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Oct 19

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

Free After-Hours Analysis:

The S&P 500 surged for the fifth day in a row on Tuesday and finds itself less than half a percent from all-time highs.

Does anyone see a correction because I sure don’t?

None of the issues weighing on the market last month have been solved, but obviously, they don’t need to be solved for stocks to bounce back. The selloff was triggered by fear of the worst and when none of these problems spiraled out of control, stocks rallied in relief.

As I wrote last week:

I will be the first to admit [last] Wednesday’s bounce wasn’t all that attractive and I was already suspicious of this market, so my gut told me to ignore the bounce. But I don’t trade my gut, I trade my trading plan and that told me to start with a small position Wednesday afternoon.

Well, it’s a good thing I listened to my trading plan because the index is now 3.5% above Wednesday’s close. Trade that with a 3x ETF and well….you get the idea.

I often remind readers the best trades are often the hardest to pull the trigger on. I didn’t want to buy last week and if I listened to my gut, I would have missed out on all of these nice and easy profits.

But rather than pat myself on my back, it is time to switch from offense to defense. I have nice profits and it would be criminal to let these escape. I moved my stops up to the mid 4,400s in anticipation of stalling at the old highs. But rather than pull the plug on a trade that is working, I’m willing to give this more time and wait to see what happens next. Break the old highs and I keep holding. Stall and retreat, I get out at my stops and wait for the next bounce.

As for anyone that missed last week’s bounce, well, it happens. Rather than force an ill-advised trade here, step back, admit you missed it, and wait for the next good trading opportunity. It will come along sooner than you think.

As for the next entry point, a break above the old highs is buyable with a stop just under this level. Start small, get in early, keep a nearby stop, and only add to a trade that is working. The odds of this breakout trade working are not great, but if you get into at the right time, the risks are very manageable and the potential reward is worth the effort.

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Oct 14

Turning mistakes into dollars

By Jani Ziedins | Free CMU

Free After-Hours Analysis:

The S&P 500 exploded higher Thursday, reclaiming 1.7% of the latest selloff and closing comfortably above 4,400 support. This is a mile from Tuesday’s Chinese drip torture that gave the impression we were on the verge of the next collapse.

And you can count me as one of the fooled. On Tuesday, I wrote a post titled “Why I’m so concerned about a 0.2% loss“.

While most prognosticators quietly sweep their mistakes under the rug, I have no problem admitting my mistakes. In fact, acknowledging our mistakes is the only way we can learn and grow as traders.

But in this particular instance, I wouldn’t say closing my long positions following Monday’s dreadful close was a mistake. While it was ultimately proven to be unnecessary, sound defense is never wrong.

Savvy traders that are successful over the long-term learned early in their career that preservation of capital is far more critical than growing capital. That’s why we only take calculated risks when the risk/reward is stacked in our favor, and even then, we back that up with sensible stops to protect us when things don’t work out in our favor.

To do it all over again, I sill would lock in modest profits on Monday and start looking for the next trade because that is the only sensible move to make in that situation. While it didn’t work this particular time, in a dozen similar setups, it would have been the right call. We play the odds and don’t let the exception to the rule cause us to give up on our well-thought-out rules.

Anyway, enough about that. The next important development is what happened Wednesday afternoon. The inevitable collapse never arrived and an early dip bounced and closed near the intraday highs. While no one is getting rich off of Wednesday’s 0.3% gain, the signal it gave us was compelling and worth acting on.

I always remind subscribers that as soon as we get out, we need to start looking for the next opportunity to get back in. Sometimes the next trade comes along as quickly as a few hours later.

I will be the first to admit Wednesday’s bounce wasn’t all that attractive and I was already suspicious of this market, so my gut told me to ignore the bounce. But I don’t trade my gut, I trade my trading plan and that told me to start with a small position Wednesday afternoon. (Buy every bounce: start small, get in early, keep a nearby stop, and only add to a position that is working)

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.

Now who knows, maybe this is just another false bottom on our way lower. But by jumping aboard this bounce early, I have a nice profit cushion that will more than offset any near-term risk. If this bounce fizzles and retreats Friday or next week, I get out at my stops and try again next time. No big deal. And best of all, by being proactive and getting in early, my stops are already at or above my entry points, so this trade is now nearly free to me. Hard to beat that risk/reward.

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Oct 12

Why I’m so concerned about a 0.2% loss

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Tuesday was a dreadful session for the S&P 500. While the index only lost 0.24%, the price action leading to that small decline was atrocious. And I’m saying that as a person who typically defends this bull market.

Now, don’t get me wrong, I’m definitely not one of those guys claiming the S&P will collapse back to 1,000. But it will get bumpy over the next few days and weeks. As nimble traders, does it really matter if this retreats to 1,000 or 4,200? Why hold through any losses if we don’t have to?

As I often tell readers, how we finish is far more important than how we start. While Tuesday’s finish doesn’t look bad on a daily chart, how we got there tells us a lot about the market’s mood. TL;DR It isn’t good.

In a mirror of Monday’s lethargic price action, stocks bounced early in the sessions, unfortunately, dip buyers failed to take the bait and prices slumped back to the lows. While dip buyers propped up this bull market all year long, all of a sudden they’ve gone missing and that’s a big problem.

As I wrote to Premium Subscribers earlier Tuesday:

Oversold markets bounce hard and fast and there’s been nothing hard or fast about this latest bounce. While I don’t want to be too negative, it is hard to find anything constructive to say about this price action. Vibrant markets just don’t behave this way.

That said, for those of us paying attention, the market is giving us plenty of warning and we have to be thankful for that. While it feels like stock market crashes are instantaneous, the writing is usually on the walls for days and even weeks ahead of time. Unfortunately, most people don’t react to those early warnings and only move after the pain of regret overcomes them.

The market is giving us a chance to get out and it is best to heed its advice. Maybe this next leg lower only undercuts 4,300 support and bounces off of 4,200. But remember, we can only buy the dip if we have cash and that means selling BEFORE the next leg lower. And later, when everyone else is filled with regret and abandoning ship “before things get worse”, we will be there with a pile of cash, ready to pounce on those juicy discounts.

Remember, savvy traders move proactive, not reactive.

Oct 11

How to be wrong and still make money

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Monday started off well enough for the S&P 500 with the index quickly bouncing above the key 4,400 support level shortly after the open. While it was a promising start, unfortunately, it was all downhill from there and the index skidded over the next 5 hours, finishing at the daily lows and well under 4,400 support.

As I often write, it isn’t how we start but how we finish that matters most. And by that measure, Monday was a dreadful session. The nice tailwind at the start should have tempted out any dip buyers waiting in the wings and it would have been off to the races. But as it turned out, there those dip buyers were nowhere to be found and gravity dominated the rest of the session.

While I want to give this market the benefit of the doubt, days like today make it really hard. I’ve been advocating buying last week’s bounce, but there was no denying the ominous signals Monday’s fizzle gave off and I started moving those positions to cash.

Maybe the bounce is just around the corner, but it looks like this wants to go lower first and that means stepping out of the way. While a lot of inexperienced traders succumb to the impulse to taunt dip buyers for being wrong, if a dip buyer played his cards right, this was actually a very savvy trade.

I advocate getting in early all of the time because that gives us a ton of flexibility. Buying last week was only a mistake if a person waited and bought well after the bounce was established. But for those of us that got in not long after those 4,300 bounces, we were bailing out in the upper 4,300s and actually collected a few bucks for being “wrong”. A trade with 10% upside potential (3x) and if I’m wrong, I still collect a few hundred bucks? I’ll take that every day of the week and it doesn’t matter what names people call me.

Trade smart and you can have your cake and eat it too.

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Oct 07

A painfully simple way to trade this bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 continues flip-flopping between freaking out and getting over it. Thursday was the first session the index reclaimed 4,400 in over a week and at least for the moment, bulls seem to be winning this tug-of-war near recent lows.

Thursday’s strength bodes well for the market because we probed the lows multiple times over the last week-and-a-half and so far, 4,300 support has been rock solid.

Stairs up and elevator down is the old market saying. If this market was standing on a trapdoor, each of the violations of support over the last several days were more than enough to trigger the next leg lower. Yet rather than accelerate lower, each bout of selling stalled and bounced.

Going down is supposed to be far easier than going up, yet bears cannot get this market to stay under 4,300 support for more than a few hours. That definitely counts as a win for the bulls.

As for how to trade this, the first thing a market needs to do when it is breaking down is to actually go down. That means anything above 4,400 and everything is fine and dandy. Falling under 4,400 but staying above 4,300 is not a huge deal, especially in the upper end of this range. But it is enough to warrant standing near the exits. Fall under 4,300 and all bets are off and it is time to wait for the next buyable bounce.

Stick to those simple guidelines and trading this dip will be easy money. Maybe this bounce is the real bounce. Maybe it isn’t. But as long as we are smart about our trades and ensure we are in the right place at the right time, we will come out ahead in the end.

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Oct 06

Why overnight market moves are so misleading

By Jani Ziedins | End of Day Analysis , Free CMU

Free After-Hours Analysis:

Wednesday’s resilient price action shows overnight traders don’t have a clue what they’re doing. The S&P 500 opened Wednesday’s session by gapping down nearly 1%. But those opening levels were as bad as it got and prices rallied nicely through the day. So much for all the death and destruction the futures market predicted a few hours earlier.

The problem with overnight markets is their thin volume allows them to be dominated by emotional retail traders. There is no way institutional investors can find the number of buyers and sellers they need to move their huge positions. That leaves basement dwellers and overseas speculators in control of a market they clearly don’t understand.

While these small traders can influence the open like they did Wednesday morning, when institutional investors show up for regular hours trade, they don’t give a hoot what overnight traders were doing. Instead, most of the time they go back to doing what they were doing the day before, which in this case was buying the bounce.

The best thing we can do if we find ourselves on the wrong side of an opening gap is to keep our cool. Often big overnight gaps reverse within hours. This is exactly what happened Wednesday when the daily low was within an hour of the open and the index rallied through the day, ultimately finished 1.5% above those early doom and gloom levels.

And this strategy isn’t just for protecting existing positions, if we have cash on hand, buy the early bounce with a stop under the early lows and enjoy the ride. If it doesn’t work out, no problem, get out near your entry point and wait for the next bounce.

As for what comes next for the market overall, always pay attention to how we close because how we open doesn’t count for squat. Wednesday was a nice close and even with the wind at their backs Wednesday morning, bears couldn’t extend the selloff. It definitely feels like we are running out of sellers at these levels and that is a recipe for a near-term bounce.

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Oct 05

The market answered our prayers, did you miss it?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Meltdown, bounce back, meltdown, bounce back; the S&P 500 continues wrestling with what it wants to do next.

Following Monday’s meltdown, it felt like we were standing on a trapdoor, waiting for that next leg lower. Almost on cue, Tuesday bounced back, recovering nearly all of Monday’s losses. And so swings the pendulum of sentiment.

While it definitely feels like a bruising few weeks for bulls, they actually haven’t been doing too poorly since September 19th’s sharp down day. While the market probed and even violated those initial intraday lows, the selling keeps stalling and bounced not long after.

I could delve into all of the fundamental and technical reasons the market is doing what is it doing, but does it really matter? As speculators, all we want to know is how to trade this volatility. Lucky for readers I spelled it out Monday evening:

The simplest way of trading a volatile market is following its lead. If the selling continues Tuesday, we step aside and let it do its thing. If prices bounce Tuesday, we buy the bounce.

Guess what, Tuesday morning brought good news and the bounce is back on! For those of us that acted early, we got in at nice levels and were even able to lift our stops to our purchase price in the afternoon, more or less giving ourselves a free trade.

If this bounce keeps going, great, I collect all of those profits. If the bounce fizzles and retreats again, no big deal, I get out near my entry point and try again next time.

People beg for low-risk, high-reward trades. Well, guess what, the market just answered our prayers. Did you jump on the opportunity?

Now we wait to see what Wednesday brings….

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Oct 04

Collapse or big bounce, how to prepare for what’s coming next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 remains near multi-week lows as it processes the recent selloff.

Higher or lower, that is the question. And right now the S&P 500 is standing on the trapdoor.

The encouraging news is we violated recent lows multiple times over the last few sessions without triggering a larger tidal wave of defensive selling. Dip buyers often leave stop-losses under the lows and any violation triggers waves of reflexive selling. But so far, we slipped under the lows from two weeks ago and these subsequent violations failed to trigger follow-on waves of selling.

This is good for the market because it means most owners are holding steady and are not letting some arbitrary level determine their next trading decision. The bad news is the longer we hold near the lows, the more likely it is we violate them and few things shatter confidence like screens filled with red.

While we have inflation, debt ceiling, and Evergrande headlines swirling around us, that is largely a distraction from what is really driving this volatility, sentiment. Traders ignored headlines all year and there is no reason this latest round of headlines is any more significant. Instead, many traders realize it’s been a nice run and they fear the “inevitable” pullback more than anything in the press. These people are not selling because they fear inflation or Evergrande, they are selling because they want to get out before other people start selling. It is simple as that.

And so the answer to the question of what comes next comes down to how many people are confidently waiting for the bounce versus how many are on the verge of abandoning ship.

While lots of people are speculating over what comes next and it’s been a long time since I heard this many people predict a stock market crash, only time will tell what comes next. If there was a reliable indicator, everyone would use it. And since people promote a million different indicators, we know most of them don’t work. Because if one worked, we wouldn’t need the million other indicators.

Anyway, the simplest way of trading a volatile market is following its lead. If the selling continues Tuesday, we step aside and let it do its thing. If prices bounce Tuesday afternoon, we buy the bounce again. And if we get an inconclusive indication (not a bounce and not a further collapse), we simply push this decision to Wednesday.

And as always, start small, get in early, keep a nearby stop, and only add to a trade that is working. While buying Friday’s bounce didn’t work, if we are sensible about the way we enter a position, the risks are small and the potential rewards of getting it right are large.

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Sep 30

How to prepare when the market is standing on the edge (and it isn’t what you think)

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday was an ugly session for the S&P 500 with the index giving up early gains and closing deep in the red.

This bearish intraday reversal tells us dip-buyers are still MIA and that is not a good thing for a selloff struggling to find a bottom.

While it is easy to point these things out AFTER the market has fallen 5%, it is a whole other thing to see it coming while there is still time to act.

Lucky for readers, this is what I wrote back on September 9th when the index closed just under 4,500.

It’s been a rough week for the S&P 500 as Thursday’s 0.5% loss makes this four down days in a row.

Monday was Labor Day, making this unofficial start of the fall trading season. It’s been a nice and easy summer and a trend is far more likely to continue than reverse, but if the market’s mood is going to change, this transition in seasons is a good time for it to happen.

There isn’t a quantifiable reason to claim this rally is running out of gas and this week’s dip is different than all of the other failed dips this year. But just knowing where we are and where we’ve come from, it feels like this time could be different.

As I often write, how we finish is far more important than how we start and by that measure, Thursday’s was an ugly day. Early gains evaporated and the index crashed through 4,510 and 4,500 support on its way to closing near Wednesday’s lows.

I don’t mind red days that finish well above the early lows. In most instances those are bullish signals. But there was nothing bullish about Thursday’s retreat and close at the daily lows.

I had my stops spread across the upper 4,400s and lower 4,500s and Thursday’s pathetic price action squeezed me out. Most likely this week’s stumble will turn out to be nothing more than yet another buyable dip. But for me, it’s been a nice run and that makes this a good time to lock-in some profits.

If the index bounces back above 4,500 on Friday or sometime next week, I’m more than happy to get back in. But as long as it remains under 4,500, I’m more than content watching this from the sidelines.

But that was then and this is now. Those holding stocks are left wondering if there is still time to get out before this gets worse. Unfortunately, a big portion of the selloff has already happened and pondering a sale now is waaay late in the game.

Remember, the best sells tend to be when we don’t want to sell and the best buys tend to be when we don’t want to buy. Following that logic, this is a much better place to be thinking about buying than selling.

Now to be clear, I’m not suggesting people rush out and buy this selloff, but it is definitely time to start looking for that next bounce.

Thursday’s close was dreadful and we should expect the selling to smash through 4,300 resistance Friday or early next week. But after that, be on the lookout a capitulation bottom and bounce. While this might not be the ultimate bottom, we won’t know that until after it is way too late to trade it.

I always treat every dip and bounce as the real deal until proven otherwise. Get in early and get out early and it doesn’t matter if the next bounce is the real deal or not. The most important thing is we are in the right place at the right time when the next big move happens. And the only way to do that is to get in early and see where it goes.

If we start small, get in early, keep a nearby stop, and only add to a trade that is working, the risks are not all that bad. In fact, it is far safer than what most traders are doing here. Just ask anyone that’s been holding since early September.

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Sep 29

Why a bull is rooting for this pullback to continue

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 bounced back from Tuesday’s thrashing, that is if a 0.16% gain qualifies as “bouncing back”.

The best we can say about Wednesday’s lethargic price action is at least the rout didn’t continue. But an early bounce that fizzled and finished near breakeven is nothing for bulls to crow about. If that’s the best offense dip-buyers can muster, it is going to be a very difficult few days for the market.

As I wrote Tuesday evening, markets rarely retreat and bounce exactly off of support. That would be too easy and the marked hates being easy. Prices either bounce above support or they bounce below support. Since the index already retreated back to last week’s closing lows, bouncing above this level is off the table and that means we have a date with a bounce under this level.

Now don’t get me wrong, I’m not fatalistic about this market. In fact, I’m looking at this weakness as a buying opportunity. (I even bought last week’s modest bounce and managed to squeeze a few bucks out of it before this second wave knocked us lower.)

Every directional move is a profit opportunity and I don’t care which way it goes. If the market bounces off of 4,350, great, I will buy that. If it is 4,305, even better. The lower we go over the near-term, the more money I make from these discounts. And if we crash through 4,300, that’s the best case of all because I’m currently in cash and the lower we go now, the more money I make later.

Let the bulls and bears slug it out on social media. I will be over here minding my own business and picking up all the money those other guys keep dropping.

As for a trading plan. Buy a bounce back above 4,400. If prices fall under 4,350, buy the bounce back above that level. And if prices crash under, 4,300, buy the bounce above that level. It really isn’t complicated. Start small, get in early, keep a nearby stop, and only add to a position that is working.

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Sep 28

Why savvy dip-buyers are not worried by Tuesday’s retreat

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Tuesday’s -2% bloodbath was the ugliest session for the S&P 500 since May. And this decline leaves the market teetering on the edge of collapsing under last week’s closing lows (4,357). From there it is only a hop, skip, and jump to last week’s intraday lows (4,305). As bad as Tuesday felt, it can definitely get a lot worse.

If last week’s bounce isn’t already dead, it is hanging on by a thread. These things don’t simply kiss support and then bounce. That would be too easy and the market doesn’t like easy. This will get a lot scarier before it is all said and done and that means crashing through support. From there, it largely depends on how previously confident owners respond to the pressure. Do they shrug and keep holding like they have been doing all year long? Or do they finally lose their nerve and abandon ship along with everyone else?

As I wrote last week, these things often require a few failed bounces before they find their footing. While last week’s bounce started off well enough, Tuesday killed it and that leaves us waiting for the next bounce.

For nimble traders, Tuesday’s selloff was no big deal. We got in early last week during Monday and Tuesday’s rebound. From there, we lifted our stops to at least our entry points on Wednesday and Thursday. By the time the selling hit us Tuesday morning, nimble traders were locking in modest profits and eagerly awaiting the opportunity to buy the next bounce.

Getting in early and getting out early is the name of the game. While buying last week’s bounce didn’t pan out, I actually consider myself lucky when I can make money when I’m wrong. And to be honest, I don’t even consider buying last week wrong. The only way to ensure we are in the right place at the right time is to buy every bounce. Jumping aboard the bounces early and getting out of the false bottoms early means any potential damage is minimal, and in cases like this week, we actually collect a few dollars for our efforts. But the real payoff comes from riding the real bounce back to the highs. Everything else is pocket change.

Start small, get in early, keep a nearby stop, and only add to a position that is working. Follow this simple recipe and episodes like this selloff actually become fun. And now that we’re in cash, the lower this goes, the more profit opportunities we get.

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Sep 24

This was a good week for those of that were paying attention. Plus what Bitcoin’s price action is telling us.

By Jani Ziedins | End of Day Analysis

Free Weekly Analysis:

The S&P 500 crashed at Monday’s open and the selling accelerated through the day. Luckily, a last minuted bounce prevented it from turning into the worst day of the year. And wouldn’t you know it, those Monday lows were as bad as it got. From there, it was all uphill and the index actually closed in the green for the week!

Talk about a wild ride. For traders playing offense, it actually turned into a fairly profitable week. The pullback that started two weeks ago chased anyone with a sensible trailing stop out of the market and they missed all of the carnage that wrecked so many traders this Monday. And just when the masses were bailing out of really good stocks at steep discounts, the opportunistic trader sitting on a pile of cash was licking his chops and getting ready to pounce.

Monday’s late bounce gave the aggressive trader an opening to put on a partial position and the subsequent strength on Tuesday and Wednesday was good enough to add to that initial position. By the end of the week, there was enough profit in the trade to move our stops up to our entry points and now we have a low-risk trade.

Maybe the bounce sticks or maybe it doesn’t, but for those of us that got in early, it really doesn’t matter. Collapse and I get out at my entry point and get to try again next week at even lower prices. Or keep bouncing higher and I’m sitting on some nice profits while this week’s sellers are riddled with regret and being left behind.

To the victor goes the spoils and in the market that means the people willing to act when everyone else is either too complacent or too scared.

(And for those that have been following this free blog, I’ve been laying it out all in real-time and hopefully some of you had the courage to profit from this volatility too!)

Bitcoin got punched in the face when China came out and outlawed cryptocurrency trading. But to be honest, a 5% loss following such dramatic headlines seems fairly insignificant. This remains above $40k support and at this point, that’s the only thing that matters. If this can shake off these headlines, it is hard to imagine what it will take to actually hurt this thing. I’m not a cryptocurrency fanboi, but it is hard to deny this unshakable resilience.

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Sep 23

If this market doesn’t make sense, start by reading this

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

One day down and three days back up. As poorly as the week started, amazingly enough, by Thursday the S&P 500 already turned green for the week.

Bears did their best to break this market, yet most owners showed their stubborn resolve and kept holding. Real estate bubbles in China? Fed tapers? None of it seems to matter to this bull market. But should anyone be surprised? This bull market was born in the depths of a global health pandemic. Of course it doesn’t care about these “little” things.

While I bought the dip following Monday’s late bounce and added more on Tuesday, I’m not convinced this bounce is the real deal. False bottoms also look like the real deal moments before the bottom falls out.

Lucky for those of us that got in early, we already moved our stops up to our purchase price and are now sitting on low-risk trades. Compare that to the person who abandoned ship on Monday and is now riddled with regret and indecision. One trader is coasting on easy street. The other is lying awake at night, stressing over what they should do next. Which trader would you rather be?

As I say over and over again, every time we sell, always, always, always have a plan to get back in. Dips are almost always false alarms and we need to have a plan to deal with them so we don’t get left behind when the market bounces.

Start small, get in early, keep a nearby stop, and only add to a trade that is working. Follow those simple rules and dips like this won’t bother you either. In fact, you will actually look forward to them because they are some of the easiest and fastest profit opportunities we get.

But now that the good dip-buying opportunity is behind us, now it’s time to figure out what to do next.

As I said, I’m not convinced this bounce is the real bounce. Lucky for me, just because I bought the bounce doesn’t mean I’m married to it. My stops are at or above my reentry points, but even more important, I’m focused on SPX 4,400. Hold above that level and the rebound is alive and well. Fall under it and we need to move to a defensive posture, which means scaling back open positions. And at this point, there is zero excuses to stick with a trade if the index falls under 4,350.

Remember, the best traders move proactively, not reactively. Have a plan ready and you will never get stuck on the wrong side of the market.

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Sep 22

Bump on our way lower or dip on our way higher, which is it?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday was the S&P 500’s first meaningful up day in what feels like ages. That said, this 0.95% gain would have felt even better if the index held above 4,400 support instead of slipping back under this key level ahead of the close. But at this point, a 1% up day is a 1% up day and no one is complaining.

Stocks don’t go up in straight lines and they don’t go down in straight lines either. That means every rally has down days and every decline includes up days. The million-dollar question is if the last two-week decline is a little wobble on our way higher? Or if Wednesday’s bounce was simply a bump on our way lower? And the answer is yes!

The latest selloff did a lot of damage and we are unlikely to bounce right back to the highs anytime soon, so that means we have a date with recent lows over the next week or two.

But just because we retest the lows doesn’t mean the stock market is imploding. Pullbacks like this are normal and routine. Last month I warned readers that almost every year has a 5% pullback and we hadn’t had one yet. Well, what do you know, look, a 5% pullback!

Maybe this hits -6% or -7% before it is all said and done. But even pullbacks of this magnitude are a normal and healthy way of consolidating gains and getting ready for the next move higher. I would be far more concerned about the sustainability of this bull market if we didn’t take this step back and instead continued charging higher without resting.

So yes, this is both a small bump on our way lower over the near-term and a very normal pullback on our way higher over the medium-term.

As for how to trade this, a nimble and savvy trader could have bought this week’s bounce off of Monday’s lows for a quick buck, but the all-bets-are-off line is 4,350. There is no valid reason to hold a trading position under this level. But after we get flushed out at 4,350, be ready to buy back in when we reclaim this level. Sell the dip, buy the bounce, and repeat until the real bounce finally takes us back to the highs.

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Sep 21

A quick update on Tuesday’s pathetic price action and what to expect next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 started Tuesday well enough, opening in the green and extending Monday’s late bounce. But by the end of the session, the index gave back all of those early gains and finished flat.

While flat is clearly better than extending the selloff, it didn’t do anything to end the selloff. And unfortunately, that means the selloff is still alive and well.

As I wrote previously, this decline turned into an emotional selloff and we rarely shake those off within a few days. More often than not, it takes weeks and even months to get back to the old highs. To get these things through our system, most of the time we need to go “too far” before we can bottom and bounce for good. Tuesday’s weak rebound tells me we haven’t reached “too far” yet and we need to prepare ourselves for lower prices over the near term.

The only question is if we minorly violate Monday’s lows or if we smash through them and keep going. At this point, I could see either scenario playing out and that means our trading plan needs to be prepared for both.

Hopefully, everyone reading this blog has their trading account sitting in cash and is ready to pounce on these discounts. If the index falls under 4,300 over the next day or two, bouncing back above this level becomes an excellent entry point with a stop just under this level.

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

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Sep 20

Has the market’s mood finally soured and what that means for the rest of the year. Plus a Bitcoin trade.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Monday was the ugliest session in a long while for the S&P 500 and only a late bounce off the midday lows saved it from being the worst day of the year.

Financial journalists blame this weakness on real estate problems coming out of China. But the thing to remember about journalists is if they could trade, they would be traders, not journalists…

While this property bubble story out of China sounds plausible, it’s been years since U.S. markets cared about what’s going on inside China’s economy and nothing changed this weekend.

Readers of this blog know the real answer is this “unstoppable bull” was setting up to run into some headwinds this fall. We didn’t know what “the problem” was going to be, but we knew it was coming. Markets move in waves and if it wasn’t China, it would have been something else. It was simply time.

Now that we got that out of the way, it is time to figure out what comes next. All of the other dips this year bounced within days, if not hours. Should we expect the same thing this time? Nope, not at all.

This time is different because it is the first dip that truly sent fear and indecision racing through the crowd. Previously every dip was met with a shrug and prices bounced within hours due to the lack of follow-on selling. That confidence is long gone and everyone is now wondering if this is “the big one”.

As for what comes next, it takes a while for emotional selloffs to work their way through the system and we shouldn’t expect this one to bounce back to the highs anytime soon. In fact, there is a good chance we’ve seen our last record high this year.

The market’s mood has clearly changed and that means the half-full outlook has been replaced by nervousness and second-guessing. Fear of the other shoe dropping will keep traders on edge for weeks, if not months.

Monday’s intraday lows near 4,300 set a new benchmark to keep an eye on. Above this level and an adventurous trader can buy a near-term bounce for a quick buck. But take profits early and often because we will retest 4,300 again over the next week or two, if not later this week.

Expect a few violations along the way, but anytime we get back above 4,300, that qualifies as a buyable bounce. Maybe it doesn’t amount to much, but if we start small, get in early, the risk is almost zero the potential reward is quite large.

And if this thing keeps falling, even better. The lower prices go, the better the discounts get. (You are in cash right?)

Bitcoin continues failing as a hedge against volatility in the equity market. This cryptocurrency fell along with everything else today and no one was safe.

Nimble traders had their trailing stops get them out closer to $50k and now these savvy opportunists are eager to take advantage of these discounts. A bounce off of $40k is buyable, but all bets are off if this falls under $40k. Plan your next trade accordingly.

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Sep 17

The warnings this week was shouting at us

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis:

The S&P 500 finished the week 0.57% in the red, making this the first time we’ve had two consecutive down weeks since May.

The good news is that two week selloff back in May was nothing more than a minor hiccup on our way higher and the next three weeks finished green. Will we be as lucky this time? That’s the million-dollar question.

The most notable difference between this week and that episode in May is this week ended at the weekly lows while back in May, that second week finished near the weekly highs.

As I often write, it isn’t how we start but how we finish that matters most. And in this case, this Friday afternoon gave us a very poor finish.

The market attempted several bounces over the last two weeks and each one ended in disappointment. Markets bounce decisively from oversold levels and this week’s pathetic rebounds tell us we are not yet oversold. And if we know anything about emotional pullbacks, it’s that they don’t give up until they’ve gone too far. Quite simply, if this market isn’t oversold yet, then the selling isn’t over.

I still like this market even though I am approaching it with a lot more caution given the changing seasons. But I’m still treating this as a buyable dip. Friday’s violation of the weekly lows was a clear signal to get out. But that line in the sand now becomes our next buy signal. Bounce back above this level next week and it is time to get back in. Start small, get in early, keep a nearby stop, and only add to a trade that is working.

We will know pretty early in the week if this market wants to bounce or continue falling. Rather than try to predict what it will do, savvy traders simply wait and follow its lead.

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Sep 16

The calm before the storm? Or the worst already passed?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 continues flirting with recent lows near 4,430 for the fifth day in a row.

To breakdown or not to breakdown, that is the question.

The thing about breakdowns is they typically fall hard and fast. Five days of grinding sideways isn’t hard and it isn’t fast. Does that mean the selloff is already over? The market sure is acting like it.

Lucky for us, we have a very clear line the sand near Tuesday’s lows that will tell us if and when this week’s bounce fails. Fall under this level and get ready for more selling. Hold above it and the rebound is alive and well. Above is buyable. Under is sellable. It doesn’t get any more straightforward than that.

But the market doesn’t like being easy, so the curveball might be a momentary violation of 4,435 support before bouncing back above. In that instance, the return above 4,435 is buyable and the rebound is back on.

Pundits are trying to convince us they know conclusively that this is either a bounce back to the highs or the start of a much lager selloff. Me, I don’t know and I really don’t care. I trade what the market gives me. If that means buying the bounce, then I buy the bounce. If it means shorting a bigger breakdown, then I short the bigger breakdown.

Following the market’s lead sure beats trying to win an argument when it isn’t listening.

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Sep 15

Nice bounce, but can we trust it?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday was the first real good session for the S&P 500 in nearly three weeks. The index arrested a nearly two-week-old slide, bouncing nicely off of the 50dma and adding 0.85%

Is this the real bounce, or just a false bottom on our way lower? Unfortunately, only time will tell and we won’t know the answer until long after this trading opportunity passed us by. Sometimes the first bounce is the real deal, but often it takes two or three false starts before turning for good and Wednesday was only the first attempt.

But just because we don’t know if this is the real bounce or not doesn’t mean we cannot trade this move intelligently. When I have no idea if this is the real bounce or not, I trade it as the real thing until proven otherwise.

Reclaiming 4,460 this afternoon was a nice entry point and closing above 4,480 gave us another entry. As for stops, hold above Tuesday’s lows near 4,350 and everything looks good. Fall under this key support level and all bets are off. Easy as that.

I have no idea if this bounce is the real bounce, but I have a plan and I’m trading it. And if this isn’t the real bounce and the slide continues, no big deal. I simply get out and buy the next bounce. In fact, the lower this goes over the near-term, the better it is for me because the larger discounts give me more profit opportunities during the subsequent rebound. That makes this is one of those times I hope I’m wrong.

As always, start small, get in early, keep a nearby stop, and only add to a position that is working. If the market rallies Thursday, move stops up to our entry points, giving us a free trade.

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Sep 10

Is the index standing on a trapdoor?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Friday makes it five down days in a row for the S&P 500.

That’s the longest stretch of down days since February. And for those that care about these things, the last time the index fell five days in a row, it ended up falling another 4% before finally finding a bottom. If history repeats itself, we could see the index fall another 200 points over the next week or two. As I said, this only matters to people that care about these things, so please feel free to disregard this if it isn’t relevant to you.

As I warned readers on Thursday:

There isn’t a quantifiable reason to claim this rally is running out of gas and that this week’s dip is different from all of the other failed dips this year. But just knowing where we are and where we’ve come from, it feels like this time could be different.

Well, Friday’s pathetic price action confirmed this time is different and that means we haven’t seen the worst of this dip yet.

Unfortunately in trading, we have to make our moves before we have all of the information. Often that means pulling the plug days before something is obvious. Anyone still waiting for confirmation on Monday or Tuesday will be selling long after the damage has been done. By that point, why bother selling at all?

Smart traders buy early and they sell early. Suckers buy late and sell late. Please don’t be a sucker.

For those that have been paying attention, we moved to cash Thursday and waiting for that next buyable entry point. Odds are good stocks will bounce on Monday. But most likely that will be a fool’s bounce and lower lows are still ahead of us.

There is nothing wrong with buying Monday’s bounce if we are smart about it (start small, get in early, keep a nearby stop, and only add to a trade that is working). But odds are good Monday’s bounce will turn out to be a false bottom and we need to be nimble if we buy it. Most likely the selling will resume later next week before we finally carving out a more painful capitulation bottom.

But if we are savvy and nimble, we buy all of the bounces because we know we can get out when those false bottoms fizzle and start making fresh lows.

I have no idea if the first, second, third, or fourth bounce will turn out to be the real bounce. That’s why I buy all of them and then I don’t have to worry about it. (again, start small, get in early, keep a nearby stop, and only add to a trade that is working)

While some people hate volatility, I love it because that’s the fastest and easiest way to make money.

If you find these posts useful, please return the favor by liking and sharing them!

What’s a good trade worth to you?
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For less than $1/day, receive actionable analysis and a trading plan every day during market hours

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