Category Archives for "Free Content"

When a half-full market becomes half-empty, plus why TSLA is on the naughty list

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

On Friday the S&P 500 tested and bounced off of 4,600 support for the second time this week.

Between the exploding number of breakthrough Omicron cases and the Fed accelerating taper and rate hikes plans, it was a busy week for financial newsrooms. But for as dire as the headlines seem, the market was surprisingly resilient and remains steady near all-time highs.

Sure, the index finished the week down nearly 2%. But last Friday was an all-time closing high and having traded through 2013’s Taper Tantrum, the market “only” falling 2% after the Fed penciled in three rate hikes next year is actually quite impressive.

If this market was truly overbought and fragile, these headlines could have knocked us down 5% or more in the blink of an eye. The fact it took five whole days to shed a measly two percent is fairly impressive.

The counter point to the above half-full argument is the index is hovering just above recent lows. Fall a little further and that violation of support could unleash a big wave of stop-loss driven selling.

So, the question is if we should be focused on the half-full side of the market or the half-empty?

Well, surprisingly enough, the answer is pretty easy. Above 4,600 is half-full territory and anything under 4,600 puts us in the half-empty side of the glass. Trade accordingly.

While I’m giving the S&P 500 the benefit of the doubt, TSLA’s violation of $1k support this week puts the stock on my naughty list.

I still like this company and stock, but I’m a trader and that means I sell things that are going down. I’m happy to buy this when it bounces, but until it gets back above $1k, I don’t have any interest. And in fact, I actually hope it falls back to $800 support because that gives me even more opportunity to profit from the rebound.

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The thing bears don’t understand about this bull market, plus an update on TSLA

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

It’s been a volatile few sessions for the S&P 500 as the index keeps jumping between dramatic up and down moves.

While we’ve been living with elevated volatility since late November, every bit of down has been matched by an equal amount of up. While these fear-mongering headlines and choppy price action are good for Tum’s sales, equities seem to be taking everything in stride.

If there is one thing we know about stock market crashes, they are breathtakingly quick. Stop to ask questions and you get left holding the bag. But here we stand, three weeks from the initial Omicron outbreak and the index is still within 1% of all-time highs. If these headlines were going to break us, it would have happened by now.

To further compound bears’ confusion, Wednesday the Fed told us to expect three interest rate hikes next year. Conventional wisdom warns us that rate hikes are bad for stocks, yet prices surged 1.6% on the news.

As I’ve been saying for a while, a market that refuses to go down will eventually go up. Bears have thrown everything they can at this bull and it keeps shrugging it off. If this was going to crash, it would have happened by now. Argue with this market at your peril.

No doubt this bull will die like all of the others that came before it. But this is not that point and bears will continue getting humiliated by this stubborn bull.

TSLA slipped under $1k support last week and that was our final, undeniable signal to get out. Smart traders were already peeling off profits as the stock slipped from $1,200 resistance, but now that we’re under $1k support, there is no excuse to keep holding.

I’m not giving up on this stock and it will probably make higher highs at some point, but I don’t need to hold through the pullback in the meantime. And in fact, I’m looking forward to buying back in at lower prices.

For the time being, this doesn’t get interesting until it gets back above $1k. Until then, keep watching from the safety of the sidelines.

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Is smart money buying or selling this dip?

By Jani Ziedins | Free CMU

Free After-Hours Analysis: 

The S&P 500 tumbled Tuesday for the second session in a row. While two material down days isn’t much fun for stock owners, so far the selling has been contained and the index bounced nicely off of 4,600 support.

During events like this, most people are asking themselves, sell the dip or keep holding?

But the better question is, why not do a little bit of both?

All too often people think of trading as a binary decision. Good or bad. Up or down. All-in or all-out. But that’s not the way savvy traders approach the market. They don’t even restrict themselves to these black and white terms. Instead, they focus on the gray of managing risk.

Is this a good time to be fully invested or does it make sense to peel off some risk? That’s a much different question than should I sell or should I keep holding.

I’m pretty confident this dip will bounce. Because you know what, every dip over the last 10 years has bounced. In fact, every dip in the history of the stock market has bounced back even higher.

The question is if I want to wait that long. And as a trader, the answer is always, “Of course not.”

I started peeling off risk when this starts falling and I start getting edging back in when prices bounce.

Sometimes this approach leads to riding through some whipsaws, like this week. But riding whipsaws sure beats holding something that is falling.

I peeled off some risk Monday afternoon and sold more when the index undercut the opening lows Tuesday morning. But prices bounced nicely off of 4,600 support in midday trade and that was our signal to start buying back in.

Sure, I could have held through this dip. The problem is I never know which dip will turn out to be the real dip and I’m not willing to bet my trading account on always being right.

The simple answer is I treat all of the dips as the real deal and I treat all of the bounces the same way. That way I always ensure I will be standing in the right spot at the right time when the market makes its next big move. And if I have to chase my tail every once in a while, it really isn’t that big of a deal.

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How to handle Monday’s disappointing close, plus is smart money buying Bitcoin under $50k?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 set a new record closing high Friday and then proceeded to give it all back Monday. Easy come easy go, but that’s the way this goes sometimes.

I don’t mind occasional down days mixed in with up days, in fact, I prefer my rallies balanced this way. It keeps things from getting overheated and how healthy, long-term rallies progress.

That said, Monday’s close falls in the disappointing category because it finished on a swift wave of selling and closed at the intraday lows. Thirty minutes before the close, the situation looked pretty decent. But those final 15-minutes changed everything and left me with an uneasy feeling. Not panic, abandon hope, and run for the hills kind of feeling, but it was enough to warrant caution.

If a person is cautious by nature, they could have peeled off some nice profits near the close just in case. But that is only a partial position reduction to better manage risk. On the other hand, a more aggressive person could continue holding since the close was still well above our stops in the mid-460s.

Like a lot of trading, this situation falls in the gray area where individual discretion plays a major role in decinding what to do. Nervous? Sell some. Confident? Hold and see what happens tomorrow. Both are valid ways of dealing with Monday’s disappointing close.

But no matter what we do, anytime we sell, we are always looking for that next opportunity to get back in. If we sold anything Monday afternoon, be ready to buy a bounce Tuesday morning. And if Monday’s selling continues instead, always respect our stops spread across the mid-4,600s.

But no matter what happens Tuesday, Wednesday, and Thursday, any near-term weakness is giving us a buying opportunity. No matter what the cynics claim, weak markets don’t keep setting new record highs. This remains a strong market and there is only one way to trade this and that is from the long side.

Bitcoin keeps hitting its head on $50k resistance and dip-buyers are nowhere to be found. This weekend’s quick poke above $50k didn’t last long and the cryptocurrency retreated back to the mid-$40k’s.

For me, this doesn’t get interesting until it can hold $50k. Until then this is a no-touch. As I often say, it is better to be a little late than a lot early. Just ask anyone that bought a few weeks ago in the upper $50k’s.

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The biggest mistakes people make trading dips and bounces, plus what smart money is doing with GME

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 added a modest 0.3% Wednesday, but that was good enough to make this three up days in a row and leaves the index within 1% of all-time highs. Not a bad result given all the panic selling we were experiencing only a few sessions ago.

But that’s the way this usually works. Prices don’t bounce until the crowd has given up and now a lot of impulsive sellers are left watching this rebound from the outside.

I’m a huge believer in using stops to protect my backside. There is never a valid reason for a nimble trader to hold through a larger pullback. But at the same time, I also recognize stops often get us out unnecessarily.

So what’s a trader to do when faced with these competing concerns of selling just before the bounce or holding through a larger decline?

It actually isn’t that hard if we start with a sensible trading plan.

First and foremost, never be foolish and cheat our stops by holding a falling market. I always get out when I say I’m going to get out.

But once I’m out, the first thing I do is start looking for that next opportunity to get back in. Maybe that causes me to chase my tail every once in a while. But you know what? I would much rather chase my tail than A) hold through a larger decline or B) miss out on the next big rebound.

As it turns out, tail chasing is really cheap insurance that helps ensure we sidestep the big declines while also making sure we are in the right spot at the right time to catch the next big wave higher.

All too often people get hung up, thinking a trade is dead once they sell and they have some phobia about getting back in. If it was a great trade before, it is probably still a great trade and there is no reason to avoid it because of a perfectly normal, healthy, and temporary step back.

As for stops, the best way to avoid getting out at the wrong time is by getting out early. Sell at the beginning of the decline when the first signs something is wrong emerge. Not the bottom of a dip when impulsive traders pull the plug after getting overcome by fear and regret.

As I often remind readers, start small, get in early, keep a nearby stop, and only add to a trade that is working. Follow those simple rules and events like Omicron hubbub are nothing more than a blip on our way higher.

GME posted disappointing earnings after the close.

But did this actually surprise anyone? This is a retailer with an obviously obsolete business model.

Their last hail mary is Christmas shopping and if they cannot get their act together this quarter, the company won’t survive, let alone justify of $13 billion valuation.

At best, this is a $15 stock selling for $170. Get out while you still can.

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Why smart money was betting on the bounce, plus a savvy entry in FB is paying off

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 popped 2% Tuesday and the index is back within 1% of all-time highs.

So much for Omicron. But that’s the way this usually goes. As I wrote last week:

Trends are far more likely to continue than reverse. That’s because a bull market bounces countless times but dies only once…Bears have been wrong all year, so what are the odds they’re right this time? Yeah, not very good.

While this is really easy to say following two big up days, there was nothing easy about buying Friday’s late bounce and adding more money Monday morning. But from years of experience, personal reluctance is usually a really good sign.

As a rule, if I really want to make a trade, it is probably too early. And f I’m dragging my feet and trying to find an excuse to avoid a trade, that is usually a really good sign.

This was definitely the case last Friday. After stubbing my toe buying the previous bounces, it was hard to not get discouraged. But I’ve been doing this long enough to know these trades only work after most people have given up, so the key is being more stubborn than most.

As long as we have a sensible trading plan that is both nimble (getting in early and getting out early) and manages our risk (starting small), we don’t have a lot to fear from buying these bounces and being wrong.

Without a doubt, I got caught on the wrong side of some of last week’s whipsaws, but if the risk is a dozen points on a partial position last week and the reward is more than 100 points of profit on a full position this week, sign me up! I don’t mind being wrong a few times when it pays this well.

And now that the market’s bounced nicely, there is nothing to do but lift our stops and see where this goes.

Last week I asked if FB is so bad it’s good? 

Well, we got our answer this week and the answer is a resounding yes. FB is up nearly 8% from last Friday’s lows and anyone that bought the bounce is sitting on some healthy profits.

As I wrote last week:

Violating support before bouncing is an even more bullish trading signal than simply bouncing off of support because it shows selling capitulation and that bears have lost control of this trade.

That’s exactly what happened on Friday and Monday and this FB trade is setting up really nicely. Just like our index trade, lift our stops up to our entry point and see where this goes.

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A market that refuses to go down will eventually go up

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Monday nicely higher as the pattern of alternating up and down moves continue.

Omicron remains a major headline, but while this variant is definitely more transmissible, it doesn’t seem obviously more dangerous than previous strains. In fact, some initial indications suggest it could actually be more mild, especially for those that have been vaccinated.

In separate news, the Fed is still hinting it will scale back monetary stimulus next year. While everyone loves free money, an economy that can stand on its own is even better for stocks.

Despite all of the fearmongering, the index remains within 3% of all-time highs. As much as cynics ridicule this bull, owners are comfortable and continue confidently holding for higher prices.

While conventional wisdom warns us about complacent markets, this bull has been fat, dumb, and happy all year and it doesn’t look like this latest crop of headlines is changing anyone’s minds.

Headlines don’t need to be good for stocks to rally, only less bad than feared and so far none of the worst-case scenarios are playing out. As I often say, a market that refuses to go down will eventually go up.

While buying bounces sounds easy enough, the market is never easy and most bounces throw a few curveballs at us first. If trading was easy, everyone would be rich and we know that’s not the case.

Sometimes we get caught on the wrong side of these whipsaws, but that’s just the nature of the beast. If we can’t handle a little up and down, then we’re definitely in the wrong line of work.

But as long as we stick to our trading plan, these speedbumps are fairly easy to navigate. Remember, success in the market isn’t about individual trades, but the cumulative result when we put all of our trades together.

While riding these whipsaws is frustrating, the reward will be worth it when we find ourselves in the right spot at the right time when the market finally bounces.

Remember, start small, get in early, keep a nearby stop, only add to a trade that is working, and if we get stopped out, no big deal, wait for the next bounce and do it all over again.

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Why bears keep getting it wrong, plus is FB so bad it’s good?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Surprise, surprise, the S&P 500 recovered from Wednesday’s massive intraday reversal. Okay, no one was really surprised because Thursday’s 1.4% bounce was the market’s third rebound attempt this week.

“If at first, you don’t succeed; try, try again.”

You definitely have to give bulls credit for not giving up. The level of selling since Thanksgiving has been staggering, yet here we stand, only 3% from record highs. Talk about a can-do attitude!

As I often write, trends are far more likely to continue than reverse. That’s because a bull market bounces countless times but dies only once.

Maybe this bull market is dying, but smart money is sticking with the higher probability trade. Bears have been wrong all year, so what are the odds they’re right this time? Yeah, not very good.

The smartest way to trade this volatility is continuing to give the benefit of the doubt to the bull market while protecting our backside with a sensible stop-loss; ie, buy the bounce but keep a stop under recent lows.

Monday’s bounce didn’t work and neither did Thursday’s early rebound, but you know what, more often than not, the third time’s the charm.

It is hard to buy a third bounce after the first two unceremoniously dumped us out. But the harder it is to buy a bounce, the more likely it is to succeed. (contrarian trading)

I bought the bounce early because if I’m wrong, no big deal, I sell at my stops and wait to buy the fourth bounce.

Remember, getting in early is critical because 1) it greatly reduces our risk by giving us a healthy profit cushion, and 2) by the time the bounce is obvious, most of the discounts will be long gone.

FB’s recent price action looks downright dreadful. But is this finally getting so bad it’s good?

The stock is setting up for a nice bounce off of $310 support. Above this level, the stock is buyable. Under this key level and we get out. It really doesn’t get any simpler than that.

Okay, maybe it gets a little more complicated if the stock dips under $310 for a bit before bouncing back above this key level. In that case, we get out under $310 and buy back in above $310.

(Violating support before bouncing is an even more bullish trading signal than simply bouncing off of support because it shows selling capitulation and that bears have lost control of this trade.)

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A savvy index trade, plus GME is showing its true colors

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday started off well enough for the S&P 500 as prices popped more than 1% at the open. And a wave of follow-on dip-buying pushed the index even higher through the morning. By lunchtime, it looked like this was just another example of alternating up and down days.

But the afternoon session had other plans and hit the rebound with a sledgehammer, knocking it down more than 3% from the intraday highs, turning this into the largest bearish intraday reversal we’ve seen in a while.

Was the market spooked by the first confirmed American Omicron case? Or was it an echo of Powell’s Tuesday comments about winding down the Fed’s bond-buying program? Or maybe traders finally started looking down and realized just how high we are above the October lows?

Most likely it was a cocktail of all of these plus a few others that sent a shiver of second thoughts through the market.

No matter the source, the price action was dreadful; a nice bounce turning into a big loss. And not only that, we undercut Tuesday’s lows and closed at the bottom of the intraday range. Who knows how much further this would have gone if the closing bell didn’t stop the bleeding.

But these things are obvious to everyone that watched the day unfold. What readers really want to know is how to trade this.

Hindsight being 20/20, we know buying the bounce this morning was a mistake, but for anyone that bought the bounce, it actually wasn’t a bad trade. Get in not long after the open and the morning rally gave dip buyers a nice profit cushion. And when midday selling started, retreating under the opening levels was a clear signal to get out.

Buying near 4,610 and selling near 4,610 isn’t a bad trade. If this was the real bounce, the upside potential of returning to the highs would have been 90ish points. Ten-ish points of risk for a shot at a 90 point reward? I’ll take that risk/reward every day.

As it turned out, buying the bounce didn’t work and savvy traders move back to cash long before the day’s real selling started.

While insecure critics love to taunt people for making “wrong” trades, buying the bounce this morning was actually a savvy play. While it didn’t work out this time, there is always next time.

Maybe the selling continues Thursday. Or maybe this was the capitulation bottom and the next bounce is the real deal. Often the third time is the charm and it would be a shame to miss a really nice profit opportunity simply because we were too scared or stubborn to buy the next bounce.

I’m buying the next bounce and if that one doesn’t work, no big deal, I get out and try again next time.

GME tumbled under the all-important $200 support level Tuesday and the bloodbath continued Wednesday. If the Christmas shopping season can’t save this physical retailer, I don’t know what will. This is a no-touch under $200 and we could challenge $150 support before Christmas.

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The key to success in the market: Try, try, and try again. Plus an update on TSLA

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Fear of Omicron came roaring back Tuesday morning and Powell’s late morning comments about scaling back bond buying added fuel to the fire. By the end of the day, the S&P 500 shed 1.9% and undercut Friday’s lows.

While Monday’s bounce looked promising, often these things go through a few false starts before finally finding their footing. For anyone that tested the water buying Monday’s bounce, the clear signal to abandon ship was undercutting the morning lows near 4,620.

Any give-back stings a little, but as the saying goes, the first loss is the best loss. And that was clearly the case here with the index falling another 50 points from the sell signal before the close.

No one likes losing money, but if a person jumped aboard Monday’s bounce early and started with a partial position, the actual losses are fairly modest if they were disciplined and got out near 4,620. Given the potential reward of a bounce back to the highs, the risk-reward was definitely skewed in favor of the dip-buyer even if this particuar trade didn’t work out.

But now that savvy traders are out of the market, it is time to start looking for the next bounce. Maybe it comes Wednesday. Maybe it doesn’t happen until next week. But savvy traders know the bounce is coming and they don’t want to miss it.

We only have to look back a handful of weeks to see the last time this strategy paid huge dividends. While there were a few whipsaws near the October lows, as long as a trader stuck with it, they were rewarded with a nice, nearly 400 point rally when the move finally took hold.

While no one likes taking 10, 20, and even 40 point losses. If that’s what it takes to be in the right place at the right time to catch the next big 400 point wave, who’s really complaining about a little tail-chasing here and there?

Monday’s bounce didn’t work. And the next one probably won’t work either. But as long as we start small, get in early, keep a nearby stop, and only add to a trade that’s working, we will minimize losses while guaranteeing we’re in the right place at the right time for the next big move.

TSLA keeps making hay following November’s bounce off of $1k support. Despite all of the noise in the broad market, TSLA’s bounce is alive and well. This remains holdable above $1k no matter what Elon is Tweeting or doing with his personal shares.

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Why Monday’s rebound was predictable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 bounced back nicely Monday, reclaiming 1.3% of Friday’s headline-fueled bloodletting.

The Omicron variant continues to dominate headlines, but after a weekend of thinking about it, investors are far less fearful than they were last week.

But this isn’t a surprise. I was warning premium subscribers all last week light holiday trade often leaves us vulnerable to elevated volatility. That’s because when big money heads out on vacation, emotional retail traders take control of the market. And boy do these little guys love overreacting to everything.

But as expected, when big money’s steady hand returned, a calm came back to the market. If the original Coronavirus lockdowns and follow-up Delta variant couldn’t kill this bull market, why should we be any more afraid of Omicron? And based on Monday’s price action, the market’s answer is we shouldn’t.

Now, one day’s bounce doesn’t mean we are out of the woods. And without a doubt, the situation could take a turn for the worse, but between Friday’s tumble and Monday’s bounce, we have plenty of key levels to watch. The most basic being as long as prices remain above Friday’s intraday lows, this bounce is alive and well.

While it was fairly predictable to anticipate Monday’s bounce, that doesn’t mean holding Friday’s selloff was the right call. If the selling violated our stops, we had no choice but to get out. As the saying goes, it is better to be out of the market wishing you were in than in the market wishing you were out.

Monday’s bounce made a lot of sense, but we just as easily could have opened down -3% too. Anyone trading a leveraged ETF, that’s just too big of a risk to take. It is better to pull the plug and wait to buy the bounce even if that means missing a little in the exchange. In my book, that’s really cheap insurance and is worth it every time.

But now that everyone is back in the market following Monday’s bounce, it is time to spread our stops between Monday’s open and Friday’s lows and see where this bounce takes us.

And if we get dumped out, no big deal, we simply wait for the next bounce and try again.

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A simple trading plan for both the indexes and TSLA

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday was another quiet session for the S&P 500 with the index declining a quarter of a percent.

While counting profits on up days is more fun, healthy rallies need periodic stepbacks like this to stay healthy and sustainable.

Only the biggest of bears are making a big deal about this 0.26% loss. But in reality, if this is the best the naysayers can muster, the rest of us don’t have anything to worry about.

Last week’s dip and bounce continues to be our line in the sand. Hold above last week’s lows and the bounce is alive and well. Fall under this key level and we need to get defensive. It doesn’t get much more straightforward than that.

Keep holding with stops spread across the mid-4,600s and see where this goes.

TSLA’s bounce off of $1k support is developing nicely. It was on the edge there for a couple of days, but we knew it was going to take a lot more than a few tweets to kill the phenomenal bullish sentiment in this stock. Keep holding with stops under $1k and see where this goes.

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Why “do-nothing” is bullish and what’s up with TSLA?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Monday was a do-nothing session for the S&P 500 as it finished exactly where it left off Friday. (The index closed down 0.001%, technically making this a red day, but that is splitting some pretty fine hairs.)

The thing to remember is boring is bullish. Fragile and weak markets tumble quickly, they don’t defy gravity by holding near the highs for weeks. If this market was truly overbought, last week’s crack was more than enough to trigger a larger wave of reactionary selling. Instead, supply dried up and prices bounce.

Now, I count myself as one of the skeptics. It definitely felt like prices got a little too high a little too fast since the October lows. But never forget we trade the market, not our opinions. That’s why I bought back the positions I sold defensively last week.

There is nothing wrong with taking worthwhile profits following a nice run, especially when the market is flashing warning signs. But when the expected pullback doesn’t happen, that in of itself is a bullish signal and we need to get back in. (A market that refuses to go down will eventually go up.)

Now, maybe Friday’s bounce was a false bottom and stocks are still headed lower after a little delay. But for that to happen, prices first need to undercut last week’s lows. Until that happens, this latest bounce remains alive and well.

Continue holding with stops spread across the mid-4,600s and see where this goes. If we get dumped out again, no big deal, sell at our stops and be ready to buy the next bounce, even if it happens a few hours later.

TSLA is on a wild ride. Live by Elon, die by Elon. But long-term owners know this and this stock hasn’t always been an easy hold. But as I said last week, as long as this remains above $1k, the latest bounce remains holdable. Fail to hold $1k support and it is time to lock in profits and wait to buy the next bounce.

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How big will this pullback be? We are about to find out.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday was another disappointing session for the S&P 500 with the index losing 0.8%, adding to Tuesday’s 0.3% decline.

While this 1% slip from record highs isn’t a big deal by itself, the bigger worry is this is the start of something even larger.

The size and speed of gains since October’s lows was shocking to say the least. As I often write, markets love symmetry and something that goes up too much tends to fall too far in the subsequent pullback. It is only fair to ask if we are on the verge of that next pullback.

Only time will tell, but that’s the problem, we won’t know until after it happens. All too often, traders wait until the market moves against them before selling. But what’s the point in selling after a big chunk of our profits have already evaporated? Why not sell before the pain of regret forces us out?

That’s why I like trading with trailing stops so much. They take these decisions out of my hands and I don’t have to worry about “what if?” When my trading plan tells me it is time to get out, I sell. Easy as that. And guess what, if prices bounce an hour later, it isn’t hard to buy back in.

Only inexperienced traders try to pick tops. Unfortunately, that approach leads to an emotional attachment to that position because no one likes admitting they are wrong. But guess what? Trading is hard and we are wrong a lot, like a lot.

Those of us that have been doing this for a while are more than happy to sit back and simply follow the market’s lead. I don’t care if this goes up or down. All I care about is that I’m in the right place at the right time.

As I wrote Tuesday:

There is nothing wrong with locking in some very healthy profits following such a big run. We only make money when we sell our winners and this is as good of a time as any to harvest some of those well-earned gains. Sometimes all it takes is a little profit in our pockets to help us look at the market more clearly and sleep better at night.

And that’s exactly what I did. I started locking in profits Tuesday and Wednesday when prices started retreating. I still have some money in the market and will be ready to jump back in with what I sold if prices find a bottom and bounce. But if the selling continues, I’m out and waiting for the next bounce.

Odds are good I sold unnecessarily the index will be back at the highs soon enough, but I don’t mind. The inconvenience is cheap insurance against holding through a much larger decline.

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Dark clouds over the indexes and a bad call in TSLA turns into a pile of profits

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped 0.35% Wednesday, but this isn’t a bad performance if a person is focused on the half-full side of the glass.

The index has been up nearly every day since mid-October and down days here and there are perfectly normal for any bull market. In fact, I would actually feel more comfortable if October’s rebound had several more down days mixed in.

And that’s the crux of our problem. As good as the run from the October lows has been for our trading accounts, maybe it’s been a little too good. Markets love symmetry and a rally that goes too high is almost always followed by a pullback that goes too far.

No doubt we have a date with “too far” in our near future, the question is if Tuesday’s weakness was the start of the next pullback to support.

That said, anyone betting against this bull market lost a lot of money. The same goes for anyone that chickened out and sold too early. The trick, as always, is not overreacting to a little weakness the same way those critics and cynics have been doing all year long.

As I’ve said previously, the most critical and telltale sign of every market pullback is prices actually pulling back! Today we got a little selling. Is this enough to break the dam? Or will this bout of weakness turn out just as fleeting as all of the other dips that came before? Only time will tell. The best we can do is prepare for all eventualities and let the market decide our next step.

Lucky for us, as independent traders, we can be both patient and nimble. If this market wants to sell off, we get out at our stops and wait for the next bounce. If this is nothing more than another minor wobble on our way higher, we keep holding for higher prices. And if the market wants to whipsaw us, we can handle that too as long as we are willing to jump aboard the next bounce (even if it comes a few hours later).

And as I wrote Monday, there is nothing wrong with locking in some very healthy profits following such a big run. We only make money when we sell our winners and this is as good of a time as any to harvest some of those well-earned gains. Sometimes all it takes is a little profit in our pockets to help us look at the market more clearly and sleep better at night.

The pullback is coming. If didn’t start Tuesday, it will start soon. Make sure your trading plan is ready.

Monday I said TSLA looked good and owners had nothing to worry about. Tuesday the stock plunged 12%. Well…that sucks.

Lucky for those of us with a sound trading plan, we got out above $1,100 when the early selling violated Monday’s lows.

As much as we try, we cannot be right all of the time. In fact, do this long enough and we will make so many mistakes we won’t be able to remember all of them. That’s why every savvy trader has an exit plan that protects their backside when they are wrong.

And to be fair to myself, I bought the bounce off of $600 support and locked in some very nice profits above $1,100. Should I really be calling this trade a mistake?

And with TSLA finding support above $1k, it actually makes sense to start putting a little of that money back to work with a stop under this level. The TSLA trade is far from over and just because we sold at our stops doesn’t mean we need to give up on it. If the $1k bounce doesn’t hold, we get out and buy the next bounce.

More important than being right or wrong is being in the right place at the right time and if that means being wrong a few times first, so be it.

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A yellow light for the indexes and a green light for TSLA

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis 

The S&P 500 bounced between small gains and losses Monday, ultimately finishing 0.09% in the green.

While 0.09% is ordinarily nothing to write home about, adding to Friday’s flirtation with 4,700 and finally closing above this psychological level is definitely significant.

Such a record close would have been impossible to imagine only a few weeks ago when the index was threatening to crash through 4,300 support. We’ve come a long way since those lows and even more impressive is the incredibly short amount of time it took us to get here.

As scary as these heights feel, the market continues trading well. We’ve been solidly overbought for weeks, yet buyers keep throwing even more money at these record highs.

Monday afternoon saw a small wobble into the red and this counts as test for the market. If this rebound is fragile, all it takes is a small crack to break things wide open. But so far things are holding together. Now, one afternoon doesn’t mean we are in the clear. In fact, what happened Monday is far less important than what’s coming on Tuesday and Wednesday. That said, a good day on Monday is definitely better than a bad day.

If nervous owners start taking profits, that selling could feed on itself and push the index back to 4,600 and even 4,550 is on the table. While a pullback to support is a very normal and healthy thing to do, it would feel jarring given how effortless the climb to these levels has been.

Or buyers could keep throwing money at this market and we’ve only seen the start of the silliness.

At this point, either outcome is likely and trading is simply a matter of waiting for sentiment to tip over. No doubt we are close to the next routine step-back, but the same thing could have been said last week and the week before that.

We trade the market we are given and while this one will eventually consolidate these gains, but it isn’t dipping yet and that’s the way we have to trade it. As scary as this looks, there is nothing to do but keep holding and lifting our stops.

If a person is paranoid, there is nothing wrong with taking some profits off the table. It’s been a great run and we only make money when we sell our winners. Take a portion of your position off the table and let some ride. Sometimes harvesting some profits is all it takes to get a better night’s sleep.

Lift stops to the lower/mid 4,600s and see where this goes.

TSLA tumbled after Twitter told Elon to sell 10% of his TSLA stock. Some owners panicked dumped shares in anticipation of that big overhang of looming supply. That said, the knee-jerk selling was fleeting and prices are quickly bounced above those early lows.

There are lots of reasons to sell this stock, but Elon selling a fraction of his holdings is not one of them. While an academic with his pocket protector and calculator will tell us one thing, given this stock’s absurd valuations, it’s been years since this stock heeded any academic’s advice.

This is a momentum trade and the momentum is still higher. Use this morning’s lows as a stop and anything above this level is holdable/buyable.

If we get dumped out, no big deal. Be happy to lock in those profits and get ready to buy the next bounce, probably somewhere around $1k.

Of course, the stock might not even sell off and that’s why we continue holding until our trailing stops are hit. (Most nervous owners bailed out hundreds of dollars ago.)

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A smart mistake, a smarter correction, and TSLA to the MOON!

By Jani Ziedins | Free CMU

Free After-Hours Analysis: 

Last Wednesday I slammed the S&P 500 for its dreadful close. Then the index proceeded to show me up by setting three record closes in a row. Funny how that works.

This reversal highlights just how nimble we need to be as traders. We cannot allow ourselves to get hung up on opinions. Even reliable trading signals can lead us astray. (An impossibly high accuracy rate of 80% is still wrong one out of five times!)

Now don’t get me wrong, I’m not suggesting taking risk off the table last Wednesday afternoon was a mistake. In fact, it was the only sensible decision to make. But just because we took risk off the table last Wednesday doesn’t preclude us from adding that money back in Thursday morning when the worst failed to materialize and prices bounced back.

I took my lump Thursday morning and I’m better for it. And even though I lost some money in the exchange, I’m more than happy to pay a small price now to avoid a bigger loss later. Remember, this isn’t about getting every trade right. It is about making more money than we lose. Sometimes that means taking small losses and I’m always fine with that as long as it allows me to be in the right spot at the right time when the big moves happen.

This is also a good opportunity to talk about position sizes. While a lot of people think in binary terms and move all-in and all-out of the market, that often is an expensive approach that magnifies mistakes and compounds regret.

I like moving in partial positions. Start with a quarter, third, or even half position. Only add more if that initial trade is working. If you are wrong, you only lost money on a partial position.

And even more advantageous, this risk management strategy allows us to be even more aggressive with our initial trades. We no longer need to wait for confirmation. Instead, we jump on the first hints of a selloff or bounce. I sold 1/3 last Wednesday afternoon and I bought 1/3 back Thursday morning. While my ego was a little bruised, my trading account hardly missed a beat.

TSLA is positively on fire. Good thing readers of this blog have been hanging on since the $600 bounce off of support and have been moving up their stops up ever since.

This price action is getting downright silly but it usually does with these extreme highfliers. Impossibly high gets even higher and that’s definitely the case with TSLA. As I wrote last week:

Now don’t get me wrong, I am most definitely not a TSLA bull and this looks as sustainable as all those dot-com names back in 2000. But I’m a trader and it doesn’t matter to me where this stock will be five years from now. If it is going up today, I want to be aboard and enjoying the ride. We can worry about all of that other stuff when it eventually becomes an issue. Until then, “don’t worry, be happy.”

Well, last week’s $1k breakout turned into $1,200 Monday and who knows what Tuesday holds. No doubt this will get really ugly at some point, but until then, keep holding for higher prices and lifting our stops. Stick to this simple strategy and we will be sitting on a pile of cash when everyone else is wondering what happened to all of their amazing profits. (Remember, we only make money when we sell!)

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What today’s dreadful close means for the market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday’s session started off innocently enough with the S&P 500 bouncing between small gains and losses. But for those that read this blog regularly, they know how we start doesn’t count for $#!+. The key to figuring out what comes next is always telegraphed in the finish. And unfortunately, Wednesday’s finish was absolutely dreadful.

Now don’t take this the wrong way, this prognosis has nothing to do with the 0.5% loss. Downdays are a very normal and healthy part of every rally higher. And believe it or not, in the right context, even a 0.5% loss can even be a very bullish trading signal. It all comes down to how we arrive at that 0.5% loss. And unfortunately, Wednesday got there in a very, very wrong way.

The last 60-minutes of trade is the most insightful hour of the day because that’s when institutional traders are making their moves. And given Wednesday’s waterfall selloff into the close, those big investors were liquidating shares and locking in profits.

A one-way selloff in the final hour of trade is never a good sign and this late decline was no different. The next challenge facing us is figuring out what comes next.

The most innocent thing would be a modest step back to 4,500 support. Getting above this psychological milestone is where October’s rebound really put it into overdrive. And sometimes all we need is a little near-term give-back to allow everyone to catch their breath. Maybe that’s all this is, a modest exhale.

Or maybe October’s frenzy of dip-buying went waaaaaay too far and this is going to end very badly with a spectacular crash under September’s lows. (Or maybe I’m just reading a bunch of nonsense into a lot of random noise.)

No matter what happens, I’ve been doing this long enough to be wary of this late trading signal and my pockets were overflowing with profits from buying the October bounce, so it made a lot of sense to start peeling off a big portion of my positions. As the saying goes, it is better to be out of the market wishing you were in than in the market wishing you were out.

With a pile of profits in hand and following a really nice run from the October lows, it made sense to take some of those profits off of the table. Remember, we only make money when we sell our winners and this was as good of a time as any.

And you know what? If prices bounce back Thursday, there is nothing that says I cannot buy back in. In fact, buying back in is the exact thing my trading plan will tell me to do tomorrow if the market closes well. If I end up chasing my tail a little in the process, no big deal. I learned a long time ago it is better to be a little cautious than a lot sorry.

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Words of wisdom for those holding TSLA as well as everyone else that missed this great trade

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

All of the headlines are screaming TSLA is now a trillion-dollar company. That’s a huge milestone for the stock and puts it in rarefied air. But telling us about this after it already happened doesn’t help anyone make money. We need to know about these things ahead of time!

Well, it just so happens TSLA was on my radar this summer after it bounced nicely off of $600 support. And I told readers as much back on July 12th:

Far more important is $600 support. Fail that and it could trigger another wave of defensive selling. But until that happens, last week’s bounce just above support is buyable. That said, this doesn’t get real interesting until it gets above recent resistance near $700, but so far, so good.

Well, not only did TSLA get interesting above $700, but it started looking even more fabulous above $800, $900, and now $1,000.

Now don’t get me wrong, I am most definitely not a TSLA bull and this looks as sustainable as all those dot-com names back in 2000. But I’m a trader and it doesn’t matter to me where this stock will be five years from now. If it is going up today, I want to be aboard and enjoying the ride. We can worry about all of that other stuff when it eventually becomes an issue. Until then, “don’t worry, be happy.”

As for what comes next, the risk/reward was stacked nicely in our favor back at $600, but now it has done a 180 and is totally skewed against us. Owners with a huge profit cushion and a big apatite for risk can continue holding to see how much higher this goes, but keep trailing stops nearby because this can fall as quickly as it rose. It would be a real shame to let these really nice profits escape simply because we got too greedy.

And if for those that missed this trade, well, it happens. Chalk it up as a learning experience and let it go. After rallying nearly 70%, there is far less upside remaining and the risks up here are gigantic!

If a person really likes this stock, stay patient, there will be a better, lower-risk entry point. It might not happen next week or even next month, but there are smarter and less risky ways to jump aboard this trade.

Remember, only fools are chasing this stock up 70%. Don’t be a fool.

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If you missed this bounce, use this simple and reliable trick next time

By Jani Ziedins | Free CMU

Free After-Hours Analysis: 

Thursday was the S&P 500’s seventh up-day in a row. Not a bad run from a market that most people, including myself, thought was on the verge of the next lower. But that’s the way this game works. Prices don’t bounce until the crowd has given up on the bounce. And now we are left with a mountain of regretful sellers who are kicking themselves for acting so hastily.

Lucky for regular readers of this free blog, I wrote the following seven sessions ago:

Wednesday’s 0.3% gain counted as a bounce, so I held my nose and bought it. My trading plan told me to add more following Thursday’s strong open, so I bought more. And here I am, holding a nice profit in a trade I didn’t even want to make! This example highlights why we always follow our trading plan, not our gut.

While I didn’t like this bounce initially, I bought it anyway because that is what my trading plan told me to do, and now I’m sitting on a pile of profits. Funny how that works.

I’ve been doing this for a long time and my gut tends to be right more often than not, but every time my gut and trading plan disagree, I always go with my trading plan because it is right far more often than my gut. No surprise an objective, unemotional, thoughtful plan can outperform an emotional, egotistical, and a sometimes irrational bag of meat (i.e. me).

While years ago I would overrule my trading plan, almost every time I did, I came to regret it not long after. Get beat over the head with humbling losses often enough and eventually, I learned my lesson. And now I always follow my plan no matter what my gut thinks. Today I am sitting on a pile of profits in a 3x ETF because of that lesson I learned the hard way all those years ago.

If you messed up this trade, don’t be too hard on yourself. Count this as a learning experience and try to do better next time.

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