End of Day Analysis Archives - Page 8 of 56

Mar 06

What smart money is doing now

Free After-Hours Analysis:

The S&P 500 popped to multi-week highs Monday morning as bears continued getting blown out of their short positions.

As has been the case for a while, this recent price action is not being driven by meaningful changes in the fundamentals. Instead, this is a sentiment trade and the latest wave of overwhelming bearishness made a bounce inevitable.

I wrote about this golden opportunity in last week’s post titled “Why savvy traders are getting greedy“:

[A]s far as contrarian trading signals go, the market’s pessimism suggests this is the time to be looking for buying opportunities. The last time the AAII sentiment survey had this few bulls was back in early January, which as it turned out, was a great time to buy stocks…

By now, everyone knows what happened next.

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Unfortunately, Monday’s early strength fizzled and prices retreated back to Friday’s close. But that shouldn’t surprise readers either, as I warned them Friday evening:

[W]e need to keep expectations in check. Just as there wasn’t a real reason to be crashing, there isn’t a real reason to be rallying. That means we shouldn’t expect a big rally and this rebound is simply a normal and routine gyration higher following a bit of down.

Rather than get cocky and complacent with my newfound success, I recognize this is still a choppy market and I don’t want to let this pile of profits escape, so I’m already lifting my trailing stops and getting ready to lock in worthwhile profits if the selling returns next week.

That outlook proved to be especially helpful Monday morning as all of those easy and early gains evaporated.

Stocks spend more time going sideways than up or down and that means we should be wary of predictions of an imminent crash or surge to record levels. Stock prices fluctuate, that’s what they do and we shouldn’t be surprised when prices bounce from the lows and stall after reclaiming a big chunk of lost ground.

Powell is testifying in front of Congress over the next couple of days and we have the monthly employment report due on Friday. Both of those have the potential to move the market, but if the headlines continue coming in near expectations, expect this sideways grind to continue. Buy weakness, sell strength, and repeat as many times as the market lets us.

As easy as it is to buy back in, we should never be afraid of taking worthwhile profits off of the table. Rather than make the same mistake overconfident bears made near the lows, we want to ensure we protect these profits and it is worth locking in some partial profits proactively. Sure, we are probably selling a little too early, but by putting some profits in our pocket and reducing our exposure, it gets a lot easier to ride through these inevitable whipsaws.

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Mar 03

Why Friday’s huge rebound was inevitable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 exploded 1.6% higher Friday and easily reclaimed 4k support.

While I’m sure the financial press came up with a justification for this latest wave of buying, the simple truth is we ran out of sellers and a rebound was inevitable.

A month of selling is a long time and the lack of acceleration under 4k support told us supply was drying up. As scary as the last few weeks felt, we actually haven’t fallen all that far from recent highs.

As I reminded readers over the last few weeks, every routine dip feels like it is the start of something much bigger because if it didn’t, no one would sell and prices wouldn’t dip in the first place.

As expected, without a significant and unexpected fundamental driver changing a large number of peoples’ minds, this latest wave of selling petered out and this bounce was inevitable.

While it is easy to point out these things after the fact, I’ve been telling readers this wave of buying was just around the corner. Here is what I wrote four days ago in a post titled, “Why savvy traders are getting greedy“:

As far as contrarian trading signals go, the market’s pessimism suggests this is the time to be looking for buying opportunities. The last time the AAII sentiment survey had this few bulls was back in early January, which as it turned out, was a great time to buy stocks because the index rallied nearly 10% over the next few weeks.

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Now, some of my critics will point out that even a broken clock is right twice a day. And that’s true, I’ve been trying to buy this bounce for a while, and in the market, early is the same thing as wrong. But I knew the odds of failure were high and that’s why I was buying each of those previous bounces with a partial position and a nearby stop. When the previous bounces failed, I got out for a small loss on a partial position.

While I’d much rather be making money, small losses aren’t the end of the world. And Friday was when the patience and persistence finally paid off. After taking a few small losses on previous buys, I was in the right spot at the right time when Thursday’s selling stalled and prices bounced hard.

I got in early and when that trade kept working, I quickly scaled up my position. So yes, I was wrong and collected a couple of small losses along the way, but Friday was the day when it all came together and I made a pile of money on a full position.

Small losses and big wins are the way we beat this game.

That said, we need to keep expectations in check. Just as there wasn’t a real reason to be crashing, there isn’t a real reason to be rallying. That means we shouldn’t expect a big rally and this rebound is simply a normal and routine gyration higher following a bit of down.

Rather than get cocky and complacent with my newfound success, I recognize this is still a choppy market and I don’t want to let this pile of profits escape, so I’m already lifting my trailing stops and getting ready to lock in worthwhile profits if the selling returns next week.

Remember, we only make money when we sell our winners. We don’t have to look far to find bears who wish they were a little more proactive in locking in their profits.

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Mar 01

Should we be worried about this test of the recent lows?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 continues probing recent lows and is testing the 200dma.

Headlines haven’t changed in a meaningful way since January, but the market’s mood couldn’t be more different. The half-full outlook that 2023 started with has given way to this recent wave of hand-wringing. Is this the result of a fundamental change in the market’s outlook, or just part of the market’s routine mood swings? Good question.

The market rallied 700 points from the October lows, so this 250-point retreat from recent highs shouldn’t surprise anyone. Two steps forward, one step back has always been the name of the game, and at this point, this latest slip from recent highs doesn’t look any more severe than one of those routine steps back.

But as long as we continue testing the lows, we are always at risk of making new lows. But as long as most owners keep shrugging and holding, any selling will be contained. If this crop of owners was skittish and prone to impulsive selling, we would have seen the bottom fall out a long time ago.

I’d love to see a buyable rebound from these levels, but the market is in charge and it dictates the pace. If we need to consolidate for a few more weeks, then I have no choice but to keep waiting and watching.

I will be there to buy the next bounce and the one after that. But because I know this is a low-energy environment, I will be quick to take profits because it won’t be long before those profits are gone.

A bigger directional move is coming, but it is still a way out. Until then, keep taking profits early and often.

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Feb 27

Why savvy traders are getting greedy

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The selling took a break on Monday as the S&P 500 added a modest 0.3%.

While green is green, the index was far higher in the first hour of the session. Unfortunately, potential buyers remain skittish given the recent price action and most are adopting a wait-and-see attitude.

While it is more fun to see prices race higher, buyers’ reluctance is actually a good sign if a person believes in buying fear and selling greed. At this point, the only ones feeling greedy are the bears. Everyone else is filled with trepidation as they wait for the next shoe to drop.

But as far as contrarian trading signals go, the market’s pessimism suggests this is the time to be looking for buying opportunities. The last time the AAII sentiment survey had this few bulls was back in early January, which as it turned out, was a great time to buy stocks because the index rallied nearly 10% over the next few weeks.

Are we on the verge of the next turning point? As everyone knows, there are no guarantees in the market, but the odds favor a near-term bounce and that’s what I’m getting ready for.

Buying bounces is never easy because there are always false positives, but if we start small, get in early, and keep a nearby stop, the cost of being wrong is small. And if we scale up our position when the real rebound finally arrives, the rewards will dwarf the small losses we take in the meantime.

Fortune favors the bold and savvy traders are getting greedy when everyone else is scared.

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Feb 24

Why the stock market is not as bad as it seems

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Friday’s S&P 500 session started off with a thud after an inflation data point went a tenth in the wrong direction. That sent the index tumbling 1.5% shortly after the open, but rather devolve into a mad dash for the exits, few owners decided to join in the selling and prices never retreated under those early.

No matter how bad the headlines get, there always comes a point where we run out of fearful sellers. What started four weeks ago as some routine profit-taking near multi-month highs has since devolved into this handwringing and talk of crashing to fresh bear market lows.

But as I’ve written many times before, every routine step back always feels like the world is ending. If it didn’t, no one would sell and prices wouldn’t fall. So by rule, people have to be scared or else they wouldn’t give up on their favorite stocks.

So who’s right here? While I would much rather be experiencing real victories instead of moral victories, Friday’s absence of follow-on selling was actually a good sign despite the red finish. An inflation reading ticked up and most investors kept their cool. That means it will take something even bigger and scarier to send these confident owners running for cover.

I know I sound like a broken record, but at this point, I don’t see anything in the headlines or price action that tells me this market is headed back to last year’s lows.

Stocks go up and stocks go down, that’s what they do. At this stage, this still looks like routine consolidation. Sure, it fell a little further than it could have, but stocks rallied 700 points from the October lows, so should we really be overreacting to a 250-point giveback?

Two steps forward, one step back. If that’s all this is, that means we are coming up on a nice buying opportunity. In a few weeks, most people will struggle to remember what they were so afraid of.

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Feb 23

Did we just experience a capitulation bottom?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday’s session was as bipolar as it gets for the S&P 500.

In a very disappointing fashion, the index turned respectable opening gains into fresh multi-month lows by lunchtime. That’s not the price action you expect from a healthy market. But just when all hope was lost, or more specifically, because all hope was lost, supply dried up and prices bounced decisively into the close, finishing near the intraday highs.

As bad as the morning looked, the afternoon’s rebound was doubly impressive. Remember, it’s not how we start, but how we finish that matters most. What very easily could have triggered another big wave of selling reversed course in a beautiful capitulation bottom.

This was the trading signal we’ve been waiting for and hopefully you didn’t miss it.

As I’ve been writing for a while, I don’t believe this latest pullback from the highs is the start of something more insidious. Stocks go up and stocks go down, that’s what they do. And no one should be surprised when stocks pull back from multi-month highs and consolidate those gains. This is very normal and healthy behavior.

But no one claimed traders have to be rational. Give the market a few down days and all of a sudden everyone is predicting the next big crash. Sure, the market failed to bounce at 4,100 support and even undercut 4k, but that is par for the course for a market that rallied four hundred points in little more than a month. Two steps forward, one step back. Everyone knows that’s how this game works, yet they always forget that simple truth in the heat of battle.

I really liked Thursday afternoon’s bounce. This was the bounce I was looking for and I bought it with open arms. Without a doubt, the selling could return Friday, but my stops near Thursday’s midday lows will keep me safe. And if I get dumped out, that’s okay too. I move to the sidelines and wait for the next buying opportunity, something that could arrive as soon as Friday afternoon.

Everyone wants stocks to pull back so they can buy more, but every time the market gods answer their prayers, most of these people are too scared to buy. Don’t be the average trader. Have a trading plan and stick to it. The hardest trades to make often turn into our biggest winners.

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Feb 22

Are bulls losing the war?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday turned into another back-and-forth session for the S&P 500 as the market digested the minutes from the latest Fed meeting. The index spent most of the session bouncing between small gains and losses before ultimately closing down a fairly trivial 0.15%.

While the Fed’s meeting minutes were responsible for triggering a late wave of selling, the modest size of the givebacks isn’t all that noteworthy. Stock crashes are breathtakingly quick, so giving back a handful of points in the final hours of the session isn’t that big of a deal. This bear market has seen more than its fair share of shocking headlines that trigged gigantic waves of panic selling that sent stocks tumbling 3%. Wednesday’s 0.15% loss was about as far away from that as you can get.

While it is more fun to watch stocks climb higher, everyone knows down days are a normal and healthy part of every market. And more than that, this latest two hundred points retreat from recent highs has changed the risk/reward.

Hindsight being 202/20, it’s obvious now that 4,200 was too high and it was time for a cooling off. More useful would be knowing this back when stocks were challenging 4,200 resistance. Lucky for readers of this blog, that is exactly what I did on February 2nd when the market peaked at multi-month highs.

Bears are quickly becoming an endangered species, but as nimble and agnostic traders, we have to get concerned when one side accumulates too much power because it often ends in a reversal in the other direction. Now, to be clear, I’m not picking tops, but 700 points above the October lows and we have to be aware that a huge portion of the near-term upside has already been realized.

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And wouldn’t you know it, here we are a few weeks later and bulls are the ones that have become an endangered species. And so continues the swinging pendulum of sentiment. But just as it was unwise to be chasing the market when everyone was bullish back near multi-month highs, it is just as risky to be overly bearish near recent lows.

Stocks move up and down, that’s what they do. Opportunistic traders take advantage of these price swings. Foolish traders don’t learn from their mistakes and keep drawing never-ending trend lines on their charts.

Can stocks keep falling? Absolutely, but is that the most likely outcome? If there was as much fear and uncertainty as the bears claim, prices would be falling a lot more than 0.15%.

Until proven otherwise, I will continue trading against these periodic swings, not betting on their continuation to extreme levels.

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Feb 21

When being wrong is a good thing

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 came back from the long weekend in a foul mood, shedding another 2% and finishing at the lowest levels since late January.

Half-full or half-empty? Thus far the pessimists have been dominating the market’s mood. The current line of reasoning is the economy is “too good” and that will require the Fed to be even more aggressive with its rate hikes to push the economy into a recession.

The problem with this line of thought is the Fed is not trying to push the economy into a recession. If the Fed can tame inflation without a recession, that would be the best possible outcome. But so far traders are more fixated on the half-empty side of the glass and don’t want to think about positive interpretations of recent data points.

But for all of the people calling for the indexes to tumble another 10% from here, I just don’t see it. We reached those 2022 lows when fear and uncertainty were at their peak. When we had no idea how high inflation would get, how devastating the rate hikes would be, or how bad the energy situation would get following Russia’s invasion of Ukraine.

Well, over the last year we gained a lot more clarity. Inflation is no longer spiraling out of control and has come a long way off of the summer highs near 9%. Consumers still have jobs and money to spend. And Europe is navigating the energy crisis a lot better than many envisioned. So what’s not to like?

In truth, the market’s recent slump is a lot easier to explain, stocks rallied nicely off of last year’s lows and it is simply time for one of those very normal and healthy stepbacks. Nothing more and nothing less.

Despite what the naysayers claim, we are actually navigating all of the risks surrounding us quite nicely. Inflation is coming down and the current 6% readings are exaggerated because the way rent is calculated doesn’t show the month-to-month declines in lease renewal rates.

Rather than run and hide, this is the time to be looking for the next buyable bounce. Friday’s midday bounce looked good to me and I bought a partial position, but obviously, it didn’t work. Fortunately, my trading starts small, gets in early, and kept a stop nearby. So while Friday’s bounce didn’t work, it didn’t cost me much.

In fact, Tuesday’s wave of selling is actually good for me personally because it means I will be able to make even more money buying the next bonce. And if the next bounce fails, that’s alright too, I get out and try again from even more attractive levels.

A lot of traders need to be right, lucky for me, I’m only here to make money and that makes navigating these whipsaws so much easier.

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Feb 17

Why this market is refusing to break down

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 lost another 0.3% on Friday, turning this into the second losing week in a row. (That said, the weekly loss was a very inconsequential 0.3%.)

Friday’s session kicked off very ominously by crashing under 4,100 support, a level that had been propping up the market all February long. But rather than unleash a tidal wave of reactionary selling, supply dried up and prices bounce off of 4,050.

So much for teetering on the edge of a massive breakdown. The market violated support and most owners shrugged and kept holding. And most optimistic of all, Friday’s session finished at the intraday highs.

But this contrarian price action doesn’t surprise readers of this blog, as I wrote Thursday evening:

This is the “opposite market” and the smart trade is going against conventional trading signals instead of following them. Maybe stocks open poorly Friday, but rather than jump aboard the selling bandwagon, be on the lookout for that next bounce because odds are good it will come hard and fast.

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Remember, it’s not how we start, but how we finish that matters most. And Friday was yet another session where the bears tried to break the market and failed. Sure, we finished in the red, but starting low and finishing at the intraday highs is bullish, not bearish.

Trading would be so much easier and more fun if every session ended in the green. But we know that’s impossible and down days are inevitable. But at this point, I don’t see anything in this price action that says this is anything other than a very vanilla consolidation of recent gains under 4,200 resistance.

Making money gets so much easier after we shed our bull and bear biases and trade what is in front of us. This market doesn’t want to go up and it doesn’t want to go down, so stop getting fooled by these false alarms. Until further notice, these dips are buyable and the bounces are sellable. And if we are not taking profits when we have them, the market will steal them back a few hours later.

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Feb 16

Why bulls and bears keep getting their butts kicked

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday’s session was one of those days where both bulls and bears got their butts kicked and the market proved it is still the boss.

The session started poorly for the S&P 500 after January’s PPI report showed wholesale inflation remains stubbornly resilient. That headline sent the index tumbling 1.5% shortly after the opening. But just all hope was lost and bears were feeling their most confident, supply dried up and prices bounced hard, recovering a majority of those early losses by Thursday afternoon.

This bounce shouldn’t have surprised anyone. First, the PPI data wasn’t new or unexpected and it fell in line with recent Fed, consumer, employment, and economic data. If equity owners weren’t dumping stocks following last week’s headlines, why should we think this PPI report would suddenly change their minds?

That midday bounce send bears scrambling for cover as the index recovered a majority of those opening losses. But what’s good for the goose is good for the gander. Just when bulls were starting to feel good about themselves, the market pulled the rug out from underneath them and sent stocks tumbling back to the opening lows.

Just like the early bounce, Thursday’s late retreat shouldn’t have surprised anyone either. As I’ve been writing for weeks, this is a choppy market and that means lots of back-and-forth. In fact, Wednesday evening I reiterated that sentiment when I told readers:

No matter what the bulls and bears claim, this market is not going to explode higher and it is not going to crash lower. But that’s okay for the savvy and opportunistic trader. Buy the dip, sell the bounce, and repeat as many times as the market lets us. But remember, if we are not collecting profits early and often, the market will take back all of those profits and turn our trade into a loser.

And for good measure, on Monday I said:

Keep buying the dips and selling the pops because this market is going nowhere fast. This choppiness means we need to collect profits early and often because holding a few hours too long is the difference between worthwhile profits and watching a winning trade turn into a loser.

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I could go on and on with similar statements from previous posts because we’ve been in this sideways grind for a while. Anyone trying to trade the next breakout or breakout is getting chewed up by these reversals. But that doesn’t stop bulls and bears from making the same mistakes again the next day.

No one can trade these wild whipsaws perfectly, so don’t even try. But when you have a profit, you better be taking it because odds are good it will be gone in a few hours.

As for what comes next, expect more of the same. As bad as Thursday’s close looked, Wednesday’s close looked good. And we saw how that turned out. This is the “opposite market” and the smart trade is going against conventional trading signals instead of following them.

Maybe stocks open poorly Friday, but rather than jump aboard the selling bandwagon, be on the lookout for that next bounce because odds are good it will come hard and fast.

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Feb 15

Why bears are wrong and why bulls can’t get complacent

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Wednesday’s session up a modest 0.3%, but if you only looked at the finishing print, you’d miss everything the market was trying to tell us.

It’s not how you start, but how you finish that matters most. And while no one is getting excited by a 0.3% gain, the market started the session down 0.8% and finishing in the green is actually a noteworthy accomplishment.

The thing about Wednesday’s resilience is it mirrored Tuesday’s bounce back from the midday lows. Lucky for readers, everything I wrote in Tuesday evening’s blog post was fully on display during Wednesday’s session:

The reflexive selling Tuesday morning would have triggered a bigger follow-on wave of selling if this market was overbought and vulnerable. Instead, supply dried up as most equity owners shrugged and kept holding. That tells us the ground under our feet is far more solid than most people think.

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Wednesday was strike two bears, adding more proof to the idea that this market wants to go up not down. A market that refuses to go down will eventually go up and it is only a matter of time before we are challenging 4,200 support again.

That said, we don’t want to get too excited because this market is still consolidating January’s gains under 4,200 resistance. As much as I’d love to see the index explode higher, it simply doesn’t have the energy to do that right now. Instead, expect this back and forth under 4,200 to continue.

No matter what the bulls and bears claim, this market is not going to explode higher and it is not going to crash lower. But that’s okay for the savvy and opportunistic trader. Buy the dip, sell the bounce, and repeat as many times as the market lets us.

But remember, if we are not collecting profits early and often, the market will take back all of those profits and turn our trade into a loser. Don’t let that happen to you.

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Feb 14

Why the latest CPI data is still a win for Bulls

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

As expected, Tuesday morning’s release of the latest CPI data triggered a wave of impulsive volatility as bears and bulls argued over what these latest data points mean.

But also not a surprise, the CPI result gave both camps something to crow about, meaning this half-empty/half-full news didn’t change anyone’s mind. (i.e. bulls stayed bullish and bears stayed bearish)

When people don’t change their minds, stocks tread water, which explains Tuesday’s trivial -0.03% loss.

As I explained to readers Monday evening, I didn’t expect the CPI data to trigger a meaningful move in stock prices and that’s exactly what we got:

We get another inflation reading Tuesday. Expect volatility for the first 30 minutes as impulsive traders overreact to the headlines. But after that, the market will return to what it was doing previously, which is this choppy consolidation under 4,200 before the next push higher. Unless the inflation reading is truly shocking, don’t expect it to have a lasting impact on the market.

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While the result of Tuesday’s session was a draw, tie-breakers go to the prior trend, which was consolidating recent gains under 4,200 resistance.

The reflexive selling Tuesday morning would have triggered a bigger follow-on wave of selling if this market was overbought and vulnerable. Instead, supply dried up as most equity owners shrugged and kept holding. That tells us the ground under our feet is far more solid than most people think.

If this market was going to break down, it would have happened by now. While no one is excited about a 0.0% day, it counts as a win for bulls because it shows bears still don’t have any influence.

Keep buying the dips and selling the pops because this market is going nowhere fast. This choppiness means we need to collect profits early and often because holding a few hours too long is the difference between worthwhile profits and watching a winning trade turn into a loser.

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Feb 13

What to expect from Tuesday’s inflation readings and how to trade it

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 added 1.1% Monday, continuing Friday’s bounce and putting the index back above 4,100 support.

Headlines haven’t changed in a meaningful way and that stability is allowing the market’s half-full mood to keep prices near multi-month highs.

I expected last week’s selling to stall and bounce fairly quickly because there wasn’t any real bite to last week’s selling. Which is exactly how it played out. As I wrote in Friday’s free blog post:

Friday’s session wasn’t all that bad…While no one is bragging about a 0.2% gain, bears had the perfect setup to send stocks tumbling for the third day in a row. But rather than trigger the next wave of defensive selling, supply dried up and prices bounce. As I said Thursday evening, this was the [buyable] setup I was looking for.

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While some people scoff at a 1.1% gain, make that trade in a 3x ETF and now we’re looking at a 3.3% profit in a single session. It only takes a handful of sessions like that to have a very good year.

As for what comes next, just like there wasn’t a reason for stocks to tumble last week, there isn’t a reason for them to pop this week either. As quickly as last week’s selling stalled, expect the same to happen to this week’s rebound.

This is a choppy market and that means taking profits when we have them because holding a few hours too long is the difference between collecting worthwhile profits and watching a winning trade turn into a loser.

We get another inflation reading Tuesday. Expect volatility for the first 30 minutes as impulsive traders overreact to the headlines. But after that, the market will return to what it was doing previously, which is this choppy consolidation under 4,200 before the next push higher. Unless the inflation reading is truly shocking, don’t expect it to have a lasting impact on the market.

Buy the dips, sell the bounces, and repeat as many times as the market keeps throwing us these softball pitches.

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Feb 10

Why the smart trade was buying Friday’s bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Friday was another back-and-for session for the S&P 500.

For as bad as this week looked, Friday’s session wasn’t all that bad. While we opened the day with losses, that was as bad as it got and it was all uphill from there. The index ultimately closed in the green and near the highest levels of the day. Not bad, not bad at all.

While no one is bragging about a 0.2% gain, bears had the perfect setup to send stocks tumbling for the third day in a row. But rather than trigger the next wave of defensive selling, supply dried up and prices bounce.

As I said Thursday evening, this was the setup I was looking for:

At this stage, only fools are expecting these wobbles to trigger the next big breakdown. The rest of us realize stocks spend most of the time going up and down for no real reason at all. Without a significant fundamental driver behind Thursday’s selling means I’m looking to buy the next bounce. Maybe it arrives Friday morning. Maybe Friday afternoon, or even early next week. But a bounce is coming because it always does.

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Because I arrived Friday morning with a plan to buy the next bounce, I was ready when Friday’s early weakness failed to trigger a bigger wave of defensive selling. When bears couldn’t deliver on that perfect setup, that meant they were already out of gas and it was time to start buying. I initiated a partial position and a stop under the early lows. And when the market continued to trade well in the afternoon, I added more.

To be clear, there are no guarantees in the market and the selling could resume Monday morning. In that case, my stops will keep me safe. But buying fear is never easy and it often means making a hard trade. As easy as it is to hate this latest pullback from 4,200 resistance and violation of 4,100 support, trades that start out feeling wrong often end up being right.

I have no idea what next week holds, but I saw a great buying opportunity and I jumped on it. If I get dumped out at my stops next week, no big deal, I step to the sidelines and wait for the next bounce, most likely closer to 4k support. In fact, being wrong here would actually be a better outcome for me because the further this falls now, the more money I make when it finally bounces back.

Plan your trade and trade your plan. As cliche as that sounds, there are few things more essential to trading successfully.

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Feb 09

Is it time to panic?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

It was another two-faced session for the S&P 500 as nice opening gains turned into big closing losses.

Luckily, this didn’t surprise readers of this blog. As I’ve been saying for a while, this is a choppy market and not a directional one. That means taking profits early and often because if we wait a few hours too long, those profits escape and turn into losses.

As I wrote Wednesday evening:

Long gone are the days of big, multi-day moves. Instead, we are stuck with this daily chop. But that’s not a problem because it can be just as profitable if we know how to trade it. Keep taking profits early and often because today’s winning trade will turn into tomorrow’s loser.

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Well, it seems I underestimated this market because instead of waiting a day between swings, we are now getting big changes in direction within a single session.

But as I said previously, this isn’t a problem for nimble traders that are willing to lock in profits when they have them and then get ready to go in the other direction.

It is the bulls and bears getting chewed up by this back-and-forth price action because instead of taking profits when the market moves in their direction, they start bragging about how smart they are and are doubling down. Bulls were doing it yesterday. Today it’s the bears’ turn.

As bad as Thursday’s price action looks, there weren’t any significant headlines driving this selling. As entrenched as bulls and bears have gotten over recent months, it will take big and undeniable changes in the fundamentals to get people to change their outlook. We didn’t get anything remotely close to that Thursday, meaning there is no real meat to Thursday’s selling, meaning it will most likely end in another reversal on Friday or early next week.

At this stage, only fools are expecting these wobbles to trigger the next big breakout or breakdown. The rest of realize stocks spend most of the time going up and down for no real reason at all.

Without a significant fundamental driver behind Thursday’s selling means I’m looking to buy the next bounce. Maybe it arrives Friday morning. Maybe Friday afternoon, or even early next week. But a bounce is coming because it always does.

Sell when other people are confident and buy when they are scared. Repeat as many times as the market lets us.

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Feb 08

The mistake bulls and bears keep making

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The back and forth continues in the S&P 500 as Tuesday’s big gains turn into Wednesday’s big losses.

But this doesn’t surprise readers of this blog. As I wrote Tuesday evening:

[T]he most important thing to realize is this market doesn’t have big move potential. We get these tradable daily swings…but every step forward is followed by a step back. That means we want to take profits early and often. Hold a few hours too long and the market will steal those profits back. I really like Tuesday’s gains and I’m sitting on a pile of profits, but this is the wrong time to be getting greedy. I already lifted my stops and am planning my exit.

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Well, here we are 24 hours later and the market stole back almost all of Tuesday’s profits. If your trading plan doesn’t include taking profits, you won’t have any profits left to take.

This is the kind of market where both bulls and bears are right, at least momentarily. Yesterday bulls were beating their chest. Today it’s the bears’ turn. The problem is neither of these groups are making money. Instead of bragging about their positions, they should be taking profits. That’s why savvy traders avoid biases and labels like bullish or bearish. We trade the market and it doesn’t matter which way it is going.

As for what comes next, expect more of the same. Headlines are not changing much. That means both bulls and bears can rationalize sticking with their positions. It takes people changing their minds to move markets and until we get some dramatic and unexpected headline that comes out of nowhere, expect this mindless sideways chop to continue.

Long gone are the days of big, multi-day moves. Instead, we are stuck with this daily chop. But that’s not a problem because it can be just as profitable if we know how to trade it. Keep taking profits early and often because today’s winning trade will turn into tomorrow’s loser.

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Feb 07

The way smart money is trading this market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Tuesday was a whipsaw session for the S&P 500, but by the time dust settled, the index powered 1.3% higher, ending a two-day losing streak.

The day’s big headline was public comments from Jerome Powell covering the economy, recent job gains, and future rate hikes. But for all the hype and anticipation, he didn’t say anything new or unexpected. That didn’t stop impulsive day traders from lurching from one side of the boat to the other. But at the end of the day, what Powell said changed very few minds and that’s why these lurches didn’t accelerate in either direction.

More important is 4,100 support held for the second day, giving us the buying opportunity we were looking for. As I wrote Monday evening:

Big picture wise, there isn’t any meat to Friday’s headlines or this latest wave of selling. This is nothing more than a routine step back and consolidation near overhead resistance. Those dips are shallow and bounce quickly. Wait a few hours too long and you will miss the next buying opportunity.

Well, here we are a few hours later and the index now finds itself closer to 4,200 than 4,100. If you didn’t come to Tuesday’s session with a plan to buy, you missed some really easy money.

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As for what comes next, the most important thing to realize is this market doesn’t have big move potential. We get these tradable daily swings and there is more up than down, but every step forward is followed by a step back. That means we want to take profits early and often. Hold a few hours too long and the market will steal those profits back.

I really like Tuesday’s gains and I’m sitting on a pile of profits, but this is the wrong time to be getting greedy. I already lifted my stops and am planning my exit.

As easy as it is to buy back in, it makes sense to start taking partial profits as we approach 4,200 resistance. This market doesn’t have big move potential, so we don’t need to worry about getting left behind by a big breakout. Instead, we should be more worried about our profits escaping during the next step back.

Buy the bounce, sell the breakdown, and repeat as many times as the market lets us. That’s the way smart money is playing this.

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Feb 06

Why I’m already looking for the next buying opportunity

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Monday down 0.6%, extending Friday’s employment-fueled swoon. But this continued cooling isn’t a surprise, as I wrote Friday evening:

While I don’t fear “too good”, I am aware that it’s been a good run and stepbacks are part of every move higher. I still like this market over the medium and long term, but the risk/reward has gotten away from us over the near term.

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We only make money when we sell our winners and that’s exactly what I did last week. But just because I locked in some really nice profits doesn’t mean I’m giving up on the October rebound. I actually like the economy and don’t buy into this “good news is bad news” argument. Inflation is coming down AND employment is holding up. Isn’t that the soft landing we’ve been hoping for??? I don’t understand why so many people are afraid of good economic news, but I’m not one of them.

As regular readers know, I love taking worthwhile profits when I have them. But as soon as I get out, I start looking for that next buying opportunity because it often arrives a lot quicker than most people expect.

The index bounced nicely off of 4,100 support Monday morning and I was ready to start buying again. Unfortunately, the lackadaisical afternoon session and closing in the middle of the day’s range convinced me to hold off for the moment.

I’m itching to buy the next bounce, but I would rather be a little late than a lot early. That means I’m waiting to see what happens Tuesday. If the selling continues, I will keep waiting and watching for an even better buying opportunity. But if prices bounce Tuesday morning, I will jump aboard with a small position and a stop near Monday’s lows. If that initial position works well, I will add more money. If the trade doesn’t work and prices retreat under my stops, no big deal, I pull the plug at my stops for a small loss and try again Wednesday or Thursday.

Big picture wise, there isn’t any meat to Friday’s headlines or this latest wave of selling. This is nothing more than a routine step back and consolidation near overhead resistance. Those dips are shallow and bounce quickly. Wait a few hours too long and you will miss the next buying opportunity.

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Feb 03

Why Friday’s retreat shouldn’t have surprised anyone

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 spent Friday’s session bouncing between breakeven and moderate losses as it digested January’s blowout employment report before ultimately closing down 1%.

Economists were shocked by January’s robust hiring that drove unemployment to 50-year lows. Few saw this coming following several months of slowing employment gains.

As with everything in the market, there are two ways to interpret this result. The market’s knee-jerk reaction was fear the Fed will be forced to raise rates higher and keep them there longer than previously thought. Of course, the optimist will point out that slowing inflation AND robust employment is the perfect landing we’ve been hoping for.

Which is it, is good good, or is good bad? It all comes down to if a person believes strong employment will be an obstacle to containing inflation.

But even more basic than reacting to the headlines, the market consumed a huge pile of upside getting to these six-month highs, flipping the risk/reward on its head.

Risk is a function of height and common sense tells us it is safer to buy when prices are low and risker to buy when they are high. At the highest prices in half a year, no matter what the headlines are, we are vulnerable to a very normal and healthy step back. 4,200 resistance is just ahead and it isn’t a surprise to see buying cool off here, no matter what the headlines are.

While I don’t fear “too good”, I am aware that it’s been a good run and stepbacks are part of every move higher. I still like this market over the medium and long term, but the risk/reward has gotten away from us over the near term.

That’s why I told readers Thursday night I started harvesting profits:

As much as I like this market right now, it is making me nervous and that is enough for me to shift to a defensive mindset. Stocks move in waves and every two steps forward are followed by a step back. Without a doubt, stocks can continue climbing for another few days, but we take profits when everyone feels good. And right now things feel pretty darn good. We don’t need to sell everything, but it makes sense to lift our trailing stops and consider taking some partial profits. Remember, we only make money when we sell our winners.

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I had no idea what was going to happen with the employment report, but when the rubber band gets stretched a little too far in one direction, the odds of a normal and routine snapback increase.

As for how to trade this, we take profits when we have them because if we hold too long, they tend to escape. As good as it felt watching profits pile up on Wednesday and Thursday, every good thing comes to an end eventually.

The older the 2022 bear market gets, the lower the volatility becomes. Six months ago, a breakout like Wednesday would have continued for five or more sessions. Today it runs out of gas in 48 hours. This is perfectly normal as traders get used to our new reality and stop overreacting to every bump in the road.

The economy remains strong, but the market tends to get ahead of itself and Thursday was a nice place to start locking in some very worthwhile profits. But as always, as soon as I’m out, I start looking for the next place to get back in. The next opportunity could arrive as early as next week.

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Feb 02

Are bulls becoming too cocky for their own good

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday was another great session for the S&P 500, with the index adding 1.4% and extending this week’s bounce off of 4k support. But this was expected, as I wrote Wednesday evening:

[T]his continues to be a half-full market and it keeps focusing on the positives. If it wanted to go down, there are more than enough excuses for prices to fall…Something that refuses to go down will eventually go up. Expect Wednesday’s highs to get even higher over the next few days and weeks.

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Bears are quickly becoming an endangered species, but as nimble and agnostic traders, we have to get concerned when one side accumulates too much power because it often ends in a reversal in the other direction.

Now, to be clear, I’m not picking tops, but 700 points above the October lows and we have to be aware that a huge portion of the near-term upside has already been realized.

Momentum is far more likely to continue than it is to reverse, but it always comes to an end at some point. A lot of recent buying looks like bears getting squeezed out of their short positions. While that is great for some quick gains, big and sustainable moves need to be built on more than just bears scrambling for cover.

As much as I like this market right now, it is making me nervous and that is enough for me to shift to a defensive mindset. Stocks move in waves and every two steps forward are followed by a step back.

Without a doubt, stocks can continue climbing for another few days, but we take profits when everyone feels good. And right now things feel pretty darn good. We don’t need to sell everything, but it makes sense to lift our trailing stops and consider taking some partial profits.

Remember, we only make money when we sell our winners.

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