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Are savvy traders running from this market or are they getting ready to buy the next bounce?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

So much for the Fed bounce, the S&P 500 gave back all of Wednesday’s gains and then a chunk more, finishing at the lowest levels in a year and a half. Ouch!

Gas is pushing $5/gal, mortgage rates are creeping up to 6%, consumer confidence is tumbling, and inflation remains stubbornly stuck at 40-year highs. Oh yeah, and there’s the biggest war in Europe since WWII. But other than that, things are going pretty well.

As poorly as everything feels, stocks are not oblivious and their nearly 25% decline reflects a lot of this pain.

Most bear markets bottom out between 25% and 30%, meaning we are most of the way there for a vanilla bear market. There are exceptions, like the Great Depression and the Great Recession, but the banking system nearly imploded in those episodes and for a repeat, we’d need to see something equally terrifying.

While $5/gal oil is painful, the biggest problem we have right now is most people have too much money and are bidding against each other for housing, cars, and everything else that is in short supply. Our biggest problem is the economy is too hot and the Fed is trying to cool things off.

Does that sound like our current situation has anything in common with the worst bear markets in history? No, not really.

And so while people are afraid of how much worse this will get, it is a little late to be worrying about that kind of stuff seeing as how most of the damage has already been done to stocks.

Maybe this grinds sideways for a year or two, which wouldn’t be a big surprise. But fearing a 40% or 50% selloff from the highs doesn’t match our current economic situation.

As for how to trade this, while Thursday’s 3.3% decline sounds bad, stocks ground more sideways than anything following the gap lower at the open. That means few people were rushing to sell stocks through the day, which is the first thing that needs to happen before we find a bottom.

Maybe we get a little more selling on Friday, but everyone knows markets moves in waves and after falling more than 500 points over a handful of days, the next near-term bounce is just around the corner.

I covered my short Wednesday, which proved to be a little early, but that’s the way this goes sometimes. Once we realize only fools try to pick tops and bottoms, that means accepting we will always cash in a little too early or a little too late. That’s just the nature of the game.

But now that I’m out, I’m already looking to get back in. The next trading opportunity that excites me most is a nice bounce back to 4k resistance. It could start as soon as Friday, so be ready.

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What made Wednesday’s bounce so predictable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 bounced nicely after the Fed got aggressive and hiked interest rates by 0.75%.

The market’s reaction seems counter-intuitive, but lucky for readers of this blog, it was the most likely outcome I flagged in Tuesday evening’s free post:

While this latest tumble was largely spurred by expectations shifting to a 0.75% Fed rate hike this week, this could very easily turn into a “sell the rumor, buy the news” event. This latest wave of selling priced in most, if not all of the widely expected rate hike, so when the news becomes official Wednesday afternoon, there might not be much selling left to do. And when a large wave of follow-on selling fails to materialize, we often see prices rally in relief that things weren’t worse.

The most likely scenario is the index reflexively crashes immediately following the Fed’s announcement of a 0.75% rate hike, but not long after, the selling capitulates and prices bounce, giving us that oh-so-beautiful “V” bottom.

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While bears were expecting another large selloff, stocks bounced because all of the people who were afraid of a 0.75% rate hike sold over the previous four sessions, meaning there was no one left to actually sell the news. And more than that, some investors were actually reassured by the Fed’s aggressive stance on inflation. Attacking inflation harder in the short term will keep this from dragging on, or at least that’s the hope.

As for how to trade this, when the rate hike failed to trigger a larger wave of selling, that was my signal to lock in some really nice short profits and get ready to buy the bounce. I still think we have lower prices ahead of us over the medium and longer-term, but over the near-term, if Wednesday’s bounce holds Thursday, 4k resistance is the most likely next target.

Any bears with nice short profits should be getting real protective because those profits will disappear if they hold much longer. As easy as it is to reshort the market when the selling resumes, lock in some nice profits here and get ready for the next breakdown.

As for dip buyers, here is our chance for a quick 200-point rally. While that doesn’t seem like a lot, catch that 5% wave in a 3x ETF and now we’re talking real money for a few days of “work”.

Cover shorts, buy the bounce, and leave stops/reshort under Tuesday’s lows. That seems easy enough.

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What Tuesday’s small decline tells us about what’s coming next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped 0.4% Tuesday.

While a small loss usually isn’t something worth worrying about, these are not usual times. The lack of a meaningful bounce following Monday’s nearly 4% crash suggests the selling hasn’t capitulated yet and lower prices are still ahead of us.

I typically have a bullish bias when it comes to the market because stocks spend far more time going up than down. That means I’m always on the lookout for a bounce to buy, but Tuesday’s price action didn’t check my boxes.

As I often write, the market loves symmetry and this crash will almost certainly capitulate in a “V” bottom. Unfortunately, Tuesday’s modest slip lower doesn’t look anything like the start of a “V” bottom.

While this latest tumble was largely spurred by expectations shifting to a 0.75% Fed rate hike this week, this could very easily turn into a “sell the rumor, buy the news” event. This latest wave of selling priced in most, if not all of the widely expected rate hike, so when the news becomes official Wednesday afternoon, there might not be much selling left to do. And when a large wave of follow-on selling fails to materialize, we often see prices rally in relief that things weren’t worse.

The most likely scenario is the index reflexively crashes immediately following the Fed’s announcement of a 0.75% rate hike, but not long after, the selling capitulates and prices bounce, giving us that oh-so-beautiful “V” bottom.

And of course, another real possibility is the Fed is the one that capitulates and sticks to its previously telegraphed 0.5% move. That would also trigger a nice pop in the market. (Or counterintuitively, the market freaks out and stocks crash because investors start fearing the Fed lacks the courage to combat inflation.)

Will any of these things happen Wednesday afternoon? Only time will tell, but they are definitely scenarios we need to incorporate into our trading plan. If we can’t map out our responses ahead of time, how in the world are we going to do it in the heat of battle?

While we will likely see further selling before reaching the capitulation bottom, once that bounce takes hold, shorts need to get out of the way and everyone else needs to grab ahold because the move will be fast and hard. Maybe the rebound stalls at 4k resistance, but a 300-point rally in 3x ETF is enough to put a pile of cash in your trading account. You like cash, right?

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How savvy traders avoided all of this carnage, plus what the inevitable bounce will look like

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Down 1%. Down 2.4%. Down 2.9%. Down 3.9%. In case anyone hasn’t been paying attention, it’s been a very painful several sessions for the S&P 500.

Luckily for readers of this blog, we were pulling the plug not long after this selloff first got started. As I wrote last Tuesday evening when the index closed at 4,160:

The best part about being a nimble trader is we can both stay safe and still be in a position to profit from the upside. As easy as buying back in is, there is no reason to stubbornly hold a dip. For as many times as being stubborn works, there are a dozen times it bites us in the ass. I would much rather sell and buy back in hours later than I would watch the losses pile up as I keep waiting for a bounce that never comes.

Now that the index is back above 4,150, I can spread my stops across the lower 4,100s. If we retest support again this week, there is no coming back from that and lower prices are ahead.

Little did I know that four sessions later, the S&P 500 would close at 3,750 after shedding more than 400 points along the way. But here’s the thing, I didn’t need to know how far this was going to fall in order to know it was a good idea to get out of the way. When the market violated my trailing stops above 4,100, I got out, no questions asked.

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We can pin this weakness on last week’s higher than expected inflation reading. Or bond futures predicting the Fed juicing interest rates 0.75% this week. Or maybe it’s $120/bbl oil and $5/gal gas. Or mortgage lenders quoting 6% interest rates. Or most likely, all of the above.

But as a trader, does it really matter? Stocks are falling and disciplined traders have no choice but to get out. Our trading accounts don’t care about the fundamental reasons.

And for the more aggressive trader, violating 4,100 support was the perfect invitation to throw on a short trade. Falling 10% over four sessions sounds shocking. But catch that wave in a 3x inverse ETF and now other people’s pain is our gain.

But avoiding losses and profiting from big declines takes discipline and a willingness to act. Savvy traders were pulling the plug before anyone realized something was wrong and we were putting our foot on the accelerator when the panic first started setting in. While most people are lying awake at night fearing the selloff will get worse, I’m wondering how much longer I should ride this wave before locking in my short profits. Which side of the coin would you rather be on?

As for what comes next, the selling has been brutal. But as I often write, the market loves symmetry, so the most likely outcome is a rip-your-face-off rebound from grossly oversold levels. Maybe the selloff ends in a dramatic “V” bottom after the Fed “only” raises rates by 0.5%. Or maybe we get another leg lower after they raise rates 0.75%. But either way, this is going to bounce hard and fast when it finally bounces, so be ready.

For the short trader, that means locking in profits quickly because a bounce back to 4k resistance will erase almost all of these really juicy profits. And for the nimble swing trader, buying the next bounce to 4k in a 3x ETF will put another wad of profits in our pocket.

Profiting from volatile markets isn’t hard as long as we have the confidence and discipline to trade proactively.

There is nothing positive to say about Bitcoin after this cryptocurrency plunged nearly 30% over the weekend. The best this can hope for is that it is getting so ugly it’s good. But we’re not there yet.

This cryptocurrency will bounce alongside the equity market, whenever that happens, but expect $30k to be a ceiling and any dip buyers should be locking in profits long before then. As attractive as these prices seem, it will be a long time before Bitcoin is investment-grade again.

Buy the bounce for a quick buck but nothing more.

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What savvy traders are expecting from this bloodbath next week

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Oof, that was an ugly week. The S&P 500 shed 5% over the last five sessions, with most of that coming during Thursday and Friday’s multi-percent bloodbaths.

The week started off well enough with the index challenging multi-month highs on Tuesday. But that turned out to be the high point of the week and it was all downhill from there. That said, the mad dash for the exits didn’t really begin until Thursday afternoon when 4,100 support failed. And as fast as things got moving, 4k didn’t stand a chance and that fell before the market even opened Friday morning.

With Friday’s close leaving us directly on top of 3,900 support, does anyone actually think this level stands a better chance of holding? I sure don’t…

As regular readers know, I’ve been a big proponent of buying and holding May’s bounce the last few weeks. And it was a great trade, with the index rallying nearly 10% from May’s intraday lows. (Catch that wave in a 3x ETF and we’re talking real money!)

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The rebound was acting well and 4,300 seemed within reach. But every seasoned trader always shows up to battle with an escape plan. No one is ever right all the time. In fact, most of us are wrong far more often than we care to admit. But if we want to succeed at this game, we always have a plan for being wrong.

For me, that safety net was my trailing stops near 4,100. I was confidently holding for higher prices but my trading plan wouldn’t allow me to get caught flatfooted under 4,100. By now, everyone knows all too well just how costly holding a little too long can get.

I locked in profits near 4,100 and when things really started falling apart, I flipped around and went short. It’s not the trade I was looking for, but it’s the trade the market gave me and I’m not one to look a gift horse in the mouth.

As for what comes next, this has been an emotional selloff and that means oversized moves…in both directions. This week’s tumble will most likely keep falling early next week, but once the selling capitulates, the bounce from oversold levels will be hard and fast.

Shorts need to be nimble and take profits quickly because the bounce will lop off a big chunk of their profits if they hold even a few hours too long. For those in cash, wait for the bounce, start small, get in early, and keep a stop under the lows. Pull the plug if the bounce fizzles and add more if it keeps working.

Monday will most likely be ugly. And Tuesday too. But a sharp bounce from oversold levels is coming, make sure your trading plan keeps you on the right side of it.

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How savvy bulls avoided Thursday’s carnage

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 proved again on Thursday that a lot can change in a few hours.

As I wrote Tuesday evening, everything looked great. An early 1% loss ran out of sellers and turned into an impressive 1% gain. Weak markets don’t do those things and I was content holding for the largely expected continuation to 4,300 resistance.

But hidden at the bottom of Tuesday’s overwhelmingly positive post, I had one small nugget that proved to be all too relevant on Thursday:

Now that the index is back above 4,150, I can spread my stops across the lower 4,100s. If we retest support again this week, there is no coming back from that and lower prices are ahead.

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Every good offensive plan starts with defense. If we don’t define our limits up front, we are trading without any and few things are more dangerous to our trading accounts.

As much as I liked Tuesday’s price action, I wasn’t willing to sit there unprotected. If Tuesday’s bounce was the real deal, it wouldn’t retest 4,100. Slipping back to support so soon after bouncing off of it means something is wrong. And as we found out Thursday, when things go wrong, they can go really wrong.

While everyone saw the market split wide open Thursday, most people missed the cracks that were already starting to show Wednesday afternoon. I didn’t like Wednesday’s fizzle and late retreat to 4,100 support. That convinced me to lock in some profits proactively. And Thursday morning’s stumble under 4,100 told me it was a better time to be safe than sorry.

I had no idea the market was going to shed nearly 100 points that afternoon. All I knew is the risk/reward was no longer in my favor. I liked the market and still thought 4,300 was the most likely outcome. But as easy as buying back in is, there is no reason to stick with a trade when it is flashing yellow. Because you know what? Flashing yellow turns into flashing red in the blink of an eye.

While most people were riding Thursday’s waterfall selloff lower, I was in cash and wondering if I should short the market. I was clearly wrong about 4,300, but as a nimble trader, I don’t mind being wrong. In fact, being wrong can be highly profitable if we are savvy enough to recognize it early and flip the script.

If I was wrong about 4,300 and 4,100 support, maybe I should be going the other way because if this breaks down, there is a lot of air underneath current prices. Rather than stubbornly stick to my prior position, I admitted defeat, pulled the plug, and joined the other side. No one likes being wrong, but I like making money a lot more than being right.

As for what comes next, it doesn’t look good. In fact, it looks dreadful. If the market doesn’t bounce hard at Friday’s open, get ready for more blood letting. Maybe the selling only lasts a few hours before capitulating. Or maybe we shed another 100+ points and challenge May’s lows. Either way, I don’t want to be standing in the way.

But as bad as this looks, the other thing I know is when this bounces, it is going to bounce hard. I don’t if that will happen, Friday or sometime next week, all I know is when this bounces, I’m covering my short and going long.

Either we ride this market or it rides us. You decide.

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Why a little tail-chasing can be good for our account values

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 tumbled at Tuesday’s open, easily undercutting 4,100 support. But within 10 minutes, the storm passed and it was all uphill from there. By the close, the morning’s 1% loss turned into a very respectable 1% gain.

If trading were easy, everyone would be rich. Sometimes the market needs to convince us we’re wrong moments before proving us right. It appears that’s all Tuesday’s momentary violation of 4,100 was, a little head fake before resuming May’s rebound.

The encouraging thing about the dip under support is it didn’t find many sellers. In fact, within minutes supply dried up and prices bounced. While I’d love to see the index charge higher every single day, the market doesn’t work that way. Sometimes we need to go through a few stepbacks before we can start the next leg higher.

As I wrote in Monday evening’s free post, I pulled the plug on a portion of my position Monday afternoon when early strength fizzled and the index closed at the intraday lows. While that weakness didn’t cross my stops, it was enough of a warning flag to convince me to take some risk off the table.

That caution appeared to be the right call when the index tumbled Tuesday morning. In fact, that gap jumped over some of my stops. But an opening gap is the single exception to my stop loss rule. Rather than reflexively sell the open, I give the market 15ish minutes to find its footing because more often than not, opening gaps bounce. Since I already took the biggest lump at the open, holding for a few more minutes to see if prices bounce doesn’t add a lot to my risk. If the selling continues, I get out a few points lower. If prices bounce, the early lows become my new stops and I keep holding.

As luck would have it, Tuesday’s early weakness bounced and I didn’t have to sell. And more impressively, when the index retook 4,100, I started adding back in what I sold the previous afternoon.

The market has a nasty habit of knowing exactly where our stops are and it loves violating them. But the best part about being a nimble trader is we can both stay safe and still be in a position to profit from the upside. As easy as buying back in is, there is no reason to stubbornly hold a dip. For as many times as being stubborn works, there are a dozen times it bites us in the ass. I would much rather sell and buy back in hours later than I would watch the losses pile up as I keep waiting for a bounce that never comes.

That sounds like a lot of effort for what amounted to an unnecessary trade, but protection against larger losses doesn’t come free. Just because holding worked this time doesn’t mean it will work next time. (Just ask all the people waiting for the market to bounce back above 4,500.)

Now that the index is back above 4,150, I can spread my stops across the lower 4,100s. If we retest support again this week, there is no coming back from that and lower prices are ahead. But since four tests of 4,100 support over the last five trading sessions failed to break the dam, it appears we are standing on solid ground and a continuation to 4,300 is the most likely outcome.

Keep holding for higher prices and continue lifting our trailing stops.

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How much longer will 4,100 support hold?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Monday 0.3% higher and remains above 4,100 support for the sixth session in a row.

While that sounds like a decent result, open the intraday chart and the situation looks a lot less encouraging. This is the second day in a row the index finished at the intraday lows and the fourth time that’s happened out of the last five sessions.

As I often remind readers, it’s not how we start but how we finish that matters most. While Monday finished in the green, that 0.3% close was well under the morning’s highs. The index popped 1.3% in early trade, buyers disappeared, and we finished at the intraday lows. That’s as ugly as it gets for a day that technically finishes green.

The index is still a handful of points above 4,100 support, but at this rate, a violation is all but inevitable.

I still think May’s rebound has the potential to challenge 4,300 over the next few weeks, but we need to tread carefully over the next few days. The market is far stronger than any of us and it doesn’t care what we think. If it wants to dip under 4,100 and retest 4k support, who am I to argue with it? I will gladly take profits near 4,100 and wait to buy the next bounce.

While my stops are spread under 4,100 support and they didn’t get violated by Monday’s late retreat, the weak closing price action convinced me to start peeling off some profits proactively. Buying back in is always a lot easier than praying the market bounces back to the levels I wish I sold at.

I shifted to a defensive posture and took some profits but I only peeled off a partial position. Rather than lurch all-in and all-out of the market, I like hedging my bets by moving in partial positions. If the index tumbles Tuesday, I took some profits at higher prices and have those funds safely in my pocket. On the other hand, if the index bounces back Tuesday, I’m still holding a partial position and can put the rest of my money back in. That’s a win-win in my book.

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Where did all the sellers go and what that means for where we’re headed next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday’s session got off to a rocky start after MSFT issued a revenue warning. That was enough to push the S&P 500 into the red for the third day in a row.

But as I often write, how we finish is far more important than how we start. And by that measure, Thursday turned out to be a fantastic session. Over the next several hours, the index surged 100 points, not only pulling itself out of that early hole but also erasing all of Tuesday’s and Wednesday’s losses, leaving us at the highest levels in nearly a month.

While headlines continue to be overwhelmingly negative and suggest lower stock prices, after two months of living under these storm clouds, it seems like we finally ran out of fearful owners willing to sell a retelling of those same old headlines.

No matter what the headlines are, eventually we reach a point where we exhaust the supply of sellers and that’s when those headlines stop mattering, ie the bad news gets priced in. A spike in oil prices. The Fed promising two more half-point hikes this summer. Inflation weighing on corporate earnings. It’s all a slightly different version of what we’ve been hearing for months.

As bad as things seem on the surface, we always reach a point where the market goes too far and prices bounce back despite the headlines. It took a while, but it seems like we finally passed that near-term capitulation point.

At this point, 4,300 is still very much on the table. Maybe this ultimately turns out to be nothing more than a dead-cat bounce on our way lower. But the near-term trend is decisively higher and that makes this a very buyable bounce.

Follow the headlines and we’d never buy anything. But do this long enough and it becomes obvious that even the most dreadful bear markets have big bounces on their way lower.

I’m not convinced this will be a particularly bad bear market. But even if that’s where we are headed, this is still a great near-term buying opportunity.

If this rebound stalls and retreats Friday or early next week, no problem, I pull the plug at my trailing stops, collect some handy profits and run. But until that happens, this is acting like it still wants to go higher and that means riding this wave as far as it will take me.

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Why it was so easy to see the bounce coming

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 experienced only its second down day out of the last seven trading sessions on Tuesday. Not bad for a market that many people had written off as dead.

A 350-point rebound over a handful of sessions is downright impressive, but my readers always knew this was coming. As I wrote in last week’s free post titled, “Why smart money is buying this bounce“:

As bad as every stock chart looks right now, that is exactly why we should be prepared for a near-term bounce. Everyone knows markets move in waves, yet most people forget this simple fact in the heat of battle. While a 70-year losing streak is impressive, savvy traders are anticipating a vicious snapback, not another seven weeks of selling.

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While no one is excited about Tuesday’s 0.6% giveback, everyone knows we cannot go up every single day and down days are part of every move higher.

More important than one day’s plus or minus is how the market responded to the first meaningful bit of selling in a week. And if we look under Tuesday’s hood, the early wave of selling stalled and bounced from those early lows. That is the kind of price action I like to see from down days.

As I wrote last week, I bought the bounce and my stops are already well above my entry points. There is nothing for me to do here other than keep holding for higher prices and lifting my trailing stops.

Maybe bears are right and this bounce fails and heads back to the lows, but at this point, I’m already sitting on a nice pile of profits in my 3x ETF trade and it doesn’t matter to me. Keep going higher and I make even more money. Stumble back to the lows and I lock in some nice profits at my stops and get ready to buy the next bounce.

Buying early means I’m protected no matter what happens next. But at this point, it looks like this market wants to keep heading higher and 4,300 resistance is very much on the menu.

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Why smart money is buying this bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 started the week off well enough, notching a 1.9% gain following the longest weekly losing streak in 70 years.

As bad as every stock chart looks right now, that is exactly why we should be prepared for a near-term bounce. Everyone knows markets move in waves, yet most people forget this simple fact in the heat of battle. While a 70-year losing streak is impressive, savvy traders are anticipating a vicious snapback, not another seven weeks of selling.

As I’ve been warning readers, the market likes to go where people are looking and 3,840 was a widely followed level simply because that represents a 20% pullback from January’s highs.  Well, as luck would have it, Friday’s session touched the magical -20%. But rather than trigger a follow-on wave of reactionary selling, supply dried up and prices bounced nicely into the close. Funny how that works.

As much as I expect lower prices over the medium-term, Friday’s late rebound was the perfect invitation to jump aboard a near-term bounce that could travel as high as 4,300 resistance. 400 points of upside is nothing to sneeze at!

This is the trade we’ve been waiting for and hopefully, most readers were able to take advantage of it. Buy Friday’s late bounce, add more Monday morning, and move stops up to our entry points. It doesn’t get much more straightforward than that.

Hundreds of points of potential upside and by getting in early, we already have a nice profit cushion and next to no downside. Trades don’t get any better than this.

If the bounce fizzles, we get out near our entry points, no harm no foul. If the rebound continues to 4,300, we make a pile of money. Gotta love that risk/reward!

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Another profitable mistake

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 crashed 4% Wednesday in the biggest loss since 2020.

The weekly losses were partially offset by Tuesday’s nice 2% pop, but no matter how we try to rationalize it, -4% is a horrific day any way you cut it.

As most readers know, I bought last Thursday’s late bounce and that trade was working well enough that I was able to lift my stops above my entry points this week. And good thing I did because that allowed me to lock in a modest profit Wednesday morning before the selling really got carried away.

While no one is getting rich arbitraging these small swings, the good news is I could be wrong about the bounce but still make money on the trade. It is hard to beat that risk/reward! If I’m right, I make a big pile of money. If I’m wrong, I make a small pile of money. I will take those trades every day of the week!

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Now, it doesn’t always work out this way, but for people that are willing to jump aboard these bounces early, it happens more often than you think.

Now, compare my modestly profitable trade to the more conventional approach of waiting for confirmation before buying. Those people bought Tuesday’s 2% bounce, and unfortunately, almost every single one of them got dumped out for a loss Wednesday.

Getting in early is scary, but it is usually the safest time to be buying.

As for what comes next, there is no silver lining to a 4% loss. Dip buyers had the opportunity to jump aboard this latest bounce, instead, they sold it with everything they had. If this market was oversold, it would have bounced and not looked back. Instead, we were left with this bloodbath.

At this point, I can’t see any way around crashing through last week’s lows near 3,850 and making the bear market official. And from there, only one bear market over the last 70 years bottomed at -20%, meaning odds are good once we hit -20%, the selling keeps going.

I’m still waiting for that next bounce, and it is coming, but lower prices are ahead of us first. Lucky, I’m watching this carnage from the safety of the sidelines. (Aggressive traders can short this weakness but be ready to take profits quickly because these things bounce hard and fast.)

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Why buying bounces is a lot easier and safer than most people think

By Jani Ziedins | End of Day Analysis , Free CMU

Free After-Hours Analysis:

The S&P 500 added 2% Tuesday and finds itself more than 200 points above Thursday’s intraday lows. Not bad, not bad at all.

Blink and you missed a great trade. But that was always going to be the case. Stocks snap back from oversold levels quickly. Wait a day or two for confirmation and you missed a whole lot of gains. And more than just lost profits, buying this late leaves a person vulnerable to a routine intraday step back, like the 40-point retreat we saw Tuesday morning.

As risky as it feels, buying the bounce early is the safest place to jump aboard. Distilled to its core, risk is nothing more than a function of height. The higher we are, the more room we have to fall. And on the other end, the further we fall, the less room we have left to fall.

It never feels this way in the heat of the moment. Most people are most confident at the top and scared at the bottom. But savvy traders know real risk is the exact opposite of perceived risk.

Everything felt great in January, but with 20/20 hindsight, obviously, January was a terrible time to be buying and holding stocks.

Now that the index is nearly 900 points lower, everyone is terrified of stocks, but common sense tells us it is far safer to be buying stocks down here than it was back in January.

It never feels good buying stocks after big pullbacks and buying Thursday’s late bounce was anything but easy. But three sessions later and the index is dramatically higher. It’s gotten to the point where my stops are already comfortably above my entry points, making this mostly a free trade for myself.

Keep going and I make a pile of money. Retreat and I get out at my stops and collect a few bucks for my time. Not a bad way to be wrong. But the only reason this trade is working so well for me is because I had the courage to get in early.

But none of this will surprise readers of this blog. As I wrote last Thursday:

While I feel a little silly buying [Thursday’s] bounce given how many false bottoms we’ve had over the last several weeks, I did it anyway because that’s what my trading plan told me to do. I started with a small position and a stop under intraday lows.

Will Thursday’s late rebound stick? Probably not. But I buy all of the bounces because I’m not psychic and I don’t know which one will work. The only way to make sure I don’t get left behind is to buy all of them. And by starting small, getting in early, keeping a nearby stop, and only adding to a trade that is working, I can buy these bounces with very little risk.

Well, here we are a few days later and I’m sitting on a nice pile of profits.

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As for what comes next, most of the market’s failed bounces turned tail within days, so four days into this bounce and it already looks different than the ones that let us down.

There are no guarantees in the market and this one can fail at any moment too, but it looks good so far and that means I will continue giving it the benefit of doubt. Anything above 4k and we are doing well.

I’m lifting my stops and watching to see how far this rebound goes. Hopefully, you are right there with me.

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Did something change Friday? It sure feels like it

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis 

The S&P 500 finished Friday up 2.4%, the first meaningful gain in nearly two weeks and the first strong Friday close since March’s big rebound.

There were not any meaningful headlines driving Friday’s strength and instead, this is simply a routine bounce from oversold levels. Without any real meat behind this move, it could fizzle like all of the other failed bounces over the last several weeks. But as we know, markets move in waves and a bigger bounce is inevitable even if lower prices are still ahead of us. After falling 700 points over the last few weeks, even bears should be willing to admit a near-term bounce is imminent (at least the sensible bears).

Is this the start of a bigger bounce? It definitely feels like something changed, most notably the willingness to buy stocks ahead of the weekend. Rather than fear the weekend and get defensive, investors were finally willing to buy ahead of it.

But as is always the case, only time will tell and Monday’s price action will give us big clues about the market’s mood. Unfortunately, anyone waiting for Monday’s confirmation will be a couple of hundred points late to the party.

This remains a volatile market. While the risk of large swings feels scary, in reality, it actually makes this easier (and safer) to trade. That’s because once these things get going, they tend keep going. As we’ve seen over the last few weeks, violate support and the selling accelerates. But the same also applies in the other direction, once a rebound gets going, expect it to keep going as a wave of dip-buyers start chasing prices higher.

As long as we are decisive and make our moves early, it is easy to stay on the right side of a volatile market. Especially one like this that makes most of its big moves during trading hours (as opposed to large opening gaps).

I have no idea if Friday’s bounce will stick around next week, but it is acting well enough to give it the benefit of doubt. I bought Thursday afternoon’s bounce, added more Friday, and lifted all of my stops up to my entry points. Sitting on a nice profit cushion, even if this fizzles next week, I will get out near my entry points, no harm no foul.

One of these bounces is going to work, the problem is it will only happen after most people have given up. That simply means we need to be more persistent than most.

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The low-risk/high-reward trade staring us in the face. Plus a great way to play Bitcoin.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Thursday mostly where it started. While the final result sounds fairly innocuous, getting there was anything but a smooth ride. In mid-afternoon trade, the index was down as much as 2% before a late rebound came to our rescue and erased nearly all of those losses.

As has been the case for a while, not much new is going on in the headlines, ie everything that is broken has been broken for a while. Instead, traders are mostly arguing over how bad the looming US recession is going to be. And right now bears are winning.

As I wrote on Monday, if 4k failed, 3,840 was up next. Why 3,840? Because that represents a 20% pullback from recent highs and makes this officially a bear market.

Thursday’s pullback stalled at 3,858 before bouncing, but when it comes to the market, this isn’t hard science, and getting within a handful of points is close enough. At least that’s what Thursday afternoon’s dip buyers thought.

While I feel a little silly buying this bounce given how many false bottoms we’ve had over the last several weeks, I did it anyway because that’s what my trading plan told me to do. I started with a small position and a stop under intraday lows.

Will Thursday’s late rebound stick? Probably not. But I buy all of the bounces because I’m not psychic and I don’t know which one will work. The only way to make sure I don’t get left behind is to buy all of them. And by starting small, getting in early, keeping a nearby stop, and only adding to a trade that is working, I can buy these bounces with very little risk.

In fact, I’ve made more money over the last three weeks buying these quick bounces than I’ve lost. When the market gives us free trades, only a fool passes those up.

If this trade blows up Friday, I’m only on the hook for partial position and at worst, I take a small loss. But on the other hand, if this rebound takes us back to 4,300, that’s a whole lot of profits. Small losses versus large profits? Yeah, I’m taking that trade every time.

Buy Thursday’s bounce. If the index retreats in early trade Friday, I get out and wait for the next bounce. If the Thursday’s late bounce keeps going, then move my stops up and buy more.

Everyone knows markets move in waves and we’ve been going down for a while. Even bears should be willing to acknowledge we are setting up for a near-term bounce.

Did the cryptocurrency market just go pop? I don’t know. But 50% off the highs for Bitcoin is definitely not good. And unfortunately, most alt-coins wish they were only down 50%.

While I’m not a bitcoin fan, I do love bounces, and Bitcoin’s bounce back above $30k Thursday evening is interesting, especially if the equity indexes find a bottom Friday.

Start with a small position, a stop under $30k, and see where this goes. If the trade works, add more. If it doesn’t, pull the plug for a small loss.

Low-risk/high-reward? These are the trades we dream of.

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

Why the scarier this looks, the better it is for our trading accounts. Plus why we can’t trust NFLX, AMZN, and TSLA

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 crashed 3.2% Monday, closing under 4k for the first time in over a year. But this isn’t a surprise, as I wrote last week:

Failing to do anything with the biggest up-day in two years is not good. Not good at all. While I’m an optimist by nature, at this point, recent intraday lows near 4,130 are all but toast. And I doubt it will get any better once we get there. 4,400 didn’t hold. Neither did 4,200. And 4,000 is going to be the next victim.

Well, here we are a few days later and now we can cross 4k off the list.

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Now that 4k is a victim of 2022’s correction, the next big bogie is 3,840. While that number seems somewhat arbitrary, it is significant because that represents a 20% correction from recent highs and would turn this correction into a full-on bear market.

Markets tend to go where the crowd is looking and if we came this far, it wouldn’t be anything to see it take those last few steps to make this official.

The good news is once this becomes a bear market, we can finally stop talking about it. And once we stop talking about it, odds are good people will stop selling it too.

The silver lining is Monday’s 3% plunge was one of the largest down days of the year. As far as capitulation goes, the selling typically accelerates moments before the bounce. So a big tumble means we are getting really close.

The problem is we won’t know what is too far until after it happens. Maybe Monday was capitulation. Or maybe we have another 4% or 5% tumble coming Tuesday or Wednesday. As I said, we won’t know until after it happens.

But lucky for us, these things are super easy to trade because the resulting moves are large and in one direction. Once this thing gets moving on Tuesday or Wednesday (either up or down), expect it to keep going.

If that’s down, get out of the way and wait to pick up the pieces. If that’s up, grab ahold, keep adding, and moving our stops up.

If we can get past our fear, riding these swings is a fast and easy way to make money.

While we are setting up for a nice bounce in the indexes, be careful with NFLX and AMZN. These stocks will bounce alongside everything else, but don’t be fooled. These growth stocks broke their sacred contract with the market and stopped growing. (How dare they!) Any bounces in these stocks are nothing more than a quick trade. It will be six or twelve months before these are investment-grade again.

While TSLA isn’t in this boat just yet, nearly 40% off the highs and it will be a while before people trust this stock again. Maybe Musk is selling as aggressively as he is because he knows something we don’t know yet.

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A profitable mistake, plus what to do with the FAANG stocks

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis 

I often say the market loves symmetry, but holy cow, I did not expect Thursday to turn into a mirror image of Wednesday’s huge pop. But that’s exactly what we got, 3% up followed by 3.6% down.

Add those together and we ended up with a fairly tame -0.6%, but wow did the market take the long way getting there.

The market popped Wednesday when the Fed did exactly what they said they were going to do, which was raise rates by 0.5%. Nothing surprising there and Wednesday’s pop was more sentiment-driven than anything. While we didn’t get any meaningful headlines Thursday, if we poped on sentiment, we can just as easily collapse on sentiment. And that’s exactly what happened.

All of this leaves us mostly back where we started. But failing to do anything with the biggest up-day in two years is not good. Not good at all. While I’m an optimist by nature, at this point, Monday’s intraday lows are all but toast. And I doubt it will get any better once we get there. 4,400 didn’t hold. Neither did 4,200. And 4,000 is going to be the next victim.

While Thursday turned into a dreadful reversal, buying Monday’s bounce actually worked really well for me. As always, I started small, got in early, kept a nearby stop, and added to a trade that was working. Following those simple rules and I was sitting on a pile of profits Thursday morning.

While Thursday’s progressive selloff wasn’t what I had in mind, I got out at my nearby stops and watched the trainwreck from the safety of cash. Ultimately, Monday’s bounce didn’t work and I was “wrong”, but if I can make a pile of money being wrong, then I don’t mind being wrong. (And if this is what being wrong looks like, I can’t wait to be right.)

All of this said, I’m still far more interested in buying 52-week lows than shorting them simply because that’s the way the market works. The time to sell was back in January when this first started. Not now that we’ve fallen 700-points.

Remember, markets move in waves and even if this is a bear market, expect some big bounces along the way. While it didn’t happen this week, the next big bounce is coming. Chances are good it will follow next week’s test of 4,000 support.

If the indexes look bad, the FAANG stocks are appalling. AAPL is the best of the bunch because it is “only” down 14%. On the other end of the spectrum, NFLX was murdered, dropping a whopping 73% from recent highs. Of the group, FB looks the most interesting and is buyable once the index finds its footing.

Don’t touch AMZN or NFLX with a 10ft pole because few things are worse than growth stocks that stop growing. It will be a while before these stocks get their mojo back.

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When it works, it really works!

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Monday evening I wrote the aptly titled post, “Why I’m not giving up and neither should you.” In it I said:

Everyone knows markets move in waves, yet people always forget this very simple fact in the heat of battle. Sell at the top, not at the bottom. Buy at the bottom, not at the top. While everyone understands that, so few people actually do it.

I bought last Thursday’s bounce. It looked great. But as is often the case, it didn’t work. I got dumped out near my entry points for a very inconsequential breakeven trade, and now I’m buying Monday’s late bounce. See how that works?

Will I make money Tuesday? Maybe, maybe not. But with my stops already near my entry points, I don’t have much to lose if I’m wrong and everything to gain if this finally takes off.

Well, here we are two days later and man did this thing take off. (Trade this in a 3x ETF like I do and that adds up to real money!)

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The Fed jacked up interest rates in the biggest one-day jump in two decades. How did the market respond? By rallying 3% on Wednesday. Funny how that works.

But this doesn’t surprise long-time market watchers. “Sell the rumor, buy the news” is as old as the market itself. Stocks tumbled weeks ago when Powell told us he was going to raise rates by 0.5%.

And guess what? The Fed did exactly what Powell told us he was going to do. But stocks rallied 3% anyway. That’s because as is usually the case, the market overreacts to bad news and then it pops back when reality turns out less bad than feared. In this case, the market cheered when Powell said the Fed wasn’t considering 0.75% rate increases anytime soon.

Anyway, as I wrote in Monday’s post, markets move in waves and it shouldn’t surprise anyone when a month-long skid ends in a big bounce.

While catching this bounce wasn’t easy and there were several false bottoms along the way. By starting small, getting in early, keeping a nearby stop, and only adding to a trade that’s working, I got out of my “mistakes” for breakeven.

More important than the result of those little tests is that I was making sure I was always going to be standing in the right place at the right time. While those previous bounces fizzled and dumped me out near my entry points, I knew the big pop was coming. And as it turned out, Wednesday was that day.

As for what comes next, Monday very well could be a near-term capitulation bottom and that means higher prices are still ahead. For those of us that got in early, move stops up to protect profits and keep holding to see where this goes.

For those that missed the bounce, the bounce will probably continue higher over the next few days and weeks, but buying late means taking a lot more risk. This shows why smart money is buying when everyone else thinks they are acting foolish. The real bounce doesn’t happen until after most people have given up, and that’s why savvy traders are more persistent than most people.

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Why I’m not giving up and neither should you

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Everything looked promising for the S&P 500 when it retook 4,300 last Thursday afternoon. Unfortunately, that was as good as it got and it was all downhill from there. The index entered a death spiral Friday morning and the selling didn’t stop until Monday afternoon when the index hit 4,060.

While that sounds dreadful, the silver lining is the index bounced nearly 100-points in the final hours of Monday’s session and actually finished in the green.

I know I sound like a broken record, but savvy traders sell strength and buy weakness while fools do the exact opposite. The time to abandon March’s huge rebound was back in March, which is exactly what I told readers back on March 31st:

If a person has been following this blog, they were sitting on a nice pile of profits after buying March’s spectacular rebound. But rather than get complacent by our good fortune, we were getting nervous at these towering highs and played defense by snugging our trailing stops up near 4,600.

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In case anyone’s counting, that was 500-points ago. People selling last Friday and this Monday morning are waaaaay late to the party.

Savvy traders look at a market that fell 500-points see a buying opportunity, not a reason to abandon ship.

Everyone knows markets move in waves, yet people always forget this very simple fact in the heat of battle. Sell at the top, not at the bottom. Buy at the bottom, not at the top. While everyone understands that, so few people actually do it.

I bought last Thursday’s bounce. It looked great. But as is often the case, it didn’t work. I got dumped out near my entry points for a very inconsequential breakeven trade, and now I’m buying Monday’s late bounce. See how that works?

These are the kinds of trades I live for. If I’m right, I make a boatload of money. If I’m wrong, I lose little to nothing.

Maybe Monday’s late buys work, maybe they don’t. But if this isn’t the real bounce, it will come eventually because markets ALWAYS bounce. Even bear markets bounce. In fact, bear markets have the biggest and fastest bounces of them all, so bear markets are some of the best times for nimble traders to buy the bonce.

Buy weakness, sell strength, and repeat as many times as the market lets us.

Will I make money Tuesday? Maybe, maybe not. But with my stops already near my entry points, I don’t have much to lose if I’m wrong and everything to gain if this finally takes off.

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Why smart money is getting ready to buy the bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The market giveth, and the market taketh away. The S&P 500’s huge rebound on Thursday was swallowed by an even larger collapse Friday.

Friday’s -3.6% implosion was the biggest single-day loss since the depths of the Covid crisis. But as bad as that sounds, if you net Thursday’s gain with Friday’s loss, we are only down -1.1% from Wednesday’s close. Not great, but not set-your-hair-on-fire bad either.

This time it wasn’t Covid, inflation, interest rates, oil, or even the war in Ukraine. Instead, it was yet another tech highflier fumbling the ball. This time, the offense was committed by AMZN, falling -14% on disappointing earnings. Combine that with NFLX and TSLA and many of the highflying pillars that propelled the market to record highs in 2021 have come crashing down.

When the biggest and most important companies let us down, it hurts everyone and last year’s unflappable half-full mood has given way to this year’s half-empty outlook. Actually, it’s more like three-quarters empty at this point.

But as dramatic as these whipsaws have been, they have been amazingly easy to trade and avoid.

The hardest whipsaws to trade are the ones that happen when the market is closed. Those are the ones that jump our stops and leave us with a smoking pile of wreckage the next morning. But this market hasn’t been doing that to us. Instead, the majority of these huge swings happened during market hours, meaning nimble traders had plenty of opportunities to get in and out before the serious damage happened.

Anyone that’s been reading this blog knows I like buying bounces. Sometimes they work amazingly well, like March’s hugely profitable 10% surge over a couple of weeks. (Ride that wave in a 3x ETF and now we’re talking real money!)

But April has been far more stingy. Lucky for me, the bounces have been large enough that after jumping aboard early, I’ve been able to quickly move my stops up to my entry points, giving myself a free trade. When the bounce collapses the next day, I get out at my entry points for a breakeven trade, no harm no foul. Which is exactly what I did Friday morning.

Without a doubt, I would rather be making money. But when my “bad” trades don’t lose money, it is hard to complain too loudly about that.

Making money in the market is easy (everyone has good trades), the hard part is keeping it (giving back all of those profits in the next bad trade). But as long as we follow a sensible trading plan, we make big bucks when the wind is at our backs and we sidestep the losses when it isn’t blowing our way.

We don’t need to know what the market will do next if we are nimble enough to follow its lead. That means starting small, getting in early, keeping a nearby stop, and only adding to a trade that is working. Follow those simple rules and making money (and keeping it) gets a lot easier.

As for what comes next, markets rarely kiss the lows and bounce. Instead, they tend to crash through them, scare the hell out of everyone, and then bounce. While fear is really high following Friday’s collapse under 4,200 support, it will probably get even worse before the next bounce.

4,200 failed and 2022’s intraday lows near 4,100 are up next. Maybe after tagging that level, we will finally run out of fearful sellers and bounce.

Even if this is a bear market, buying bounces is still a very profitable strategy. The biggest and most powerful bounces happen in bear markets, so I’m definitely not giving up on buying bounces. As bad as April was, odds are good May will give us another tradable 30% rally in a 3x ETF. I sure wouldn’t want to miss that huge trade because I got discouraged and gave up too early.

Remember, savvy traders sell highs and buy lows. And right now we are a lot closer to the lows that the highs, meaning the next good trade is going to be a buy.

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