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Why this week’s big bounce was inevitable

By Jani Ziedins | End of Day Analysis , Free CMU

Free After-Hours Analysis: 

The S&P 500 surged 290 points since Monday’s close and is now sitting at the highest levels in a month. And to think, five days ago the crowd was predicting another big crash. So much for conventional wisdom.

In percentage terms, the index is up 6.9% since Monday’s close. Catch this wave in a 3x ETF and now we’re talking about real money! Not bad for a week’s worth of “work”.

Now, I wish I could say I knew the market was going to bottom Monday afternoon and rally sharply the rest of the week. Unfortunately, I’m not psychic and was along for the ride like everyone else.

But while I couldn’t predict the exact when and where this rebound was going to happen, I knew the odds of a sharp bounce were good. This is a volatile market and that means oversized moves in BOTH directions.

First, the market loves symmetry, meaning big drops are followed by big bounces.

Second, headlines are dreadful, but they haven’t been getting worse. The correction since the January highs priced in a lot of bad news. Owners that fear these headlines have been given plenty of time to bail out of the market and have been selling to far more confident dip buyers.

And third, as I’ve written before, the market hates uncertainty more than bad news. While nothing is getting better, we can finally quantify what we’re dealing with. Ukraine is horrific, but it isn’t turning into WWIII. The spike in oil prices stabilized in the low $100s. And the Fed is only planning to push interest rates up near 3%.

While none of this qualifies as good news, it wasn’t as bad as some people feared and stocks have rebounded in a “less bad than feared” trade.

Given the above, I knew the market was poised for a big bounce, what I didn’t know was when. And that’s why I started buying bounces the week before. When I don’t know which bounce will turn out to be the real bounce, the only way to make sure I don’t miss it is to buy all of the bounces.

But rather than do this in a reckless, pick a spot and wager everything on it sort of way, I start small, get in early, and keep a nearby stop. When a bounce fizzles and retreats, no big deal, I get out and wait for the next bounce. And when that one fizzles, I get out and try again.

Two weeks ago people thought I was crazy buying these bounces. But markets don’t bottom until most people have given up. That simply means I need to be more persistent than the average trader.

Some of my early buys turned a small profit. Others broke even. And a few lost a few bucks. Throw all of those trades together and it was largely a wash. But more important than the profit or loss on those small trades is I was ensuring I would be standing in the right place at the right time when the real bounce finally came along.

I’m more than happy to lose a few dozen points on a 1/3 position when the potential upside is 300 points on a full position. This is the kind of risk/reward traders dream of! All it takes is the vision and courage to buy when everyone else thinks we’re foolish. Four days later and who’s the real fool?

At this point, there is nothing to do but lift our stops up near 4,400 and see where this goes. (You bought the bounce on Tuesday, right?)

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Is it too late to buy this bounce?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 undercut 4,200 support Monday afternoon and just when things looked their worst, the index exploded 240 points higher over the next three sessions and is now resting above 4,400 resistance. Funny how that works.

While a lot of people were caught off guard by this “unexpected” strength, it doesn’t surprise savvy traders that have been doing this for a while. As I’ve been explaining to readers since this correction started back in January, this is a volatile market and that means oversized moves in BOTH directions! Oversold turns into overbought in the blink of an eye and if you hesitate, even for a moment, you miss a fantastic trade.

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While cynics criticized my testing the waters last week with small buys and nearby stops that kept dumping me out near my entry points, this week shows why smart traders stick to their trading plan no matter what other people say.

I wish I could tell people there is still time to buy this bounce, but unfortunately, that ship sailed and only fools are chasing prices at these levels. Smart money buys bounces off of support, they don’t chase big moves near resistance.

Maybe the index continues up to 4,600, and as someone fully invested in 3x ETFs, I’d love to see that. Unfortunately, this remains a volatile market and that means oversized moves in BOTH directions. (I cannot repeat that often enough!) Adding new money up here is way too risky for my blood. Luckily, I loaded up Tuesday and am already sitting on a pile of profits.

The window for offense closed and this is time to shift to defense. My stops are spread between 4,300 and 4,350. If the index retreats to these levels Friday, no big deal, I collect my profits and get ready to buy the next bounce. But if the rebound continues higher, even better, I move my stops up to 4,400 and let those sweet profits come to me.

Fortune favors the bold and that means buying bounces when everyone else questions your sanity. In reality, the biggest fools were the ones waiting until stocks fell to 6-month lows before finally abandoning ship. (I bailed out back on January 5th, in case you missed that post.)

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Is this finally the real bounce?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 exploded 2.2% higher Wednesday after the Fed hiked interest rates for the first time since 2018 and laid out plans for another SIX hikes later this year…ouch!

That’s a bitter pill for investors addicted to cheap money, but the market was actually relieved the Fed’s plans weren’t even more aggressive and longer-term projections show rates topping out in a moderate 3% range.

Wednesday’s big gains add to Tuesday’s decisive rebound off of 4,200 support and that 4.4% two-day total is the biggest win in nearly two years. (Catch a ride on a 4.4% wave in a 3x ETF and now we’re talking about real money!)

So much for Monday’s bearish close under 4,200 support. But that’s the way this usually goes. Stocks only bounce after most people have given up. And unfortunately for all of Monday’s late sellers, not only do they have the humiliation of abandoning stocks at the lowest prices in over six months, they get to watch this rebound race higher without them. That’s the definition of adding insult to injury.

While I was equally discouraged by last week’s pathetic price-action and had low expectations Tuesday morning, I bought the bounce anyway because that’s what my trading plan told me to do. (Start small, get in early, keep a nearby stop, and only add to a position that’s working.)

Well, as is often the case, my gut was wrong while my trading plan was right. That’s a lesson I learned the hard way a long, long time ago and this single idea made more money for me than every other trick, tool, and strategy combined.

Come up with a simple, sensible trading plan and stick to it. Successful trading doesn’t need to be any more complicated than that.

As for what comes next, I’m fully invested and my trailing stops are above my entry points, meaning no matter what happens next, this is pretty much a free trade for me.

If prices continue higher, great, I let those profits pile up. If the selloff resumes and the index retreat under 4,200, I get out at my stops, collect some small profits, and get ready to try again next time.

If I’m right, I make a ton of money. If I’m wrong, I make a little bit of money. I love trades like this! But these opportunities only come to people willing to act early and decisively.

So to answer my opening question, is this the real bounce? Maybe. Maybe not. But no matter what happens next, this is a great trade for me.

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Did you buy the bounce? If not, why not?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 rebounded decisively Wednesday, adding 2.6% after oil prices pulled back from recent highs.

A month ago no one would have believed stocks would rally because oil was selling for $109/bbl, but that’s the world we find ourselves in.

Markets always take things too far, especially when emotion gets involved. That means it was inevitable this latest spike in energy prices was going to overdo it. And at least to this point, it appears like Tuesday’s run to $130/bbl was a bit too far and prices have since moderated from those overbought levels.

Maybe $130 was the capitulation point and things get better from here. Or maybe this is just a temporary reprieve before the next push to $140. Unfortunately, we won’t know until after it happens.

While some people try to guess the answers ahead of time, successful traders follow the market’s lead, especially when it comes to wildly emotional and unpredictable moves like these.

While $130/bbl is definitely unsustainable, that doesn’t mean prices cannot hit $140 or even $150 before falling back to a more appropriate level.

While I have opinions, I’ve been doing this long enough to know better than to trade those opinions. Instead, I follow the market’s lead and Wednesday the market was telling me to buy the bounce. Start small, get in early, keep a nearby stop, and only add to a trade that is working.

If prices continue higher Thursday, great, I will add more. If the bounce stalls and retreats, no big deal, I get out near my entry points and try again next time.

Maybe this is the real bounce. Maybe it is another false bottom on our way lower. Either way, my trading plan has me covered. Buy the bounce, sell the breakdown, and repeat as many times as necessary.

The next big bounce is coming and it will leave a lot of people behind. Luckily, I won’t be one of them. (If the selloff continues for a few more days or weeks, even better, I watch the carnage from the sidelines and swoop in and grab even bigger discounts when the next bounce finally arrives.)

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Why smart money was buying Tuesday’s midday rally

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Tuesday was another turbulent session for the S&P 500 as the index swung between 50 point gains and losses. Unfortunately, bears won the day and the index closed at the lowest levels since last summer.

The price action appeared encouraging after Biden announced a ban on Russian oil imports and the index surged 120 points from the early lows. That midday resilience went against what most people were expecting and unexpected strength is typically a really good sign. But that contrarian move proved short-lived and the index quickly gave back all of those gains and then some by the close.

While this extreme volatility is unnerving a lot of traders, the market doesn’t need to be scary if we come prepared with a sound trading plan.

As I’ve been saying since the start of the year, sell the dips and buy the bounces. While that sounds blindingly obvious, most people end up doing the exact opposite and that is why so many people struggle to make money.

As I wrote yesterday, I locked in profits last week when the previous bounce hit its head on 4,400 and undercut my trailing stops. That means I’ve been looking for the next buyable bounce ever since.

Tuesday’s midday bounce looked good, really good, and so I pulled the trigger on a partial position. (Start small, get in early, keep a nearby stop, and only add to a trade that is working.) When the rebound kept going, I  moved my stops up to my entry point, giving myself, in effect, a free trade. At that point, no matter what happened during the rest of the session, I was covered.

And as luck would have it, the selling resumed and I got dumped out near my entry point. Boooo!

While cynics laugh when people buy bounces that don’t work, I look at this as a free lottery ticket. If it works, I make 200 or 400 points when prices bounce back near recent highs. If the trade doesn’t work, I’m out at my entry point, losing nothing. 400 points of upside with virtually no downside? Only a fool ridicules that trade. (And lucky for us, the market is filled with fools. If it wasn’t, it wouldn’t be nearly this easy to make money.)

While Tuesday’s bounce didn’t work and I’m back in cash, I will be back at it again on Wednesday. And if that doesn’t work, there is always Thursday.

One of these bounces is going to work and I don’t want to miss it.

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The moves to make when bad news spells opportunity

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Monday was a bloody session for the S&P 500 as it shed 3% in the index’s worst performance in nearly a year and a half.

Headlines about inflation and rate hikes have been buried by what’s going on in Ukraine and oil price’s race toward historic highs. That said, there were not really any new developments this weekend and the stock market and oil markets are simply reacting to last week’s events.

Technically, Monday’s tumble leaves the index resting just above 4,200 support. This is the third test of support in recent weeks and unfortunately, while double bottoms are a thing, triple bottoms are not. That means the near-term prognosis for the market is not good. If the latest bounce was going to hold, we wouldn’t be retesting it this soon. So expect more pain over the near term.

That said, don’t expect a huge crash. While another -3%, -5%, or -7% wouldn’t surprise me, any overreaction will bounce hard and fast, returning stocks back near these levels within a week or two. So yes, while the near-term pain will get worse, it will be short-lived.

As long as we know what’s coming, we can plan around it. As nimble traders, there is no reason to hold through even a mild 2% dip and I already bailed out of my latest bounce play last week. Hopefully, you did the same.

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As I have been explaining to readers all year, I buy every bounce and that includes February’s latest bounce off of 4,100. But a nearby stop is ALWAYS part of every purchase, starting under the recent lows and then quickly moved up to my entry point as the bounce continues. And when the bounce keeps going, I keep moving my stops up with it.

While February’s bounce is on the verge of failing, I locked in some worthwhile profits last week and I’m getting ready to buy the next bounce.

Remember, we cannot take advantage of these great trading opportunities if we don’t have cash, and that means selling at higher prices.

Buy the bounce, sell the dip, and repeat as many times as necessary. With big, directional moves like these, making money isn’t hard.

Now that we’re in cash, the firs thing we’re doing is looking for that next bounce. Start small, get in early, keep a nearby stop, and only add to a position that is working. Maybe the bounce comes Tuesday. Maybe it doesn’t happen until Wednesday or even next week, but no matter when it happens, I will be there buying it again with open arms.

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What if Putin does the unthinkable and how to protect ourselves from it

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

S&P 500 futures fell as much as 2.5% during Monday’s overnight session as Russia’s war with Ukraine continued over the weekend and the West tightened the sanction screws on Russia.

But those overnight losses moderated by the open of regular trade to minus 1.5% and even better, the index finished the day down a very modest 0.2%.

While volatility remains off the chart, the index is trading amazingly well given the start of the largest European invasion since WWII. But as I told readers two weeks ago, this paradoxical behavior was expected:

This phenomenon of uncertainty being worse for stocks than bad news is what allows stocks to actually rally once bullets start flying.

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Well, that’s exactly what happened. While this crisis in Ukraine has turned into the worst-case scenario as Russia launched a full-scale invasion, US stocks have actually rallied nearly 7% from Thursday’s open. That’s not what a rational person would expect, but the stock market rarely does what it is supposed to do, so this mindbending move is par for the course.

While it feels a little strange to be profiting off of this conflict in Ukraine and my heart goes out to all of the people affected by this dreadful situation, I’m a trader by nature and when I see a great trade, I cannot help myself.

And given the market’s resilience Monday in the face of escalating economic sanctions, the stock market feels pretty comfortable economically with the way the situation is progressing on the other side of the world. While a massive human tragedy, the impact on US corporate earnings will be limited and is already largely priced into stocks.

As well as the index is acting, there isn’t much to do here except lift our stops to the 4,300 region and see if there is more upside left in this huge bounce.

That said, there is one risk that hasn’t been accounted for in US financial markets and that is Putin getting desperate and using tactical nuclear weapons to beat Ukraine into submission. Flatten one Ukrainian city with tactical nukes and the US stock market will open down 25% or more.

While this scenario seems highly unlikely, that’s the way many people felt about a full invasion early last week. That makes this a good setup for a bifurcated trade. Continue following the indexes higher with a conventional trade but buy a little insurance against the unthinkable by picking up some out of the money puts.

I typically don’t mess with options, but this is one of those cases where they make a lot of sense. The other alternative is staying in cash, but it is hard to resist these profits, so I will continue taking what the market gives me while using stock options to protect my backside against the unthinkable.

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Why the stock market’s rally following the Russian invasion makes perfect sense

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Russia invades Ukraine and US stocks rally?!?!

This has to be some kind of gigantic mistake, right?

Luckily for readers, I published a post last week titled “Why stocks could actually rally if Russia invades Ukraine“:

The thing to keep in mind regarding events in Ukraine is markets deal with bad news a lot better than uncertainty. That’s because traders can put a price on bad news and factor it into the market. Unknow outcomes are impossible to quantify and traders tend to let their imagination get the worst of them.

This phenomenon of uncertainty being worse for stocks than bad news is what allows stocks to actually rally once bullets start flying. While no one wants to see that happen, a hot war means we stop debating what could happen and instead focus on the actual impact of the conflict. And in most instances, reality turns out less bad than feared.

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The above analysis spelled out the market’s reaction to a tee when bullets started flying Wednesday night and hopefully readers were prepared because this was a fantastic trading opportunity.

(Note: The scale of this human tragedy in Ukraine cannot be overstated and my heart pours out to all the innocent people caught in the crossfire. But this is a stock market blog and the market has a cold, cruel heart when it comes to these things.)

Not surprising, the S&P 500 reflexively gapped 2.5% lower Thursday morning after the invasion started. But that’s when opportunity presented itself and only a handful of hours later, the index closed nearly 7% above those intraday lows. Blink and you missed an outstanding trade, especially if you use 3x ETFs like I do.

Now, this isn’t to say this was an easy trade. I’ve been looking for the bounce for a couple of weeks and made some premature buys along the way. But by being disciplined and following my trading plan, I made those “mistakes” with partial positions and by getting in and out early, those “failed” trades were mostly breakeven and some even returned a few bucks of profit.

While no one is getting rich trading these mini bounces, that was never the intent. I was big game hunting and I wasn’t going to let a few miscues detur me. Especially when those miscues were so inexpensive.

While some criticized these premature buys, I didn’t give up and my trading account is a lot fatter today because of it.

I cannot predict the future and I don’t know which bounce will be the real bounce. To deal with that, I simply buy all of the bounces because that means I will never miss one. And bounces that don’t work, no big deal, I get out at my nearby stop and try again next time

Rarely is making money this easy or fast. Hopefully, you didn’t miss this trading opportunity.

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As for what comes next, there isn’t much to do except lift our stops and see where this goes. If the emotional selling resumes, no big deal, I take my profits and wait for the next big bounce. I’m happy to keep riding these waves as long as the market is willing.

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Is smart money getting out before things get worse?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday was yet another bad session for the S&P 500 as it shed a further 1.8%, leaving the index 12% under January’s highs.

Nothing new happened Wednesday to drive this latest round of selling and instead, this continues to be “sell before things get worse” sentiment convincing people to abandon stocks at 8-month lows.

But to be perfectly honest, if I were going to sell, I would have done it weeks ago at the highs, not after stocks tumbled to multi-month lows. Which coincidentally enough, is exactly what I did back on January 5th:

Does [January 5th’s] dip stand any better chance of succeeding than all of the other aborted selloffs the market shrugged off last year? Probably not. But as nimble traders, why do we need to pick sides? As easy as it is to jump out and get back in, why would anyone want to ride through a near-term dip if they didn’t have to?

Well, as is turned out, the market’s “near-term dip” crashed another 500 points from that day’s close. Boy am I glad I switched to defense back when everyone else was too “fat, dumb, and happy” to be bothered.

These are the savvy moves we make when we follow the market’s lead and ignore what everyone else thinks “should” happen.

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While I cleared out of the market on January 5th, I bought a few of these bounces on our way lower. That’s because emotional markets bounce hard and fast. If we get in early enough, within hours we build a nice profit cushion protecting our backside.

While most of these bounces turn out to be false bottoms and stocks ultimately continue lower, buying the bounces early allows us to move our stops up to our entry points and sometimes even a little higher. (Imagine that, being wrong on a trade and still making money. It doesn’t get any better than that!)

While no one is getting rich profiting off these failed bounces, the most important thing is we stay in the game. While the first, second, or third bounce might fail, one of them is going to work and it will heap huge profit on those that get it right.

My approach to profiting from this volatility is simple, jump aboard these bounces early, often moving my stops up to my entry point, and then waiting for the real bounce. If this turns out to be another false alarm, no big deal, I get out and try again next time.

Traders dream of low-risk, high-reward setups. Well, this is one if we have the courage to trade it. Buy the next bounce; start small, get in early, keep a nearby stop, and only add to a position that is working. If the next bounce doesn’t work, no big deal, get out and try again the next day, the day after that, or the next week.

This emotional market is well on its way to getting oversold and that means the next bounce will be hard and fast. Don’t be left standing on the sidelines when it happens.

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It is time to sell before things get worse? Or is this a golden opportunity?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Monday was another painful session for the S&P 500 with the index falling to the lowest closing level since early October.

Putin moved Russian troops into eastern Ukraine and the West responded with a small list of economic sanctions. In fact, the sanctions were so modest that stocks actually rallied on the news. (Investors cheered that Russian energy exports were excluded.)

Okay, so stocks are at the lowest levels in several months and a big chunk of the bad news is already out there. Does that make this a good time to be selling stocks “before things get worse”? Or is this a better time to be looking at these discounts as the next golden opportunity?

While it never feels this way in the heat of battle, risk is simply a function of height, meaning the lower we go, the lower the risks have actually become.

Go back a month and a half when stocks were setting record highs and everyone was “fat, dumb, and happy”. With hindsight as our guide, how risky were stocks at that point? Yeah…

Fast forward a few emotional selloffs later and how risky are stocks now that they’re down 10%? Hmmm…

At the very least, we can say stocks are 10% less risky simply because they can only fall another 90% before hitting zero.

But we know the index cannot fall to zero, so current risks are actually a lot lower than that. (If the index falls to zero, civilization has ended and money is worthless, so our portfolios don’t really matter anymore.)

If this selloff falls 15% before bottoming, that means nearly 70% of the risk has been removed from the market. Does that sound scary? No, not really.

And more than just figuring out the rapidly diminishing downside risk, are people actually worried about what’s going on in Ukraine? Are they selling stocks because they think this crisis on the other side of the world will wipe out the American economy? No, of course not. No one thinks that. Instead, they are selling for no other reason than they think other people are going to sell.

I’ve been doing this a long time and doing something simply because you think someone else is going to do something is a really bad trading strategy.

Savvy traders buy and sell based on what the market is doing, not what they think other people are going to do. And down 10% on news that really doesn’t affect US markets is a far better time to be eyeing these discounts than rushing for the exits.

I’m looking for the next bounce and you should be too. Stocks closed pretty well Monday afternoon and there is a good chance this strength will continue Tuesday. Hesitate and these buying opportunities will be gone before you know it.

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

Follow those simple rules and buying bounces is a low-risk/high-reward trading strategy.

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Why we can safely ignore rate hike headlines

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday was another choppy session for the S&P 500 with the index spending most of the day in the red before a late surge of buying pushed it above breakeven.

Stocks picked themselves up off of the intraday lows after the Fed’s meeting minutes revealed they still planned on a March rate hike. While this was consistent with previous Fed statements, some investors were relieved the minutes did not contain even more hawkish undertones.

While that explanation sounds plausible, the real truth is everyone who fears interest rate hikes has been abandoning ship since early January. And after six weeks of selling, we are running out of fearful owners that still have stocks left to sell.

At some point, everyone who wants to sell a headline will have gotten out. And all of those fearful sellers were replaced by buyers demonstrating an indifference to those same headlines when they bought despite them. And that is the magic point when those headlines stop mattering.

Six weeks is a long time and stocks have long since stopped falling on these same recycled “rate hike” headlines. That means it is safe to assume those headlines are priced-in and we no longer need to worry about more of the same. When the market doesn’t care, we don’t care.

No doubt headlines can get worse and the Fed can blindside the market with a more aggressive rate-hike schedule. But as long as the Fed sticks to their original plan, the worst of the selling is already behind us.

As for Wednesday’s price action, this was a bullish reversal. An opening gap lower failed to attract follow-on selling and prices closed the gap and finished just above breakeven. Bears had the perfect opportunity to break this rebound and they blew it.

If this market was truly overbought and vulnerable, prices would have fallen by now. A market that refuses to go down will eventually go up. That means January’s bounce is alive and well. Plan your trades accordingly.

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Why stocks could actually rally if Russia invades Ukraine

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Tuesday was a good session for the S&P 500. A 1.6% gain allowed the index to break a three-day losing streak and reclaim the 200dma and 4,450 support. While one day doesn’t establish a new trend, it was nice to see the market bounce back from the latest bout of selling.

Russia hasn’t invaded Ukraine and that situation is avoiding the worst-case scenario…so far. But the thing to keep in mind regarding this event is markets deal with bad news a lot better than uncertainty. That’s because traders can put a price on bad news and factor it into the market. Unknow outcomes are impossible to quantify and traders tend to let their imagination get the worst of them.

This phenomenon of uncertainty being worse for stocks than bad news is what allows stocks to actually rally once bullets start flying. While no one wants to see that happen, a hot war means we stop debating what could happen and instead focus on the actual impact of the conflict. And in most instances, reality turns out less bad than feared.

And more than just “less bad than feared”, the turnover in ownership leading up to a conflict also helps stabilize prices. Owners that fear these events sell during the build-up and the subsequent buyers demonstrate a willingness to hold this headline environment. Ownership churn eventually gets to the point where all of the fearful owners have gotten out and there is no one left to sell the next round of headlines. And that’s when the bad news is finally priced in.

Are we close to that point? Maybe. Maybe not. But we get closer with each passing day and stocks will bounce long before most people expect. Anyone waiting for the news to improve will be too late. That’s why smart money buys when most people are still afraid.

As I wrote last week:

I took profits Thursday morning and now I’m sitting in cash, waiting for the next bounce. Maybe it happens Monday morning. If so, great, I start buying back in and will add more as the rebound progresses. But if the selloff continues, no big deal, I sit on my hands and wait for the next trading opportunity on Tuesday or Wednesday.

Well, as it turns out, the index bounced in the final hours of Monday’s session, reclaiming 4,400. That late surge of buying was our signal to test the water with a partial position. And Tuesday’s early strength told us to add more. So far so good. Keep a stop near Monday’s close and see where this goes.

If the selling resumes on Wednesday, no big deal, our early positions already have a nice profit cushion and we simply bail out near our purchase price. Small risks from being wrong and large rewards from being right? Sign me up! These are the risk/reward setups we dream of.

And if the selloff resumes, that’s okay too. We get out and try again next time. In fact, the lower we go now, the more money we make buying the next bounce, so I say bring it on. Either way, I’m ready for what comes next. Are you?

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What smart money will be doing Monday morning

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Following seven positive days out of the previous nine sessions, the S&P 500 stumbled hard on days ten and eleven. Luckily, we knew this was coming. As I wrote Wednesday evening:

Expecting this 10% rally to keep going is getting a tad greedy. Markets move in waves and it is worth remembering that at both the bottoms and the tops. It is time to shift to a defensive mindset and protect what we have. Move stops up and see where this goes, but no one should be surprised if this stalls near 4,600 resistance.

Well, here we are, 48 hours later and nearly 200 points lower.

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Some people blame this latest pullback on high inflation and looming rate hikes. Others point to the imminent Russian invasion of Ukraine.

While both of these reasons appear valid, the problem is the market rallied strongly under these same storm clouds two weeks ago. Inflation, rate hikes, and a Russian military build-up are not new. Are we supposed to believe these headlines didn’t matter for weeks and then all of a sudden traders woke up and started freaking out? I don’t think so.

In reality, the market pulled back Thursday and Friday simply because it was time. As I reminded readers two weeks ago near the lows, markets move in waves and we should be ready for a strong bounce. Well, here we are, two weeks later and 300 points higher. Rather than pat ourselves on the back for buying the bounce, smart traders were getting defensive and preparing for the step back.

Markest move in waves. Always have, always will. And now that we’ve fallen 200 points, rather than panic, it is time to start looking for the next bounce.

Buy the bounce, sell the breakdown, and repeat as many times as necessary.

I took profits Thursday morning and now I’m sitting in cash, waiting for the next bounce. Maybe it happens Monday morning. If so, great, I start buying back in and will add more as the rebound progresses. But if the selloff continues, no big deal, I sit on my hands and wait for the next trading opportunity on Tuesday or Wednesday.

Volatile markets like this are actually fairly easy to trade because once a move gets started, it keeps going. As long as we have the courage to jump aboard early, it is a fairly nice ride.

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How savvy traders traded Thursday’s volatility. Plus what Bitcoin owners need to keep an eye on.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 took us on another wild ride Thursday.

Volatility kicked off when the consumer price index surged at the fastest rate in 40 years. That sent traders scrambling for cover and the index gapped 1.3% lower at the open. But as is often the case, the opening gap reversed within minutes and it wasn’t long before the index found itself back near breakeven.

Unfortunately, that early dip-buying proved fleeting and the index retested the early lows in midday trade. And when a bounce fizzles, the selling rarely stops at breakeven. By the close, the index found itself down nearly 2%. Ouch!

But this wasn’t unexpected. As I wrote Wednesday evening:

Expecting this 10% rally to keep going is getting a tad greedy. Markets move in waves and it is worth remembering that at both the bottoms and the tops.

While I still like this market and will keep holding a trade that is working, it is time to shift to a defensive mindset and protect what we have. Move stops up and see where this goes, but no one should be surprised if this stalls near 4,600 resistance and rests for a bit.

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Thursday’s price action did more than pause and rest, but that’s the way this goes sometimes.

As I wrote Wednesday evening, I can into Thursday holding the latest bounce off the 200dma and had a decent profit cushion. While I obviously wasn’t happy with the opening gap lower, I knew better than to overreact to early weakness. Instead of punching out at the open, I gave the market a few minutes to find its footing and that’s exactly what it did.

That bounce was my signal to keep holding and move my stops up near the early lows. Unfortunately, that early bounce didn’t stick and I got dumped out near 4,450. But that’s the way trading goes sometimes. I collect my profits and get ready for the next trading opportunity.

Maybe prices bounce Friday and I get back in. If that’s the case, no harm, no foul. Or maybe the selling continues Friday. If that happens, I continue sitting on my hands and wait for the next bounce.

At this point, I don’t really care what happens next. The only thing that matters is that I’m standing in the right place at the right time when the next move takes hold.

While bulls and bears argue about whether this market is going a lot higher or a lot lower, I will continue playing both sides of the fence. IMO, there is too much money to be made riding these waves to get hung up on labels and who is right and who is wrong.

Bring on the volatility.

For the first time in a while, Bitcoin is actually outperforming the equity indexes. The breakout above $40k resistance was a buy signal for anyone that missed last month’s bounce off of the lows.

While Bitcoin is trading well for the moment, I am wary of a near-term sell-the-news event following this weekend’s Super Bowl.

There is no reason to sell prematurely based on something that could happen. Instead, we move our stops up and trade what is happening. And for the moment, Bitcoin is trading well.

Just don’t get complacent if we see weakness next week.

What the January rebound tells us about what’s coming next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 popped Wednesday, making this the seventh up day out of the last nine trading sessions. Not bad for a market that was written off for dead two weeks ago.

Headlines remain mostly the same, but that’s the point. The economic situation is not deteriorating and we avoided the worst-case scenario, meaning a big portion of January’s panic selling was an overreaction. But that’s the way this usually goes.

Overly pessimistic markets set up to rally on “less bad than feared” and that’s been the story of the last two weeks. As I wrote back then, markets love symmetry and that means the biggest selloffs have the biggest bounces. And what do you know, the index is up nearly 10% from the January lows. Funny how that works.

Buy this bounce in a 3x ETF and now we are talking about real money. Not bad for two weeks of “work”.

But that was then and this is now. Expecting this 10% rally to keep going is getting a tad greedy. Markets move in waves and it is worth remembering that at both the bottoms and the tops.

While I still like this market and will keep holding a trade that is working, it is time to shift to a defensive mindset and protect what we have. Move stops up and see where this goes, but no one should be surprised if this stalls near 4,600 resistance and rests for a bit.

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The secret that makes trading this volatility easy. Plus what this weekend means for Bitcoin and a FB freebie.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Tuesday in the green for the sixth time out of the last eight trading sessions and these gains leave us 7% above the intraday lows set barely two weeks ago.

Not bad for a bull market that was supposed to be dead. But this revival was always expected. As I’ve written many times before, the market loves symmetry and the biggest crashes are followed by the biggest bounces.

While no one can predict the exact moment when prices will stop falling and start bouncing, it doesn’t take a Ph.D. in Finance to identify the spot on a stock chart when prices stop falling and start climbing.

Emotional markets are as nimble as freight train trades. Once they get going, they tend to keep going and going and going. When we see that first bounce, all it takes is an hour or two to confirm the bounce and give us the green light to jump aboard. Wait any longer and we risk getting left behind.

And for anyone thinking this is nothing more than a case of hindsight bias, here’s what I wrote on January 24th when the January correction bottomed: 

Monday’s early 4% crash was far and away the largest losing session of this correction. And during periods like this, the critical thing to keep in mind is emotional, waterfall selloffs typically capitulate on their biggest down days.

And guess, what? This emotional, waterfall selloff capitulated on its biggest down day.

While we cannot go back in time and trade a missed opportunity, we can learn from this experience so we don’t make the same mistake again next time.

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As for where the market is going from here, this is the fourth session in a row the index tested the 200dma and 4,450 support. If this rebound was grossly overbought and vulnerable, it would have collapsed days ago. Instead, every time it challenges support, supply dries up and prices bounce.

And just as important, while volatility remains elevated, these swings are getting smaller and smaller. All of these are signs the market is coming to terms with imminent interest rate hikes and these headlines have largely been priced in. (i.e. Anyone that was afraid of these headlines already abandoned ship.)

While there are no guarantees and emotional selling can return at any moment for any reason, the first thing that needs to happen is for prices to actually start falling. Until that actually happens, this bounce is very much alive and well.

As for how to trade this, the index is buyable/holdable above 4,450. Anything under this level and it is time to get out and wait for the next bounce.

Bitcoin continues holding last week’s $40k breakout. While this is a good start, we will see a lot of crypto-related advertising thrown at the world during this weekend’s Super Bowl. But rather than propping Bitcoin up, this coming-out party could actually turn into a “sell the news” moment for Bitcoin.

The $40k breakout is holdable, but be ready with stops near $40k in case the “sell the news” crowd takes over this weekend.

Bonus: Look for a near-term bounce in FB. Start small, get in early, keep a nearby stop, and take profits quickly. As I said above, oversold moves tend to bounce hard.

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Is the index’s bounce still buyable or is smart money selling the breakdown? Plus, the stock FB could be following

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Four consecutive up-days was all the S&P 500 could manage before the inevitable down-day came along and took back some of our profits.

But this was expected and only a fool was surprised by Thursday’s step back. -2.4% is definitely on the larger side, but as I wrote previously, the market loves symmetry. January’s spectacular correction was followed by a huge bounce, which ended with this oversized step-back. This is the way the market works. Always has, always will.

But as long as the amplitude of each successive swing is smaller than the one preceding it, we are moving in the right direction and the market is finding its footing.

Will stocks bounce back Friday? Or will we violate the 200dma and retest 4,400 support? Either outcome is likely and that means our trading plan needs to account for both.

Lucky for us, the plan is super easy: buy the bounce and sell the breakdown. It doesn’t need to be any more complicated than that.

This is an emotional market and that means the next move will also be oversized. And lucky for us, those are the easiest to trade because once they get going, they keep going.

As I told readers Wednesday evening, if Thursday’s opening gap bounced, hold the bounce and move our stops up to those early lows. While the mid-morning bounce looked promising, the index fizzled and retreated below the opening levels shortly after lunchtime. And that was our signal to start peeling off this week’s profits.

As easy as it is to buy back in, there is no reason to stick with a falling market. If prices bounce Friday morning, great, we get back in. If Thursday’s selling continues into Friday, no big deal, step aside and wait for the next bounce. Which could come as early as Friday afternoon.

People freak out when the market gets this volatile, but it really is easy to profit from these swings if we keep our heads and are willing to act decisively.

Start small, get in early, keep a nearby stop, and only add to a trade that is working. Follow those simple rules and we don’t have to fear volatility. In fact, with a little bit of practice, you will actually start looking forward to these profit opportunities.

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FB set all kinds of records during Thursday’s -26% implosion. But we already discussed most of this Wednesday evening and it isn’t worth repeating tonight. Instead, FB owners want to know what comes next, and unfortunately, the news isn’t good.

These things are almost never one-day events and that means there is more selling ahead of us. While the stock fell a tremendous amount and this was the highest volume session by miles, we still didn’t get a whole lot of turnover in ownership during Thursday’s session. The bulk of the losses came when the market was closed and by the time it opened, most owners were too shell-shocked to sell. That means there is still a lot of supply left in this stock.

If you want a recent example, check out PTON. That’s what it looks like when a high-growth stock stops growing and investors lose confidence. It isn’t pretty.

Now, it is premature to write off FB as dead. This is still one of the most successful and profitable companies in the world and no doubt the stock will make a comeback at some point. But it needs to get waaaay more oversold before that happens.

But for the optimists in the audience, if this stock breaks convention and actually bounces, that is a buyable opportunity with a stop under recent lows. Just don’t get your hopes up.

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What to expect from the indexes Thursday morning and the best way for FB owners to handle this massacre

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added nearly 1% Wednesday, making this the fourth up day in a row. These gains left the index just shy of 4,600 and miles above last week’s panicked test of 4,200 support.

But everything changed after the close when Meta (aka FB) announced mediocre earnings. While mediocre works for banks and utility stocks, when it comes to highflyers, mediocre is a cardinal sin. And as such, the stock got murdered in after-hours trade, falling more than 20%. Yikes!

And when one of the pillars of tech goes boom, the reverberations are felt throughout the market and the S&P 500 has already given up all of Wednesday’s gains in extended trading.

The market giveth and the market taketh away.

But we knew something like this was bound to happen. If not this, it would have been something else. As I reminded readers last week near the lows, markets move in waves. It also bears remembering this same principle applies following a sharp run-up. Stocks move in waves at both the lows and the highs.

Now, I have no idea what Thursday holds for the market. Maybe FB’s after-hours crash is a severe overreaction and the selling won’t be nearly this bad Thursday during regular hours. Or maybe FB is the spark that launches the next big wave of panicked selling. At this point, either outcome is likely and our trading plan needs to be prepared for both.

Hopefully, most of my readers bought this bounce at much lower levels and are sitting on a big profit cushion. That gives us a lot of flexibility when it comes to responding to a big opening gap Thursday morning.

As for trading large opening gaps, I like to give the market 15-ish minutes to find its footing. Even if the market jumps my stops, this is the one and only exception to selling at my stops “no matter what”.  Since I already took most of the hit during the overnight gap, waiting a few extra minutes doesn’t add a lot of additional risk to see if we get a quick bounce. If we bounce, great, I keep holding and move my stops to the early lows. If the selling continues, no big deal, I get out and wait for the next bounce.

But even with the index’s after-hours slump, given the size of my profit cushion from buying Monday’s bounce early, I’m not worried and will be sleeping like a baby tonight. If things get ugly Thursday, no big deal, I get out and start looking for the next trading opportunity. In fact, the bigger the selloff, the more money I make buying the bounce, so bring it on!

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Ummm yeah, in case you hadn’t heard, FB was murdered after the close. And that’s unfortunate. The stock was bouncing nicely off of $300 support this week and was very much buyable. But this 20% haircut reminds us that even good trades can fail spectacularly.

Now, even with this week’s modest profit margin, Thursday morning is going to be very, very painful for FB owners. But as I explained above, it is worth holding the stock for a few minutes after the open to see if prices bounce. Which they almost certainly will.

From there, it becomes a game of damage limitation. Don’t delude yourself into thinking there are rainbows and unicorns hiding behind these storm clouds. There will be a nice bounce over the next few hours and days. But rather than temp us into complacency, that is our opportunity to get out and limit our losses.

Without a doubt, this stock will be buyable again, but it has to go through some healing first. And I’d rather watch that from the sidelines.

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How smart money knew this bounce was coming. Plus, why tail-chasing in TSLA makes sense

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Tuesday was another good session for the S&P 500 as it gained 0.7%, making this third up-day in a row.

Not bad given how much fear and uncertainty dominated the market only a handful of sessions ago. But that’s the way this usually goes. Stocks always bottom and bounce when pessimism is off the charts.

As obvious as this is after the fact, it always catches traders off guard in real-time. Humans love to draw trendlines from here to forever and are quick to assume that’s where we’re headed. But that’s not how this works … ever. Cognitively everyone understands markets move in waves, but they always forget this very basic fact in the heat of the moment.

Luckily for readers, I reminded them of this very thing last Thursday evening, hours before this big bounce started:

The thing to remember about dips is they don’t bounce until the crowd becomes convinced prices are headed lower. And right now, the AAII sentiment survey shows 52% bearishness, putting this stat at the highest levels in five years.

While we’ve hit 50% bearishness a couple of times over the last five years, each time that level turned out to be the capitulation point. Can bearishness get even higher? Sure. But is it the most likely outcome? Definitely not.

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Even a bear predicting a much bigger collapse should have been expecting a sharp, near-term bounce. That’s just how this game works.

Now that savvy bounce buyers are sitting on a pile of profits, (you are a savvy bounce buyer right?), it’s time to figure out what comes next.

Well, if the market moves in waves and we just experienced three big up-days, should we be planning on another three big up days? Of course not.

The time for buying has long since passed and now it is time to protect our profits. That doesn’t mean we need to pull the plug. But at the very least, we should be moving our trailng stops up to the lower to mid 4,400s.

Maybe January’s selloff is dead. Maybe it is only just getting started. Either way, my trading plan is ready for what comes next. I’m holding the bounce and will keep riding this wave higher if that’s the way it wants to go. But if this bounce fizzles and retreats, I’m happy to lock in my profits and wait for the next bounce.

While bulls and bears are busy arguing over where the market is headed next, I will be over here, quietly making money no matter which way it goes.

TSLA violated the $850 lows last week, triggering our stops. And hours later it bounced nicely off of $800 support.

While selling the $850 dip and buying the $800 bounce feels like an unnecessary exercise, we do what we gotta do because there was no guarantee $800 support was going to hold.

Just ask all of the people that held the momentary dip under $1,200, $1,100, $1k, and $900. Those poor owners are still waiting for their “imminent” bounce.

As an independent trader, my greatest strength is the nimbleness of my size. I would much rather get out too early than hold too long. Buying back in is easy and painless. But hoping and praying for prices to go back to the old highs? Yeah, that’s not so easy or quick.

But now that TSLA is back above $850, move our stops up and see where this goes.

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How I always know which bounce to buy. Plus, an obvious trade in AAPL pays off

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The stock market loves symmetry and following a brutal few weeks, the S&P 500 was finally ready to bounce back with a vengeance.

The index climbed 1.9% on Monday, adding to Friday’s 2.4% pop, and now finds itself 7% above last Monday’s intraday lows. Blink and you missed the index reclaiming HALF of the January correction over just a few sessions!

But this was always going to be the case. Emotional markets make oversized moves … in both directions. +4% pop one day, followed a few days later by +2.5% and +1.9%.

While it is hard to call a -12% tumble from fun, rarely is it this easy to make a quick buck in the market.

As I explained to readers last week, the key to profiting from these opportunities is ensuring we are always standing in the right place at the right time. (That means both knowing when to get it and when to get out!)

While some people try to guess which bounce will be the real bounce, I’m too nimble of a trader to put up with such foolishness. Instead, I treat EVERY bounce as it if is the real bounce until it proves otherwise. Start small, get in early, keep a nearby stop, and only add to a position that is working.

Following those simple rules, I avoid the dips and am always there to capitalize on the bounces.

Sometimes I chase my tail during a false start, but you can bet I don’t mind a little extra effort when it eventually pays off like this.

Now, don’t get me wrong. January’s correction is far from over and we won’t be heading back to the highs anytime soon. But I’m sitting on a large cushion of profits while the “day-late and dollar-short” crowd is second-guessing this bounce. Which group would you rather be a part of?

Maybe this bounce fizzles and retreats, but that won’t be a problem because my trailing stops are already well above my entry points. And if I get dumped out, no big deal, I collect my profits and get to do this all over again the next time the market bounces.

Bring it on!

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AAPL turned strength into strength as it added 2.6% to Friday’s 7% pop.

But this is the way it usually works out with the best-of-the-best stocks and companies.

Always use a trailing stop to protect our profits, but never be afraid of getting back in just because our stops got us out. AAPL has been one of the best stocks of the last decade and odds are minuscule that it was going to suddenly forget how to make money.

Sell dips, buy bounces, and repeat.

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