End of Day Analysis Archives - Page 9 of 56

Feb 01

Why bears keep getting it wrong

Free After-Hours Analysis:

Wednesday was Fed day, and as expected, it took the S&P 500 on a wild ride.

The initial knee-jerk reaction was lower, but as I warned readers, this first move is often misleading and we don’t want to jump aboard anything too quickly. Here’s what I wrote Tuesday evening:

Don’t jump on the first knee-jerk reaction Wednesday afternoon because it often goes in the wrong direction, but it won’t be long before the market can no longer hide its true intentions and it starts the next multi-day move. If it’s up, buy it. If it’s down, get out of the way…

Once Powell got a few minutes into his press conference, a wave of relief spilled over the market and prices went from -1% to +1% as fear of the worst went flying out the window. Which, also wasn’t a surprise, again quoting what I wrote Tuesday evening:

As for what comes next, recent gains leave the market vulnerable to a slip if the Fed doesn’t say all of the right things. But once we work our way through that volatility over the next few sessions, I expect the “less bad than feared” rebound from the October lows to continue. The only question is if it continues from 4,100, 4k, 3,900, or 3,800. And while I consider myself bullish, the trader in me would love to see this fall to the lower end of that range before bouncing.

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Well, unfortunately for us, Powell said all the right things Wednesday afternoon and I didn’t get lucky enough to buy big discounts from impulsive and panicked sellers at much lower levels, but such is the market. Sometimes it gives us great trading opportunities, other times we have to settle for good. This happens to be one of those good times.

While it is easy to parse the Fed’s statement to justify why the market rallied on the news, there are just as many reasons stocks could have fallen on the very same statement. As has been the case for a while, this 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. But by this point, all of the naysayers have sold and once they are out, their opinion no longer matters.

If this market was fragile and vulnerable, Wednesday’s knee-jerk selling would have accelerated lower. Instead, supply dried up and prices bounced on less-bad-than-feared. 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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Jan 31

Why Tuesday’s nice rebound doesn’t matter

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Tuesday nicely higher, bouncing back from Monday’s retreat from 4,100 resistance.

As I wrote previously, I started locking in worthwhile profits last Friday:

Now, to be clear, I am in no way calling this a top. But the risk/reward has shifted against us after 300 points of upside has been realized and the air underneath our feet gets higher by the day. Markets move in waves, that’s what they do. And we shouldn’t be surprised when the next routine and healthy wave lower arrives.

But as soon as I get out, I always start looking for the next opportunity to get back and I put on a partial position Tuesday morning, exactly as I said I would in Monday evening’s free post:

[M]aybe prices don’t fall any further than Monday’s lows and it is all uphill from here. But as easy as it is to buy back in, I would rather lock in January’s worthwhile profits when I have them rather than risk letting them get away by getting greedy and holding too long. Maybe I end up buying the next bounce Tuesday morning, but that’s the case, no harm no foul.

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Under normal circumstances, I would have added even more Tuesday afternoon given how well the market rallied. And believe me, I was definitely tempted to leverage up, but given the Fed’s looming policy statement headed our way Wednesday afternoon, I knew Tuesday’s price action didn’t really matter to the big picture.

I’m happy to hold a position ahead of the Fed’s policy statement, especially one sitting on a nice profit cushion, but I’m not interested in gambling on the outcome with a full position. As easy as it is for nimble independent traders like us to get into the market, I don’t mind waiting for the market to make up its mind before I put my hard-earned money at risk.

While other people are gambling on the market’s reaction to the Fed’s latest policy statement, I will be over here waiting to hitch my wagon onto whichever direction this wants to go. No doubt I will be a little late jumping on the next big move, but during times like this, I would much rather be a little late than risk getting run over if I’m wrong.

As for what comes next, recent gains leave the market vulnerable to a slip if the Fed doesn’t say all of the right things. But once we work our way through that volatility over the next few sessions, I expect the “less bad than feared” rebound from the October lows to continue. The only question is if it continues from 4,100, 4k, 3,900, or 3,800. And while I count consider myself bullish, the trader in me would love to see this fall to the lower end of that range before bouncing.

Don’t jump on the first knee-jerk reaction Wednesday afternoon because it often goes in the wrong direction, but it won’t be long before the market can no longer hide its true intentions and it starts the next multi-day move. If it’s up, buy it. If it’s down, get out of the way and wait for the next bounce, which could come along as soon as a few days later.

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Jan 30

Why Monday’s selling shouldn’t have surprised anyone

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

On Monday the S&P 500 retreated 1.3% and gave back a big chunk of last week’s gains.

Easy come easy go. But this shouldn’t surprise readers because we knew something like this was coming. As I wrote last Friday:

Markets move in waves and after a nice bit of up, it is time to get ready for the next bit of down. It’s been a nice run since the December lows and that means we are sitting on a pile of profits. But rather than get greedy, this is when we need to shift to a defensive mindset. There are few things more humbling than watching a leak in our bucket rob us of all of these hard-earned profits.

Remember, we only make money when we sell our winners. As easy as it is to buy back in, there is no reason to stubbornly hold on to a winning position as it moves away from us.

Now, to be clear, I am in no way calling this a top. But the risk/reward has shifted against us after 300 points of upside has been realized and the air underneath our feet gets higher by the day. Markets move in waves, that’s what they do. And we shouldn’t be surprised when the next routine and healthy wave lower arrives.

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There is no reason to overreact to one day of selling, but it was fairly obvious the index was going to run into some resistance near the November and December highs. This is as basic as technical analysis gets and it shouldn’t surprise anyone when swing traders start locking in profits at these obvious technical levels.

As I wrote on Friday, I am in no way bearish and actually think this rebound still has room to go over the medium and longer term. But I also recognize markets move in waves. As I wrote on Friday, we only make money when we sell our winners, so challenging 4,100 resistance looked like a really good place to start locking in some very worthwhile profits.

Now, maybe prices don’t fall any further than Monday’s lows and it is all uphill from here. But as easy as it is to buy back in, I would rather lock in January’s worthwhile profits when I have them rather than risk letting them get away by getting greedy and holding too long.

Maybe I end up buying the next bounce Tuesday morning. But if that’s the case, no harm no foul. But maybe it takes a few more days for this down wave to bottom, in which case I will be getting in at even better prices. But no matter what happens next, the profits from my last trade are guaranteed and I will be in a great position to jump aboard the next trade no matter where and when it starts.

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Jan 27

The critical adjustment savvy bulls are making at these levels

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 added a modest 0.2% Friday after challenging the highest levels in months earlier in the session.

I’m not sure where all of the bears have gone, but everyone crowing about a larger breakdown back in December has suspiciously gone MIA. But January’s strength shouldn’t surprise anyone. As I wrote back in December before the Christmas break:

The S&P 500 crashed more than 100 points Thursday morning [December 22nd] after someone yelled “Fire” and impulsive traders climbed over each other trying to get out.

What was the catalyst for Thursday’s selling? Easy, there wasn’t one. This panic was nothing more than impulsive traders getting spooked by their own shadows and then the herd following them out the door.

But this isn’t a surprise. This was the second to last trading session before the Christmas holiday and institutional investors are already at their vacation chalets. Without big money’s guiding hand, there was no one to keep impulsive retail traders in check, and like irresponsible teenagers given too much responsibility, these retail traders made poor decisions.

Lucky for us, these retail traders have small accounts and quickly ran out of things to sell. By early afternoon, supply dried up and the index rebounded 60 points from those oversold levels, easily reclaiming 3,800 support.

As Forest Gump famously said, “Stupid is as stupid does.” And on Thursday, retail traders proved why they have such a poor reputation.

Well, here we are a little more than a month later and the market is up 300 points and challenging recent highs. Not bad for the baby that was almost thrown out with December’s bathwater.

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Of course, now we find ourselves on the other side of the pendulum. In December, we were challenging multi-month lows. Now we find ourselves challenging multi-month highs.

Did anything material change over the last several weeks other than the market’s price levels? No, not really. Inflation is moderating, just like it was in December. The economy is cooling, but only slightly and is still growing at a good clip, just like in December. And the Fed is poised to raise interest rates next week, but at a slower clip than previous raises, also like December.

So by a lot of measures, January’s rallied on “less bad than feared.” Unfortunately, this new-found half-full interpretation of headlines means we have a lot less room left to rally if headlines remain the same. At some point, “less bad than feared” is not enough and we actually need “better than expected” to keep pushing to fresh highs.

Will next week bring us the “better than expected” outlook from the Fed that we need to keep rallying? Or will the Fed rain on this parade like they have every other time the market got a little too far ahead of itself during this tightening cycle?

Markets move in waves and after a nice bit of up, it is time to get ready for the next bit of down. It’s been a nice run since the December lows and that means we are sitting on a pile of profits. But rather than get greedy, this is when we need to shift to a defensive mindset. There are few things more humbling than watching a leak in our bucket rob us of all of these hard-earned profits.

Remember, we only make money when we sell our winners. As easy as it is to buy back in, there is no reason to stubbornly hold on to a winning position as it moves away from us.

Now, to be clear, I am in no way calling this a top. But the risk/reward has shifted against us after 300 points of upside has been realized and the air underneath our feet gets higher by the day. Markets move in waves, that’s what they do. And we shouldn’t be surprised when the next routine and healthy wave lower arrives.

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Jan 25

Why smart money was buying Wednesday’s rebound

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Unsurprisingly, the S&P 500 tumbled back under 4k support Wednesday morning.

While the market looked good Tuesday, as I’ve been writing over the last few weeks, the market is currently in a back-and-forth mood and that means every bit of up is followed by a bit of down. That’s why I told readers I was proactively pulling some profits off the table Monday and again on Tuesday:

At points like this, it makes sense to lock in some of our really nice profits because we don’t make money until we sell our winners. But at the same time, the market is still behaving well, so it is equally worth holding on to some of our positions too. With one foot in and one foot out of the market, we will be in good shape no matter what happens next.

If I had known Wednesday’s open would crash through 4k support, I would have sold everything, but tradng is a game of probabilities and the odds of a continuation versus a retest of support were 50/50. In cases like this, it is good to have some money in the market and some profits safely on the sidelines, that way no matter what happens, part of my trade is in the perfect position.

Wednesday morning it turned out that the part I sold was the better half, but it just as easily could have been the part I was still holding.

As for the rest of my trade, Wednesday morning’s givebacks undercut my stops, so I locked in those profits too. But rather than give up on this trade, as soon as I get out, I start looking for the next bounce, which is a good thing because it arrived an hour later.

As it turned out, most owners shrugged at Wednesday morning’s selling and kept holding. That reluctance to sell put a floor under prices and this turned into yet another piece of evidence that this market wants to go higher, not lower.

Red days are a healthy and normal part of every move higher, and so far I don’t see anything in this test of 4k support that says this is anything other than one of those normal and healthy step-backs on our way higher.

While holding through these gyrations would be easier than trying to trade around them, if we don’t pull the plug when prices fall, that means we are trading without a safety net. And while that might turn out okay most of the time, it only takes a few times of getting it wrong to erase all of those profits we made on the way up.

As much as I don’t like darting in and out of the market, it is a small price to pay for the safety of knowing I will never be caught on the wrong side of a big move. And many times it works out like it did on Wednesday where I end up getting back in at lower prices than where I sold on Monday and Tuesday. The difference doesn’t add up to a lot of money, but getting paid to reduce my risk is about as good of a deal as it gets.

I bought Wednesday morning’s bounce with a stop under the mid-morning lows. I added more around lunchtime, and even more when the index got back above 4k.

Act well Thursday and all of my stops will get moved above my entry points, making this a free trade. Not bad for a market that by most accounts should be going down. Good thing I trade the market and not other people’s opinions.
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Jan 24

What savvy traders are doing with all of these profits

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 retreated half a percent Tuesday morning before recovering almost all of those early losses, finishing the session down a trivial amount.

Stocks retreat quickly from unsustainable levels, so the longer we hold Monday’s 4k breakout, the more real it becomes. We tested support early Tuesday and the market passed that first exam with flying colors.

While one or two days don’t make a breakout, every sustained breakout starts with those first two days. At this point, headlines remain benign and this continues the less-bad-than-feared rebound from the October lows. As always, everything could get flipped on its head at a moment’s notice, but so far things look good.

Greedy when other people are fearful and fearful when other people are greedy. That simple strategy works more often than not, and now that the market is at multi-month highs, we have to tread carefully.

4k is an important level and so far it is holding steady. But as I wrote previously, this market is more choppy and sideways than up or down. And that means even if the trend higher remains intact, we should expect lots of back and forth along the way.

At points like this, it makes sense to lock in some of our really nice profits because we don’t make money until we sell our winners. But at the same time, the market is still behaving well, so it is equally worth holding on to some of our positions too.

With one foot in and one foot out of the market, we will be in good shape no matter what happens next. If the market gets rejected 4k yet again, we pull the plug at our recently lifted trailing stops. But on the other hand, if the breakout continues, we benefit through what we are still holding and then we put he accelerator down by buying back what we sold.

This is the highly enviable “no lose” position. The only reason we are here is because we had the courage to buy when everyone else was busy forecasting the market’s imminent demise.

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Jan 23

Why this rebound was inevitable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 smashed through 4k resistance on Monday and powered its way to fresh 2023 highs. That’s a long way from last week’s fearful selling that challenged 3,900 support.

Just as last week’s tumble was not fueled by meaningful headlines, this latest rebound didn’t need a fundamental justification to blow up in bears’ faces either. If we can fall on no news, then we can also rally on no news.

This continues to be a sentiment-driven market and sentiment by itself can only push prices so far, meaning these swings are prone to snapping back, which is exactly what happened on Friday and Monday.

Stocks can’t stay in one place, and that means wobbling back and forth for no real reason at all. Last week it was down, this week it is back up. But this shouldn’t surprise readers of this blog, as I wrote last Wednesday:

I’m itching to get back in and will be looking for a bounce to buy Thursday morning or afternoon. And if not Thursday, then Friday. A bounce is coming, the only question is when.

and Thursday:

[N]othing has changed and that means this is most likely just another routine buyable dip on our way higher. At least that’s how I’m approaching it

Here we are, four days later and 120 points higher.

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As for what comes next, the 2023 up-trend is still intact, and that means higher prices over the medium term. Another wave of selling and profit-taking could push us back to 4k, but at this point, the market wants to go up, not down, so any near-term weakness is just another buying opportunity.

Monday’s nice pop shows why smart money was buying when everyone else was selling for no good reason. As independent traders, we don’t buy dips, but as soon as prices find a bottom and start bouncing, it is full speed ahead.

But now that the market is 120 points above Friday’s lows, we have to be more careful. We buy early and we get out early. That means it is already time to start thinking about an exit.

Move trailing stops up and even consider locking in some profits proactively. At this point, there is more risk underneath us than reward above us. Plan your next trades accordingly.

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Jan 20

Why no one should have been surprised by Friday’s rebound

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

What a difference a day makes. After falling for three sessions in a row, the S&P 500 came roaring back Friday, adding an impressive 1.9%.

As much as the financial press loves to attribute every zig and zag to some major fundamental catalyst, the truth is the market moved this week for no other reason than it can’t stand still.

The index ran up to 4k last week and that was all the excuse savvy swing traders needed to pull the ripcord and lock in some really nice profits. Their selling triggered reactive waves of follow-on selling as the crowd started to worry that 4k resistance, the 200dma, and 2022’s downtrend line signaled a major top and the market was on the verge of the next big crash.

But as is always the case, when we don’t have a significant and unexpected headline driving the market, the wave of selling exhausted itself and prices bounced.

Lucky for readers of this free blog, this is the exact setup I we were looking for. As I wrote Thursday evening:

[H]eadlines haven’t changed in a meaningful way and this retreat looks like little more than a routine pullback from overhead resistance. While down is down, routine reactions to technical levels rarely lead to big changes in the market’s direction. Think of these as the normal step back that follows every two steps forward…[N]othing has changed and that means this is most likely just another routine buyable dip on our way higher. At least that’s how I’m approaching it until proven otherwise.

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Instead of proving me wrong, the market proved me right in a big way on Friday by rallying nearly straight up. So much for all the fear-mongering and market-bashing going on this week.

But before we pat ourselves on the back too hard, the problem is if this week’s selloff didn’t have the strength to go very far, then we shouldn’t expect Friday’s rebound to carry us very far either. Expect this wave of buying to stall just as quickly as this week’s selling did.

Sometimes we buy the breakout and sell the breakdown. Other times we do the exact opposite. This happens to be one of those opposite times. The market isn’t poised for a big directional move and that means we trade against these breakouts and the breakdowns.

As good as Friday looked, expect the buying to stall over the next few sessions and it wouldn’t be a surprise to see the index retest 3,900 support over the next few weeks.

For savvy traders, this means taking profits when we have them. Everyone that bought Friday morning, move up our trailing stops and even consider locking in some profits proactively because we should be prepared for this choppiness to continue.

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Jan 19

Is it finally time to give up on this market?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 lost 0.8% Thursday, adding more pain to this week’s retreat from 4k resistance. Thursday’s losses leave the index a hair under 3,900, a level that provided support in late November and early December.

While it is hard to find good things to say about a three-day losing streak, the index appeared to find support at 3,900 after an early violation bounced back above this key support level in afternoon trade. The problem is a big chunk of those afternoon claw-backs disappeared by the close and the index finished in the lower third of the daily range.

As I wrote Wednesday evening, I was out of the market and looking to buy the next bounce. I bought a partial position Thursday afternoon and was fully prepared to add more if the index closed near the intraday highs. Unfortunately, the late selloff didn’t allow me to do that.

I’m still holding my initial partial position with a stop under Thursday’s intraday lows. I will add to that position if the bounce resumes Friday morning, but I will pull the plug if the index falls under my stops. This is a pretty straightforward setup for me with limited risk if the selloff continues and a pile of profit opportunity if the market bounces.

As for what I think is coming next, headlines haven’t changed in a meaningful way and this retreat looks like little more than a routine pullback from overhead resistance.

While down is down, routine reactions to technical levels rarely lead to big changes in the market’s direction. Think of these as the normal step back that follows every two steps forward.

At this point, it would take a significant and unexpected headline to send the index back to last year’s lows. And at this point, I don’t see anything that says current conditions are worse than the “less bad than feared” that allowed us to bounce off the October lows.

Now, a big and unexpected surprise could pop up at any time, but savvy traders trade what is happening, not what could happen. And right now, nothing has changed and that means this is most likely just another routine buyable dip on our way higher. At least that’s how I’m approaching it until proven otherwise.

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Jan 18

Why smart money hasn’t given up on this market yet

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 shed 1.6% on Wednesday as the index continues struggling with 4k resistance, the 200dma, and 2022’s downtrend line.

Retail sales fell 1% in December, and wholesale price inflation slipped to the lowest levels since last winter. The market’s knee-jerk reaction was to buy those headlines in hope of a quicker end to the Fed’s tightening cycle. But the relief was short-lived and prices ended up tumbling nearly 200 points through the session.

Did this morning’s headlines actually change anyone’s mind about the trajectory of the market? Or is this simply some profit taking near obvious technical levels?

The thing to remember about technicals is they should be drawn with a crayon, not a straight edge. These are regions and not specific levels. Bounces and stalls almost always come at some level other than the exact technical levels everyone is watching. Sometimes it is before, other times it is after. But the rarest of them all is a reversal on top of the key level.

To me, this turn-back at 4k looks too tight and clean to be real. I’m not saying that it can’t be real, just that it usually doesn’t work this way. And since trading is a game of probabilities, it is nice to know what outcome is more likely than another.

At this point, Wednesday’s selling looks to me like some profit-taking at the widely followed 4k level followed by waves of reactionary selling as follow-on sellers started fearing another rejection by resistance levels that stymied this market in the final months of 2022.

Real rejection or just another false alarm on our way higher? Lucky for us, we won’t have to wait long to get the answer. A bounce on Thursday and all is forgotten and forgiven. On the other hand, continued selling means lower prices are ahead, but even if that happens, we never stop looking for the next buyable bounce because it could come as early as Thursday afternoon.

All of that said, as much as I’m looking for a bounce from Wednesday’s retreat, I’m a disciplined trader and that means I pulled the plug on my last trade because the market’s retreat undercut my trailing stops. As easy as it is to buy back in, there is no reason to let all of my recent profits escape because I held too long. Buy early, sell early is how l like to play this.

But now that I’m out, I’m itching to get back in and will be looking for a bounce to buy Thursday morning or afternoon. And if not Thursday, then Friday. A bounce is coming, the only question is when.

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Jan 17

Why savvy traders don’t need to fear this technical triple-witching

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished the first day back from the long holiday weekend down a modest 0.2%.

Not much happened headlines wise and this continues to be a sentiment-driven market. Given how the index rests nearly 200 points above where it started the year, there has definitely been a thawing of last year’s half-empty way of looking at things.

While the economy is still struggling with some headwinds, we clearly avoided last year’s worst-case scenario and stock prices are rallying on this less-bad-than-feared news.

But for as nice as this 200-point rally looks in the rearview mirror, we are currently struggling with the triple-witching of 4k resistance, the 2022 downtrend line, and the 200dma. Any one of these is more than enough to put the lid on a rebound, and all three of these did exactly that a various points in 2022.

So the question becomes, should we be afraid of another rejection, especially with all three hitting us at the same time?

While there are lots of reasons to doubt this rebound, we trade the price action, not our beliefs and fears. Sure, these hurdles could send prices tumbling back to the lows. But until they actually start doing that, we have to give this rebound the benefit of the doubt.

A trend is far more likely to continue than reverse, and no matter what anyone else says, the trend is higher. Without a doubt, we should expect some choppiness near these significant technical hurdles, but until these resistance levels actually break the market, we should be positioned for the continuation, not the reversal.

The greatest advantage of being an independent trader is the nimbleness of our size. We don’t need to trade the breakdown until after it starts happening. If our trailing stops get hit, we get out. Until then, keep riding this wave higher.

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Jan 12

Bull or Bears: Which side is in control

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday’s trading session took the S&P 500 on a wild ride, but you wouldn’t know it if all you saw was the day’s modest 0.3% gain.

The extreme volatility kicked off after the monthly Consumer Price Index showed inflation falling for the sixth month in a row. While no one is excited by 6.5% inflation, it sure beats the 9% recorded back in June. And even more impressive, some categories actually saw price declines from November.

While it is premature to claim the inflation beast has been slain, there is enough history to say conclusively inflation is not spiraling out of control. It won’t get resolved nearly as quickly as some are hoping, but we are definitely headed in the right direction.

The most impressive thing about Thursday’s wild swings is how balanced they were. Every bit of down was matched by a bit of up and almost every bit of up was matched by an equally sized bit of down. To the point where within minutes of the close, the index was tracking near breakeven before a minor lift gave us that modest 0.3% gain.

Stocks couldn’t sustain a move on the CPI data because it didn’t change anyone’s mind. Bears were just as bearish as bulls were bullish. Prices don’t move when people don’t change their minds and this morning’s just-right result split the difference.

While it would be easy to call this a tie, in this instance the tie-breaker goes to the prior trend, which is up. In addition, as easily as stocks fall, holding steady is another win for bulls.

It doesn’t look like a lot happened Tuesday, but until something changes, bulls are still in control of this market.

The next big hurdle is the 200dma and 4k resistance. These technical levels proved too much for the market to overcome back in November and December. Will this time be any different? Only time will tell, but until prices actually start falling, we have to keep giving the benefit of the doubt to the rebound.

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Jan 11

How savvy traders are profiting from this volatility

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 added 1.3% Wednesday and the index now finds itself at the highest levels since early December.

So much for Monday’s ugly intraday reversal. But that’s the way this goes sometimes. If this were easy, everyone would be rich. The market frequently throws curveballs at us and Monday was one of those days. Sometimes it has to convince us we are wrong moments before proving us right.

The key to surviving these whipsaws and false alarms is staying nimble and having a solid trading plan. Anyone winging this is getting eaten alive as they keep getting fooled into buying high and selling low. But if we have a thoughtful trading plan that gets us in early and gets us out early, then not only are we surviving these whipsaws, we are actually thriving in this volatility.

As hard as it was to buy Tuesday’s rebound following such awful price action on Monday, that was clearly the right call. And a savvy trader was adding even more money Wednesday morning. Big money came back from Christmas vacation in a buying mood and smart money is following those whales.

Now that the index is well above our entry points, we can lift our stops, making this a low-risk trade where at worst we get dumped out for breakeven.

If we’re right, we make money. If we’re wrong, we lose nothing. It is impossible to beat that risk/reward.

4k resistance and the 200dma are up next. These were stumbling blocks back in November and December. But at this point, the market is acting well and deserves the benefit of the doubt. That means we keep riding this wave until it breaks down. Move stops up and see where this goes.

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Jan 09

The importance of the market’s next step

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 started the second week of 2023 off well enough, adding more than 1% and extending Friday’s employment-fueled gains. Unfortunately, those midday gains proved fleeting and the index retreated back to breakeven by the close.

Over the last few weeks, we could have written off this impotent price action because institutional money was on vacation and this was nothing more than over-active retail traders running amok. But by now most institutional money managers are back in the office and that means this price action counts.

And Monday’s failed breakout doesn’t look good. Stocks rallied to start the week and rather than embrace the strength, big money turned its back and let prices fall.

While one day can’t kill a market by itself, it can put a serious dent in any rebound attempt. Fall much lower and all of Friday’s gains are vulnerable.

The market is at a critical tipping point and how it responds Tuesday will tell us a lot about the market’s mood going forward. Retreat back to 3,800 over the next few sessions and 3,600 becomes the next most obvious target. But on the other hand, if buyers return Tuesday, Monday’s indigestion is forgotten and 4k is up next.

Plan your next trade accordingly.

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Jan 03

Why this market isn’t falling under 3,800 support

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

2023 started the same way 2022 ended, volatile and directionless. The S&P 500 opened Tuesday’s session with nice gains, but minutes later the index retreated into the red and quickly retested 3,800 support.

As dramatic as that 80-point collapse felt, rather than trigger a bigger wave of follow-on selling, supply dried up and prices bounced, which wasn’t a surprise because that’s exactly what we’ve seen every time the market tested 3,800 support over the last couple of weeks.

Big money is still on vacation, and that means retail investors are still in control. And in typical retail fashion, these impulsive traders overreact to every little bump in the road. Lucky for us, their accounts are so small they run out of money long before they can do any real damage.

Big money starts returning to the office later this week and into next week. That’s when we will get a better sense of the market’s mood and what direction we’re headed next. Until then, expect these choppy reversals to continue.

As for trading this chop over the next couple of sessions, if dumb money is selling, the smart move is fading that weakness. I bought this morning’s bounce off 3,800 support with a stop just under this level. While not a high-probability, high-reward trade, if I can get in with such limited risk, why wouldn’t I give it a shot?

And the same goes for when prices approach the upper end of the recent trading range Wednesday. When dumb money starts buying is when I plan on harvesting profits in this trade.

The next directional move is coming, but we will get a few more of these dramatic intraday reversals first. Might as well take advantage of them while we can.

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Dec 22

The real reason prices crashed Thursday and why we can ignore it

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 crashed more than 100 points Thursday morning after someone yelled “Fire” and impulsive traders climbed over each other trying to get out.

What was the catalyst for Thursday’s selling? Easy, there wasn’t one. This panic was nothing more than impulsive traders getting spooked by their own shadows and then the herd following them out the door.

But this isn’t a surprise. This was the second to last trading session before the Christmas holiday and institutional investors are already at their vacation chalets. Without big money’s guiding hand, there was no one to keep impulsive retail traders in check, and like irresponsible teenagers given too much responsibility, these retail traders made poor decisions.

Lucky for us, these retail traders have small accounts and quickly ran out of things to sell. By early afternoon, supply dried up and the index rebounded 60 points from those oversold levels, easily reclaiming 3,800 support.

As Forest Gump famously said, “Stupid is as stupid does.” And on Thursday, retail traders proved why they have such a poor reputation.

As for how I traded this, I came into Thursday holding long positions that I bought earlier in the week. Lucky for me, I already had a nice profit cushion and moved my stops above my entry points Wednesday, making this a low-risk trade for me.

As much as I wanted to see Wednesday’s rally continue, it didn’t turn out that way and I got dumped out at my trailing stops. To the cynics, that makes me wrong, but if my mistakes end in modestly profitable trades, I can live with that.

And in fact, after pulling the plug at my stops above 3,800 support, the waves of impulsive selling actually allowed me to rebuy those positions under 3,800 when the market bounced a few hours later. So not only did I get out of my previous trade for a small profit, I was able to get back in at even better prices.

If that’s what being wrong looks like, I don’t mind being wrong.

As for what comes next, a big wave of impulsive traders bailed Thursday morning and are no longer a risk to the market. I really liked Thursday afternoon’s bounce and that means I’m already a buyer.

If the selling resumes Friday, no big deal, I get out at my stops and try again next week. And if I’m really lucky, prices crash hard Friday and I get to buy even lower prices.

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Dec 21

Tuesday’s powerful clue that told us Wednesday’s 1.5% pop was coming

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 surged 1.5% Wednesday, adding an exclamation point on Tuesday’s modest bounce off of 3,800 support.

While a lot of people were caught off guard by Wednesday’s unexpected strength, especially shorts that got run over by this reversal, it really wasn’t that hard to see it coming. As I wrote Tuesday evening:

The S&P 500 finished Tuesday up a measly 0.1% after bouncing off of 3,800 support earlier in the session…

[S]uch a marginal gain would normally be easy to brush off in the face of the more than 200 points of selling since last week’s intraday highs. But Tuesday’s 0.1% gain was anything but normal.

Few trading signals are more powerful than a market that doesn’t do what it is supposed to do [after the Bank of Japan’s suprise move]. Now, we can’t read too much into a few hours of unexpected resilience, but so far the bounce off of 3,800 looks really good…

Well, here we are a day later and instead of crashing through 3,800 support, we are challenging 3,900 resistance. Blink and you missed a really nice trade.

But it was more than just Tuesday’s uncanny resilience that set this trade up. As I wrote last Friday evening:

As for what comes next, if prices bounce Monday morning, I’m closing the remainder of my shorts and even going long if those early gains persist for an hour or two. Starting small and putting a stop under the early lows would be a great, low-risk entry.

While bears were pressing their shorts on Monday and Tuesday, I was taking profits and buying the bounce. Amazing what happens when a trader views this market through an agnostic lens and doesn’t get trapped by bullish and bearish biases.

As for what happens next, the much-delayed Santa Clause rally is finally upon us. Don’t expect a big move, but a modest drift higher through the final week of the year wouldn’t be a surprise, especially if bearish selling capitulated Tuesday morning.

For those playing along, keep holding what we have and lift our stops to at least our entry points if not a little higher, turning this into a low-risk, high-reward trade.

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Dec 20

Why Tuesday’s 0.1% gain is far more significant than it seems

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Tuesday up a measly 0.1% after bouncing off of 3,800 support earlier in the session.

That small gain was enough to snap a four-session losing streak, but such a marginal gain would normally be easy to brush off in the face of the more than 200 points of selling since last week’s intraday highs. But Tuesday’s 0.1% gain was anything but normal.

S&P 500 overnight futures crashed Monday night after the Bank of Japan surprised investors by taking a more hawkish stance and allowing bonds to move to a higher interest rate. That sent Japanese stocks down 2.5%, and it looked like Tuesday was going to be another rough session for U.S. equities.

But not long after the U.S. open, the S&P 500 bounced into the green. Funny how that works. Bad news and stocks actually rally. What’s up with that?

First, it’s been nearly a decade since anything in Japan brought down U.S. stock prices. And even more recently, U.S. equities have been immune to problems in China and Europe, so why should Japan be any different?

U.S. stocks are trading based on U.S. inflation, the U.S. economy, and U.S. Fed rate hikes. Nothing else matters to domestic stocks and it is no surprise headlines out of Japan failed to register once the main trading session opened Tuesday morning.

And Second, if 3,800 support was fragile and stocks were prone to a much larger selloff, the Japanese headlines were more than enough to break this camel’s back. Yet, instead of mirroring the international indexes, U.S. owners shrugged at the bearish headlines and kept holding.

While it is hard to get excited by a 0.1% gain, it sure beats where we were headed when Tuesday’s session opened.

Few trading signals are more powerful than a market that doesn’t do what it is supposed to do. Now, we can’t read too much into a few hours of unexpected resilience, but so far the bounce off of 3,800 looks really good and that won’t change until we fall under Tuesday’s intraday lows.

As I wrote Monday night, I closed my short positions for a very tidy profit and started to go long when the index found support at 3,800 late Monday. I added to those initial long positions when prices bounced Tuesday morning and I will add even more Wednesday if this counter-intuitive strength holds up.

I love trades where the market doesn’t do what it is supposed to be because that means the supply and demand dynamics under the surface are stronger than anything the headlines can throw at it. If the Bank of Japan can’t break this market, imagine what will happen if some good news comes along.

My stops are under Tuesday’s lows and if prices rally Wednesday, I will quickly move my stops up to my entry points, turning this into a low-risk/high-reward trade. And if this one doesn’t work, no big deal, I sell at my stops and try again the next time the market bounces.

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Dec 19

Why smart money isn’t pressing their short positions here

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 fell 0.9% Monday as last week’s post-Fed selloff continues.

Headlines haven’t changed in a meaningful way and that includes last week’s inflation report and the Fed’s rate hikes. Inflation is moderating modestly and the Fed is slowing the pace of rate hikes. Both of these results fall in line with most investors’ expectations and we are not seeing any significant deviations in the fundamental data.

This remains a sentiment-driven trade and the October and November waves of optimism have given way to this latest bout of second thoughts. 3,800 is the next obvious support level and now we get to see if it holds. Either it does or it doesn’t and that binary outcome is the basis for our next trade.

Monday’s late test of 3,800 support held. That was our signal to lock in some very juicy profits on our short positions. And for the most adventurous, test the waters with a small buy and a stop under Monday’s intraday lows.

Odds are good closing our short positions Monday afternoon could be premature, but with over 200 points of profit in this trade, the risks of holding too long far outweigh the reward of squeezing a few more bucks out of this trade.

Remember, we only make money when we sell our winners and this has been a great trade. No reason to get greedy and keep pressing our luck. As easy as it is to buy back in, there is no reason to get stubborn here. Take those profits and get ready for the next trade.

Adding more to a long position Tuesday morning if the bounce off of 3,800 sticks, or switching direction and shorting a break under 3,800. This is as easy as it gets.

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Dec 16

What smart money is doing with their short positions

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 fell another 1% on Friday, making this the third down day since Wednesday’s Fed meeting. But as dire as that sounds, the index only lost 2% this week. While not great, this is hardly free-fall material.

Powell did his best to rain on the market’s parade, but it is unlikely his comments changed many peoples’ minds. Those that were bearish Wednesday morning are just as bearish today and those that were bullish are just as bullish.

Obviously, the bulls didn’t get that warm and fuzzy feeling from Powell’s press conference, but that lack of comfort hasn’t translated into a panic on the streets yet.

Inflation is moderating, the labor market remains tight, the economy is chugging along, and the Fed promises to fight inflation to the end. So pretty much everything that we knew last week. And if this is what we were thinking last week, there is no reason for stock prices to deviate in a significant way from where they were last week. Find support near 3,800 and this week’s selloff is nothing more than a routine bit of down following a nice bit of up.

Having shorted the post-Fed crash on Wednesday, I’m sitting on a nice pile of profits. At this point, I’m far more paranoid about losing those profits than interested in pushing my luck to make a few more bucks. I took some partial profits Friday afternoon and I will sell even more Monday if prices bounce.

Maybe the reflexive selling extends into next week and I’m selling these partial positions too soon. But that’s okay because taking worthwhile profits is never a mistake. I know I can’t pick the bottom, so I’m not even going to try. If the selling continues, I will profit from the partial positions I’m still holding, so it really is a no-lose situation for me.

As for what comes next, if prices bounce Monday morning, I’m closing the remainder of my shorts and even going long if those early gains persist for an hour or two. Starting small and putting a stop under the early lows would be a great, low-risk entry.

But my perfect setup would be a sharp selloff Monday morning that falls over three percent before bouncing hard in a capitulation bottom. I don’t think we will be that lucky, but that is what I’m hoping for.

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