its hand, and then I’m jumping on that trade. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.

Get above Friday’s highs, and I’m a buyer. Fall under Monday’s lows, and I’m going short.

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Jul 21

Why Friday’s failed bounce is good news for the half-empty crowd

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 attempted a midday bounce Friday as it tried to recover some of Thursday’s stumble following disappointing earnings from NFLX and TSLA. Unfortunately, the dip buyers failed to show up in meaningful numbers and the index finished Friday’s session flat.

But this lethargic price action was expected. As I wrote in Thursday afternoon’s free post: 

While we can’t read too much into one day’s price action, recent gains across the market leave us vulnerable to some near-term weakness. I’m in no way predicting a top, but it wouldn’t surprise me if the indexes cooled down following this month’s impressive 200-point run to 4,600.

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Friday’s 0.03% session didn’t give us much to go on. The half-full crowd points to the stalled selloff. The half-empty side counters with Friday’s failed midday bounce.

Who is right? At this point, either side could be right. Lucky for us, the market is terrible at keeping secrets won’t be able to hide its cards for long.

If selling is truly over, prices will bounce nicely on Monday. If there is more selling left in this cool-down, expect another wave to hit us instead.

As far as trades go, this one is very straightforward; buy strength and sell weakness.

For those of us who shorted Thursday’s weakness, keep holding that short with nearby stops. If we get blown out of our positions on Monday, it’s no big deal. That’s the way trading goes. Thursday’s short was a low-risk/high-reward trade that was worth taking even if it didn’t work. But if the short keeps working Monday, press it and move our stops down to our entry points, turning this into practically a free trade.

For the long-only crowd, wait for the bounce. If it doesn’t happen on Monday, then expect a few more days of selling and a much better dip buying opportunity later in the week.

Start small, get in early, keep a nearby stop, and only add to a trade that’s working.

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Jul 20

Why taking worthwhile profits is never a mistake

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Thursday down 0.7% as the index digested a poor performance by two of its highest profile components.

NFLX and TSLA tumbled after their earnings disappointed investors. It wasn’t that these companies performed poorly, but the higher prices get, the bigger the expectations become. And both of these companies failed to live up to the hype.

Are these two isolated incidents? Or do they threaten the market’s half-full mood?

While we can’t read too much into one day’s price action, recent gains across the market leave us vulnerable to some near-term weakness. I’m in no way predicting a top, but it wouldn’t surprise me if the indexes cooled down following this month’s impressive 200-point run to 4,600.

Two steps forward, one step back. Rinse and repeat.

While the market acted well Wednesday, sometimes we have to recognize good enough. If we’re not selling early, then we are holding too long.

This is exactly what I told readers in Wednesday afternoon’s free analysis:

Everything looks great, and that’s eactly why smart money is already peeling off some of their profits. As easy as it is to buy back in, we can always buy the next move above 4,600. But until that happens, we need to protect the profits we have now.

I don’t pick tops, but taking worthwhile profits after a good run usually gets me close enough. After a bit of up, the next bit of down is inevitable.

There is no way of knowing if Thursday’s dip will bounce Friday or keep going for a bit. But now that I’m in cash, it doesn’t matter to me what comes next. All I know is I will be ready for whatever profit opportunity arrives next.

Thursday’s weakness was shortable with nearby stops for the most aggressive traders. For everyone else, collect recent profits and get ready to buy the next bounce.

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Jul 19

What savvy traders are doing as we approach 4,600

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 added a quarter of a percent Wednesday as the good times keep rolling.

Headlines haven’t changed, and we continue coasting higher on recent employment and inflation data. At this point, reality is coming in far closer to the best-case scenario than anyone thought was possible earlier this year.

But for as good as this rally looks, 200 points in two weeks means we need to start watching our backside. The smart time to buy was back near 4,400, not now, as we are approaching 4,600. In fact, this is a far better place to be taking profits than adding new money.

Everything looks great, and that’s eactly why smart money is already peeling off some of their profits. As easy as it is to buy back in, we can always buy the next move above 4,600. But until that happens, we need to protect the profits we have now.

Once we acknowledge we can’t pick tops, the next decision becomes selling too early or holding too long. As a nimble trader, my preference is to sell too early because that means when other people are getting nervous watching their profits disappear, I’m in the perfect situation to take advantage of the next trade.

No doubt I’m peeling off profits too early, but as easy as it is to jump back in, my bigger fear is letting these profits escape. We don’t need to sell everything, but it is amazing how much better we feel after locking in some worthwhile profits and reducing our risk.

Remember, we only make money when we sell our favorite positions…

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Jul 17

Why smart money is still long this market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added 0.4% Monday, closing at yet another 52-week record as high keeps getting even higher.

Things are good, really good. All of the worst-case scenarios have been avoided, and we actually find ourselves close to the best-case scenario. After scoffing at the idea even just a few months ago, many people are finally starting to think the Fed could nail the soft landing of taming inflation without tipping the economy into a recession.

While the above shift in sentiment is good for near-term stock prices, the more hopeful people feel, the more vulnerable we are to disappointment. That means over the near term, we should be trading in the direction of the trend, but we need to be wary of anything that could put the market back in a bad mood.

Cautiously optimistic is the name of the game.

While fear of heights is normal, when June’s wobble didn’t go anywhere, rather than get stubborn, we recognized the market didn’t want to go down, and that’s why we embraced this bounce. Smart traders don’t argue with the market. If this wants to go higher, then we have no choice but to follow its lead. The next pullback is coming, but it is not here yet, and that means we keep trading this from the long side.

Stick with what is working. That means holding this bounce with stops at least as high as our entry points. If this wanted to go down, it would have happened already.

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Jul 06

Why Thursday’s early wave of selling stalled and bounced

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 skidded -0.8% Thursday after the monthly ADP report showed robust hiring, sending us back into the “good is bad” paradox.

The thing about “good is bad” is it’s an idea embraced mainly by retail traders. If institutional investors feared strong economic numbers, the indexes would not be hovering near 52-week highs. But since this is a holiday-affected week and big money managers are on vacation, retail investors have oversized influence. That’s why we get things like Thursday morning’s reflexive 1.3% tumble at the day’s worst.

The silver lining is the index bounced decisively off those late-morning lows after running out of sellers. This is the slowest week of the already slow summer season. While that often leads to sleepy sessions, the low volumes also leave us vulnerable to elevated volatility because it doesn’t take much buying or selling to trigger oversized moves.

As dramatic as these moves feel in the heat of battle, the light volume also means these little traders run out of money quickly. And at this point, it looks like they could only keep up the selling for two hours before supply dried up and prices bounced.

Without big money’s guiding hand, anything could happen on Friday, but at this point, it looks like smaller retail traders ran out of things to sell and Friday should be better.

Following the crowd’s panicked moves is tempting, but it is often best to watch these gyrations from the sidelines, especially during these erratic holiday-affected sessions. I didn’t need to join Thursday’s selling and I didn’t need to join the afternoon buying either. Better and more reliable trades are coming our way and I’ll leave this chop to the impulsive gamblers.

At this point, I’m comfortable waiting and watching Friday’s trade unfold from the sidelines. If the selling accelerates, the best trading opportunity will be buying next week’s bounce after big money returns and undoes all the damage these impulsive retail traders did when left to their own devices.

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Jun 23

Why the tide is turning against the Bulls

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 skidded 0.8% Friday, making this the fourth loss out of the last five sessions.

Nothing much changed in the headlines. Inflation remains higher than the Fed wants, but the economy is stubbornly resilient in the face of rising interest rates. A few months ago, investors were obsessed with the half-empty portion of the glass. Now all they see is half-full.

But with a massive amount of buying in the rearview mirror, we need to find new buyers to keep pushing prices even higher, which is getting increasingly difficult. That doesn’t mean it can’t happen, just that the odds of a near-term cooling off are growing with each passing day.

The rally paused this week, and the index remains stuck under 4,400 resistance. Get back above this key psychological level and it is full steam ahead. But until that happens, the smart move is trading this cooling off.

As I explained in Tuesday’s Free Analysis: “Why Tuesday’s step back still has room to run”

At this point, this violation of 4,400 is guilty until proven innocent. If we can’t get back above 4,400 Wednesday, position yourself for more selling. The most aggressive can keep holding their shorts with stops near [last] Friday’s close. For everyone else, keep waiting and watching for the real bounce because Tuesday afternoon probably wasn’t it.

No one knows what the future holds. The best we can do is trade what’s directly in front of us, and right now, that means trading this latest cool-down. We rallied hundreds of points over the last few weeks, and it takes more than 50 points and a few days to reset the clock.

Shorts can keep holding their shorts and those that want to buy the dip need to sit on their hands a little longer because this dip still has a ways to go before it is done.

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Jun 22

Why Thursday’s gains won’t save the bulls

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added 0.4% Thursday, ending a three-day skid that pulled the index off of 52-week highs.

We didn’t need bullish headlines to rally up to 4,400, and that means we don’t need bearish headlines to pull back from those highs either.

Stocks go up and stocks go down, that’s what they do. As much as people want to believe every headline matters and every movement is based on some fundamental driver, the simple truth is the market is like a toddler with ants in his pants and most of the time it moves enthusiastically for no reason at all.

That said, these reasonless moves are not random. Trends are more likely to continue than reverse, but eventually, every bit of up is followed by a bit of down.

Currently, the market finds itself at one of those tipping points where either momentum keeps pushing the indexes higher, or we’ve come far enough that it is time to start going in the other direction.

It’s been a great run from the March lows, but that also means we are getting close to the next down wave. While Thursday’s modest gains were a relief for bulls, the truth is, this 0.4% gain was anything but a decisive rebound.

Everyone knows stocks don’t move in straight lines and declines are littered with green days. The odds are good Thursday’s gains was nothing more than a little bounce on our way lower.

Now to be clear, I’m not a bear and I’m definitely not calling for a crash, but rallying 200 points from the start of June and 600 points in four months means the time for rest is close, if it is not already upon us.

I started shorting this market Friday and my stops have already been moved past my entry points, turning this into a low-risk/high-reward trade. There isn’t anything else do other than relax and let the profits come to me.

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Jun 21

Why we haven’t seen the worst of the selling yet

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped on Wednesday, giving up 0.5% and falling for the third day in a row.

No doubt the financial press found some excuse to justify Wednesday’s decline, but the simple truth is stocks move in waves. After several weeks of up, it’s time for a bit of down. Two steps forward, one step back. Rinse and repeat. This latest wave of selling is no more meaningful than that.

But as I’ve said many times before, the market loves symmetry, which means the inevitable step back will reflect the scale of the prior runup. That means this step back has the potential to offset a four-month rally that added 600 points.

Now, we don’t need to offset the entire run from the 2023 lows, but even retrenching a portion of the rally from 4,200 will require more than three modest days of selling.

I still like this market and am in no way calling for a crash back to the lows. But I also know stocks move in waves, and it’s been a great ride to this point. At the very least, even bulls should be expecting a near-term cooling off, and 4,200 support is very much on the table.

We take profits when we have them because if we don’t, we won’t have profits left to take. That means longs should have already been locking in some of their profits proactively and protecting the rest with nearby trailing stops.

As for the bold, there is still more downside left in this short, and we are nowhere near capitulation. Keep holding those shorts and move our stops down to at least our entry points, making this a low-risk/high-reward trade.

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Jun 20

Why Tuesday’s step back still has room to run

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 fell nearly 1% in early trade Tuesday as second thoughts came roaring back following last week’s strong surge higher.

The index slipped under 4,400 at the open and it wasn’t able to reclaim this psychologically significant level despite a nice midday bounce.

This is a tipping point. Either the index gets back above 4,400, or it doesn’t. If we get turned back by this level Wednesday, the selling will likely continue for a few more days.

On the other hand, if the index closes decisively above 4,400 Wednesday afternoon, then the worst of the selling is already behind us and higher prices are coming our way.

My intuition and experience tells me the selling still has a way to go before it is finished. The market loves symmetry, and big runs like we experienced over the last few weeks are always followed by similarly enthusiastic step-backs.

At this point, this violation of 4,400 is guilty until proven innocent. If we can’t get back above 4,400 Wednesday, position yourself for more selling. The most aggressive can keep holding their shorts with stops near Friday’s close. For everyone else, keep waiting and watching for the real bounce because Tuesday afternoon probably wasn’t it.

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Jun 02

What smart money is doing at these multi-month highs

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added 1.5% Friday as it powered to ten-month highs.

May’s employment report showed the most robust hiring in four months as employers continue shrugging off persistent inflation and high interest rates.

This was one of those half-full/half-empty moments for the stock market and it was all half-full on Friday as investors embraced the economic resilience and shrugged off the prospect of future rate hikes.

Will the stock market’s indifference to inflation and interest rates last? Probably not. That’s why smart money is already locking in some profits at these multi-month highs.

As I wrote Wednesday:

Ignore both the bulls and bears. Anyone positioning for a big directional move in either direction is simply not paying attention. This is a choppy, sideways market with a slight upward bias. Money is made trading against these swings, not betting on their contuation. Until further notice, dips are buyable and rips are sellable. And just as important, take profits early and often because anyone holding a few days too long will watch their winners turn into losers.

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Bears were right for a few hours this week during our brief “sell the news” moment, but anyone that didn’t collect those profits were left holding a pile of losses a day later.

And the same will apply to bulls pressing their bets at multi-month highs. We take profits when we have them because if we don’t, the market will steal them back a day or two later.

I still like this market and the slow grind higher will continue, but anyone pressing their luck near 4,300 hasn’t been paying attention. Lock in some very worthwhile profits (7.5% in a 3x ETF over the last two sessions) and then get ready for the next trade.

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May 31

The easy trade bulls AND bears keep screwing up

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped 0.6% as Congress moves toward resolving the debt ceiling crisis.

This negotiated compromise finally lifts the clouds that have been hanging over stocks for weeks. But as I wrote last week, anyone waiting to buy stocks after a debt deal was reached would find themselves a day late and a dollar short. And I further warned readers on Monday:

Of course, now that we are 100 points higher, the risk/reward flipped against us. The easy profits are behind us and we are more vulnerable at the upper end of the recent range. This is the time to be taking profits, not chasing an imaginary breakout.

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Successful traders make money buying risk and selling safety. Last week was the time to buy the debt ceiling worry, and this week was the time to sell the debt ceiling relief. “Buy the rumor, sell the news” is as old as the stock market itself.

As for what comes next, ignore both the bulls and bears. We are not powering higher in a massive short squeeze the same way we are not tumbling back to the 2022 lows on a crumbling economy.

Anyone positioning for a big directional move in either direction is simply not paying attention. This is a choppy, sideways market with a slight upward bias. And now that we are falling into the slower summer months, this will only reinforce the market’s listlessness.

If every dip is going to bounce and every bounce is going to dip, money is made trading against these swings, not betting on their contuation. Until further notice, dips are buyable and rips are sellable.

And just as important, take profits early and often because anyone holding a few days too long will watch their winners turn into losers.

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May 30

Why smart money was buying the debt-ceiling uncertainty last week

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Our politicians finally did their jobs and reached an agreement to lift the debt ceiling. No one is happy about the proposed deal, but that’s why it’s called compromise.

And since the looming debt ceiling was the biggest worry hanging over the market, stocks finished Tuesday’s session…flat. Funny how that works.

But that doesn’t surprise readers of this blog. This lethargic reaction to good news happens so often it has become a market cliche: ” Buy the rumor, sell the news.”

Anyone waiting to buy the news of a debt deal is waaaay late to the party because all of the profits were collected last week when the outcome was far from certain. This is why I was telling readers to buy last week’s dip on Wednesday:

As for what comes next, expect the choppy, sideways trade to continue. We’re not going anywhere, but that won’t stop impulsive traders from jumping from one side of the boat to the other.

Until further notice, we keep trading against these swings. That means this week’s swoon is a buying opportunity.

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Of course, now that we are 100 points higher, the risk/reward flipped against us. The easy profits are behind us and we are more vulnerable at the upper end of the recent range.

This is the time to be taking profits, not chasing an imaginary breakout. Feel free to leave some money in the market, but make sure we lift our trailing stops to protect last week’s profits. And as always, taking some worthwhile profits proactively is never a mistake. Remember, we only make money when we sell our winners.

As for what comes next, this week’s break above 4,200 could trigger a short squeeze up to 4,300. That’s not the most likely outcome, but it is certainly a possibility. If prices rally on Wednesday, buy back what we sold on Tuesday and ride that wave higher. But most likely, not much will happen, and that means we waiting to buy the next dip under 4,200.

It makes no difference to me what happens next, only that my trading plan will be ready when the next profit opportunity comes along.

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May 26

This market is NOT fixed and bears have no one to blame but themselves

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 popped 1.3% Friday, extending Thursday’s gains and the index closed at the highest levels in nine months. Not bad for a market that was in freefall three days ago.

This late-week rebound shouldn’t surprise readers of this blog. I warned bears on Wednesday to protect those mid-week profits:

Until further notice, we keep trading against these swings. That means this week’s swoon is a buying opportunity…[J]ust like how bulls got stung this week, bears pressing their shorts are making the same mistake. This is the kind of market where if we’re not taking profits, we will be taking losses a few days later.

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And wouldn’t you know it, here we are two sessions later and greedy bears let those nice profits turn into painful losses.

This game isn’t hard to figure out once we recognize the patterns. This is not a directional market, it is a choppy, sideways one. Anyone betting on the breakout or breakdown is getting chewed up and spit out a few sessions later when the market reverses.

People who claim this market is fixed are just telling the rest of us they have no idea what they are doing. It is obvious this is a choppy, sideways market and it is no one’s fault but our own if we are letting a bearish or bullish bias wreck our trades.

That said, there is an upward drift to this sideways, choppy trade. The gains are bigger than losses and that drift will continue next week. I will still be taking profits following big moves, but I’m riding this up wave a little longer.

Buy low, sell high, and repeat as many times as the market lets us.

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May 24

Why Bears are about to make the same mistake Bulls just made

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 skidded for a second session on Wednesday, giving up -0.7% and erasing all of last week’s gains.

As I warned readers late last week, and again on Tuesday:

If you are not taking profits when you have them, you won’t have profits left to take.

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Last week’s buyers that failed to heed this warning watched all of those profits slip between their fingers. Greed doesn’t pay in this market, and it has been zinging both bulls and bears over the last several weeks and months.

The debt ceiling bickering continues, and that is enough to cool demand for stocks near 52-week highs. As I’ve written before, the debt thing will get done because the consequences of it not happening are too great. But as is usual, a deal won’t be stuck until the final hour, and we should expect the headlines to get even uglier before then.

This stubborn standoff is SOP for partisan politics. And most traders know this, that’s why stocks are not significantly lower. But at the same time, this background noise is enough to keep investors from enthusiastically pushing stocks even higher.

As for what comes next, expect the choppy, sideways trade to continue. We’re not going anywhere, but that won’t stop impulsive traders from jumping from one side of the boat to the other.

Until further notice, we keep trading against these swings. That means this week’s swoon is a buying opportunity.

Sometimes it takes a few bounce attempts before the real one comes along, but that bounce is coming. And just like how bulls got stung this week, bears pressing their shorts this week are making the same mistake.

This is the kind of market where if we’re not taking profits, we will be taking losses a few days later.

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May 23

Why Bulls AND Bears keep getting this market wrong

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 tumbled -1.1% Tuesday, giving back a significant portion of last week’s big gains.

Easy come, easy go. Luckily, this reversal doesn’t surprise readers. As I wrote in last Friday’s free post when the index was pushing to multi-month highs:

This is a choppy market and if we’re not taking profits when we have them, we will be taking losses a few days later. The market is still acting well and we don’t need to run for the hills, but it definitely makes sense to peel off some profits, putting a nice chunk of change in our pocket and lowering the risk if this selling continues next week.

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And wouldn’t you know it, here we are a few days later, and anyone still holding watched a nice pile of profits slip through their fingers.

We buy when we don’t want to buy, which is exactly what I was telling readers to do last Monday before stocks popped:

Until something changes, I’m sticking with what is working and that is waiting for the index to rally up to, and through 4,200 resistance. The market is taking its time, but as I’ve been saying for a while, something that refuses to go down will eventually go up.

And we sell when we don’t want to sell, like last Friday when stocks were challenging multi-month highs.

Trading isn’t hard when we recognize what’s coming. Last week, this was a market that refused to go down, making 4,200 the next obvious target. But once we got there, it was time to switch directions because this is a choppy, indecisive market, not a directional one.

Bears betting on a breakdown last week were just as wrong as bulls this week betting on a breakout. Buy when the crowd claims stocks are on the verge of collapse and sell when the crowd is fat, dump, and happy.

This market will make a big directional move at some point, but this is not that point. We are slipping into the slower summer months, and institutional money managers are sneaking off to their summer cottages. Until they return in September, expect this choppiness and indecisiveness to continue. That means buying the dips and selling the rips for the foreseeable future.

If you are not taking profits when you have them, you won’t have profits left to take.

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May 19

Why even bulls should be taking profits near 4,200

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 started Friday’s session with nice gains, adding to Wednesday’s and Thursday’s big rallies. Unfortunately, the buying enthusiasm peaked in those early hours and the index eventually closed in the red, down a fairly modest 0.1%.

Debt ceiling negotiations broke off without plans to resume. Debt ceiling squabbles haven’t been a problem for this market thus far, but we haven’t been this high either. Higher prices mean higher expectations, which makes it easier for hopeful investors to end up disappointed.

Lucky for readers, Friday’s cooling exactly what I described in Thursday evening’s free post:

As for what comes next, momentum is still higher, but 400 points later is the wrong time to be jumping aboard this rebound. The big and easy profits came to those of us that had the courage to buy months ago.

I can see this going a little higher, but we are falling into the slower summer season and I don’t see a lot of institutional buying happing until after summer is over. That means this is the time to be taking profits, not adding new money.

We don’t need to sell everything here, but it makes sense to lift our stops and start peeling off some partial profits. It is amazing how good it feels to put some well-deserved profits in our pockets.

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Is Friday’s selling the start of the next big pullback? No, of course not. But recent gains flip the risk-reward against us. Higher prices increase the odds of a near-term step back, and that’s exactly what we got Friday.

There is no reason to read anything more serious into Friday’s price action. As expected, we finally challenged and even broke through 4,200 resistance, but now the sideways grind resumes. Friday’s cooling price action is nothing more than that.

We buy when it is hard to buy (low), and we sell when it is hard to sell (high). Follow those simple rules and we will always outperform the average trader buying when it is easy (high) and selling when it is easy (low).

Is this the start of a bigger selloff? No, probably not. But it could be, and I’m not willing to bet this week’s pile of profits on a trade with such a poor risk/reward. (The potential profits left in this move are far smaller than the risks hanging over us.)

This is a choppy market and if we’re not taking profits when we have them, we will be taking losses a few days later. The market is still acting well and we don’t need to run for the hills, but it definitely makes sense to peel off some profits, putting a nice chunk of change in our pocket and lowering the risk if this selling continues next week.

As for Monday’s session, start buying back in if the break above 4,200 resistance turns into a powerful short-squeeze. In the other direction, if the air continues coming out of this week’s rebound, the most confident and aggressive can start shorting the cooling off.

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