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Apr 24

Why smart money is getting ready for the continuation higher

Free After-Hours Analysis:

The S&P 500 wavered between modest losses and small gains through Monday’s sessions.

While sideways is not as much fun as up, the fact most owners ignored every dip over the last few weeks tells us a lot about the market’s mood. If this market was going to crack, it would have happened by now. Instead, most owners shrug and keep holding.

It was wise to get cautious and lock in worthwhile profits a couple of weeks ago when we first got to these levels, as I wrote back on April 3rd:

Stocks move in waves; they always have and always will. After a nice run like that, rather than pat myself on the back for profiting from March’s reversal, I’m getting nervous that too much of a good thing can end poorly for anyone that holds too long.

Don’t get me wrong, I’m not calling this a top. Momentum is far more likely to continue than it is to reverse, but with 300 points of upside in our rearview mirror, this is the wrong time to be getting greedy. Savvy traders are taking worthwhile profits and getting ready for the next opportunity.

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But after the typical step-back failed to materialize, we have to start considering the next move will be “high getting even higher.”

As I’ve said countless times before, something that refuses to go down will eventually go up. At this point, this looks like up is only a matter of time. While it isn’t hard to figure out what the market is going to do next, the challenge is always getting the timing right. More often than not, the key isn’t what trade to make, but when to make it.

As I wrote last week, this sideways grind could start moving at any time and that means we need to be ready for it. While Bulls and bears love to place their bets ahead of time, I like waiting for the move to start first. A nice bounce Tuesday will be the green light to give this trade a shot.

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Apr 19

Why this overbought market will keep going higher

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 started Wednesday’s session -0.5% in the red as the index continues struggling for a direction under 4,200 resistance.

For all the naysayers attacking this “overbought” market, Wednesday morning’s weakness failed to trigger a wider wave of selling and it only took a few hours before prices bounced back to breakeven.

While the index finished flat for the day, that’s actually a resilient performance for stocks. If this market were as fragile and vulnerable as the critics claim, the selling would have accelerated, not stalled and bounced.

Lucky for readers, we recognized the market’s indecisiveness a while ago and used that insight to our advantage. As I wrote last week:

The lack of a breakout or a breakdown is frustrating the people who are trading in anticipation of these things. As I’ve been saying for a while, this is a range-bound market and that means lots and lots of reversals. If a person has profits and they are not collecting them, those profits will be gone in days, if not hours. Savvy traders know this is the environment to stay nimble and take profits early and often.

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Novice traders love to claim the market is rigged when it doesn’t do what they want. The thing I never understand about this argument is if these traders know the market is rigged, why don’t they use that insight to follow the rigging and print money???

Don’t fall for lame excuses. If you lose money, it means your trading thesis is wrong, plain and simple. Rather than accuse banks or the Fed of cheating, recognize your mistake and change your approach. That’s the only way to survive the market over the long haul.

As for what comes next, last week I was wary of a near-term step back following March’s big run. But holding near the highs for a few weeks suggests these levels are real. As I often remind readers, a market that refuses to go down will eventually go up.

As high as stocks seem, it wouldn’t surprise me to see the index break through 4,200 over the next few days or weeks. I don’t expect a big breakout, but poking our heads above this key resistance level seems all but inevitable. If we were going to crash, it would have happened by now.

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Apr 14

Why stocks are not ready to go higher…yet

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 poked its head above multi-month highs moments after Friday’s open, but those early gains were as good as it got and the index skidded into the red minutes later.

That said, Friday’s -0.2% loss was fairly trivial and hardly describes panic selling, especially considering the index was down nearly -1% in midday trade.

March’s rebound is running out of momentum near 4,200 resistance. But this shouldn’t surprise readers of this blog because I’ve been saying stocks have been rangebound for months. As I wrote Thursday evening:

While [Thursday’s] short squeeze produces quick profits for those of us lucky enough to be positioned on the right side of the reversal, the downside of short squeezes is they don’t have much staying power. As nice as riding Thursday’s wave higher was, savvy traders are standing next to the exits if they are not already locking in worthwhile profits.

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Well, it didn’t take long for the air to start coming out of Thursday’s short squeeze. One day’s up becomes the next day’s down. If a person isn’t taking profits when they have them, they will be sitting on losses a few hours later.

Savvy traders adopted an anti-bear and anti-bull outlook toward this market. March’s dip to the lower end of the 3,800 trading range wasn’t a prelude to a huge crash to multi-year lows, it was a buying opportunity to ride the next wave higher. And this rally to the upper end of the trading range doesn’t foretell of huge gains for as far as the eye can see. Instead, we are running out of buyers and on the verge of slipping back into the heart of the trading range.

A breakout is coming, but we need buyers to start feeling more greedy than fearful at these heights. It will happen, just not right now. Until then, keep taking profits early and often because if we don’t, the market will snatch all of those profits back.

At this point, look out for further cooling next week and ambitious traders can short that weakness. For everyone else, wait for the next bounce. Don’t worry, it will come along much quicker than most people expect.

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Apr 13

Why bears should have seen this rebound coming

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 surged 1.3% Thursday after we got a few more pieces of data showing inflation continues falling.

Sure, inflation’s retreat is slower than most hoped for or even expected, but most sensible people agree we avoided the worst-case scenario the pessimists were predicting last year. Less bad-than-feared has been the name of the game this year as stocks continue trading near recent highs.

If we look at the headlines that allegedly triggered Thursday’s surge, they are fairly benign. That means it wasn’t the headlines driving this one-way buying frenzy, but traders reacting to the price action. More specifically, overly ambitious bears getting blown out of their short positions.

Lucky for readers of this blog, Thursday’s reversal didn’t catch us off guard. As I wrote Wednesday evening:

The lack of a breakout or a breakdown is frustrating the people who are trading in anticipation of these things. As I’ve been saying for a while, this is a range-bound market and that means lots and lots of reversals. If a person has profits and they are not collecting them, those profits will be gone in days, if not hours.

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While a short squeeze produces quick profits for those of us lucky enough to be positioned on the right side of the reversal, the downside of short squeezes is they don’t have much staying power.

As nice as riding Thursday’s wave higher was, savvy traders are standing next to the exits if they are not already locking in worthwhile profits.

As I’ve been telling readers for months, this is a back-and-forth market, not a directional one. While the headlines are less-bad-than-feared, that’s a long way from being good enough to send stocks back to record highs. Until something changes, expect stocks to continue trading sideways inside the 3,800-4,200 trading range.

No doubt it is hard to pull the plug on a trade that’s working as well as buying Thursday’s rebound, but it is far more painful to watch a winning trade turn into a loser because we got greedy and held too long. Just ask greedy bears that watched all of Wednesday’s short profits vanish into thin air.

And you know what? If we end up collecting profits too early because Thursday really was the start of the next big run to record highs, nothing prevents us from buying back in on Friday or next week.

Until proven otherwise, I will continue taking profits early and often because up to this point, the reversals have never been far away. If we’re not taking profits, then we will get stuck taking losses a day or two later.

This pattern will change at and we will eventtually get a bigger directional move, but this is not that point.

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Apr 12

How savvy traders are approaching this indecisive market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Wednesday down 0.4% after the monthly inflation report dipped to 5%, the lowest reading in nearly two years.

Stocks reflexively rallied on the news of falling inflation. However, the midday strength evaporated when the Fed’s latest meeting minutes revealed they were still contemplating another rate hike at their next meeting.

The good and bad cancel each other out and the market finds itself stuck in the middle of its latest consolidation near 4,100 resistance.

At this point, it would be hard for either bulls or bears to claim recent price action supports their arguments. The March rebound has clearly stalled near 4,100 resistance as prospective buyers grow leery of these elevated prices. But at the same time, bears’ widely predicted collapse from “too high” is nowhere to be found.

At this point, it feels like the market is settling into “just right” as it waits for the next meaningful data point. Stock prices would have reacted far more aggressively if either of Wednesday’s headlines were a surprise. Instead, the market expected inflation to cool modestly and for the Fed to contemplate another rate hike.

The lack of a breakout or a breakdown is frustrating the people who are trading in anticipation of these things. As I’ve been saying for a while, this is a range-bound market and that means lots and lots of reversals. If a person has profits and they are not collecting them, those profits will be gone in days, if not hours.

Savvy traders know this is the environment to stay nimble and take profits early and often. The next big directional trade is coming, but this isn’t it. If you are not taking profits when you have them, you will end up with a pile of losses.

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Apr 11

Why I’m sitting on my hands

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Tuesday almost exactly where Monday’s session ended.

The flat trade over the last week is proving both bulls and bears wrong. As I’ve been writing for a while, this is a sideways market, not a directional one.

Economic headlines are largely stable, meaning bulls are not turning into bears and bears are not turning into bulls. When few people are changing their minds, stocks end up rangebound.

Sure, it’s been a nice run from the March lows, but now that we are at the upper end of the trading range, rather than get greedy and keep holding, savvy traders are collecting profits and getting ready for the next trade.

Trading is a game of managing risks and rewards. March’s run consumed a whole lot of reward, meaning there is far less upside left for those still holding. Pushing up near multi-month highs means the risks of holding is greater than they were at lower levels.

At the same time, only fools are rushing to short everything they can get their hands on because “stocks are too high.” Momentum is far more likely to continue than reverse, so anyone betting against recent strength is going against the odds.

We are traders and we want to trade, but sometimes the best trade is simply waiting for the next trade. Making money is a lot easier when the risk/reward is stacked in our favor.

Maybe we get an unexpected headline that sends us back to the lower end of the 3,800-4,200 trading range. Or maybe something good happens and we push through old resistance. But until either one of those things actually happens, I’m happy watching this from the sidelines.

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Apr 05

How savvy traders know when good enough is good enough

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 slipped another -0.3% Wednesday as the index continues struggling with 4,100 resistance.

While everyone is busy arguing about the latest headlines, what’s on the front pages doesn’t impact the economy and thus, is not important to the stock market. Instead, this latest bout of selling is simply an exhale following last week’s big run to multi-month highs.

Lucky for readers, we were ready for this stalling. As I wrote Monday night:

Stocks move in waves; they always have and always will. After a nice run like that, rather than pat myself on the back for profiting from March’s reversal, I’m getting nervous that too much of a good thing can end poorly for anyone that holds too long.

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Now, to be clear, I’m not calling Tuesday’s opening highs a top, but there always comes the point where we have to decide that good enough is good enough.

Risk is a function of height, meaning these are the riskiest levels since early February. And more than that, March’s 300-point rebound consumed a whole lot of near-term upside. Less reward and higher risk equal an unfavorable time to be buying or holding stocks.

Sure, momentum is higher and that means prices can continue drifting to even higher levels, but all good things must come to an end, and the odds are working against March’s rebound at these prices.

Until proven otherwise, this is a choppy, sideways market and we are currently near the upper end of the 3,800/4,200 trading range. Common sense makes this the place to take profits and prepare for the next trade.

And guess what? If the short squeeze continues next week, there is nothing that says we cannot buy back in and enjoy that ride higher. Just because we sell doesn’t mean we have to give up. We are always in the fight, but savvy traders are not naive enough to push their luck when the risk/reward is no longer working in their favor.

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Apr 03

Should we be worried about too much of a good thing?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 added 0.4% Monday, extending last week’s big run above 4,100.

These gains leave the index near the highest levels of the year, a far cry from the banking crisis lows from a couple of weeks ago.

It is obvious now that buying the overblown fear was the right call; luckily, readers were ready for it. As I wrote last month, just before the market bottomed and bounced:

[I]f the market bounces following next week’s inflation data, I will be one of the first to jump aboard that bandwagon. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.

If the selling resumes and I get dumped out again for a small loss again, it happens. For every bounce that works, there will be two or three that don’t. But as long as my losses are on partial positions and my wins are with full positions, I will come out ahead in the end.

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Now, to be clear, I wasn’t predicting a 300-point rally from those lows over the next few weeks, but I did recognize that the rubber band had stretched pretty far in one direction and the potential for a reversal was high. And that’s exactly what we got.

But now that we are 300 points higher and the crowd is far more comfortable, I’m worried about the opposite.

Stocks move in waves; they always have and always will. After a nice run like that, rather than pat myself on the back for profiting from March’s reversal, I’m getting nervous that too much of a good thing can end poorly for anyone that holds too long.

Don’t get me wrong, I’m not calling this a top. Momentum is far more likely to continue than it is to reverse, but with 300 points of upside in our rearview mirror, this is the wrong time to be getting greedy. Savvy traders are taking worthwhile profits and getting ready for the next opportunity.

That said, the other critical thing is to resist the urge to fall for “too far too fast.” No doubt this latest wave of buying will end in a wave of selling, but we want to see that wave start before we jump aboard the short bandwagon. There are few ways to lose money faster than shorting “too far too fast.” This is one of those times when it is better to be a little late than a lot early.

It’s been a good run, but now is the time to lock in profits and prepare for the next trade. (Which could include catching the next wave higher if the short squeeze keeps going.)

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Mar 29

A hard lesson for Bears, but don’t worry, the market will be coming for Bulls next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Unsurprisingly, the S&P 500’s choppy behavior continued on Wednesday as Tuesday’s midday slump reversed and turned into the highest close in nearly a month. A similar misleading signal came out of last week’s big -1.6% retreat that turned into this week’s big gain.

As I’ve been saying for a while, anyone trading in the direction of these breakouts/breakdowns is getting chewed up by the inevitable reversal a handful of hours later.

Savvy traders are coming to this market as opportunists, not bulls or bears. Buy (or short) the reversal and take profits quickly because anyone bragging about their profits is watching those turn into losses a day or two later.

As soon as you feel good about a position, that is a clear sign it is time to get out while the getting is still good.

No doubt the market can rally for another day or two after finally clearing 4k resistance, but Thursday and Friday will be the time to take profits, not chase prices higher.

Until further notice, this is a choppy market. That means taking profits when you have them because if you don’t, you will be taking losses a few days later.

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Mar 28

A common sense trading plan for an indecisive market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Tuesday down little more than a tenth of a percent as the choppy, sideway trade continues.

Not much is going on in the headlines and like a kid with ants in his pants, the market can’t stop moving. But just because we’re moving doesn’t mean we are going somewhere. Every bit of up is followed by a bit of down and we continue consolidating in between 3,800 support and 4,200 resistance.

Headlines are fairly stable and that means few people are changing their minds. Nothing has convinced bulls to sell or bears to buy, which means we are stuck bouncing around current levels. No doubt this will change at some point, but it will take a significant and unexpected headline to break this stalemate. Until that happens, expect more of the same.

Until further notice, buy the bounces, sell the breakdowns, and most importantly, take profits quickly. This is the trade the market is giving us and that’s what we are stuck with. No doubt a bigger, directional move is coming, but it will take a fundamental driver to get us there.

That said, if nothing bad happens, expect the market to drift higher over the next few weeks on less-bad-than-feared relief.

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Mar 27

Why fools keep losing money in this very easy market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 kicked off Monday morning with nice gains after nothing bad happened over the weekend. Unfortunately, that early push above 4k resistance turned back and the index gave up a big portion of those initial gains by the close.

As I’ve been saving for a while, anyone anticipating a big directional move is getting chewed up by these whipsaws. Friday’s violation of last week’s lows ended in a big bounce and Monday’s push to recent highs was turned back by 4k resistance.

Smart money is trading against these swings, not in their direction. As I wrote Friday afternoon:

Bears were right for a few minutes [Friday] morning, but if they held on much longer than that, they watched all of those profits go flying out the window. And no doubt it will be the bulls’ turn [this] week when we hit our head on 4k resistance yet again. This is the kind of market where if you are not taking profits, you will be taking losses a few hours later.

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Well, here we are Monday afternoon following a rejection by 4k resistance. If someone is surprised by these reversals, clearly they are not paying attention.

Savvy traders see the market for what it is, not what they want it to be. And that simple nuance is the difference between making money and losing money. Bulls and bears need to be right, I just want to make money and don’t care who wins. And that is making all the difference here.

As for what comes next, expect more of the same. Buy the bounce and sell the breakdown. But remember, we only make money when we sell our winners. If you are not taking profits when you have them, you will end up taking losses days, if not hours later.

Stay nimble and ignore everything coming out of bulls’ and bears’ mouths. This is a choppy trading range. Only fools are trading it like it is going somewhere.

If the index bounces above 4k resistance Tuesday or Wednesday, that is a buy signal. If the selling continues Tuesday, that is shortable. And no matter what happens, take profits early and often because if you don’t, the market will take everything back a few hours later and you will be left holding the bag.

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Mar 24

The secret to printing money in this market

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 closed Friday up a very respectable 0.6%.

While a half percent gain is normally nothing to get excited about, this finish was actually a great outcome considering the index found itself in a -1% hole shortly after the open when investors got spooked by a run on another European bank.

Stubbornly high inflation, a tight labor market, the fastest rate hikes in a generation, and now a banking crisis. Sounds like a one-two-three-four punch and the market should be down and out for the count. But it looks like someone forgot to tell the market because it is nearly 500 points above the October lows.

As I’ve been writing for a while, this is a back-and-forth market and anyone trading the breakout or breakdown is getting killed by these reversals. As I wrote Thursday evening:

This is the kind of market where if you are not locking in worthwhile profits, you are left taking losses a few hours later. It really is that simple. Greedy bulls and bears are getting killed while savvy and opportunistic traders are printing money.

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One day’s up is turning into the next day’s down. And now it looks like that time frame has been shrunken down to hours. Bears were right for a few minutes this morning, but if they held on much longer than that, they watched all of those profits go flying out the window.

And no doubt it will be the bulls’ turn next week when we hit our head on 4k resistance yet again. This is the kind of market where if you are not taking profits, you will be taking losses a few hours later.

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Mar 23

The obvious mistake bulls and bears keep making

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday’s +0.3% finishing print in the S&P 500 fails to convey what a wild ride we took through the session.

A huge opening rally erased all of Wednesday’s -1.7% slump as the whipsaw price action continues. But just when the bulls were the smuggest, demand dried up and the index gave back all of those early gains.

This wild price action shouldn’t surprise anyone. As I’ve been writing for a while, this is a back-and-forth market, not a directional one. Every bit of up is followed by a bit of down. As I warned readers Wednesday evening:

[I]f we are not taking profits early and often, we won’t have any profits left to take. This applies equally to both bulls and bears. This is not a directional market, this is a back-and-forth market. One day’s up turned into the next day’s down. Don’t get fooled into trading the breakout/breakdown, trade the reversal.

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This is the kind of market where if you are not locking in worthwhile profits, you are left taking losses a few hours later. It really is that simple. Greedy bulls and bears are getting killed while savvy and opportunistic traders are printing money.

This market is not breaking down and it is not breaking out, so stop trading like it is. The crowd is losing a ton of money. Lucky for us, their losses can turn into our gains.

Obviously, this pattern cannot last forever, but I don’t see any hints this price action is changing. Keep buying the dips and selling the rips until the market proves otherwise. Remember, lock in worthwhile profits early and often because if you don’t, the market will hand you a pile of losses a few hours later.

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Mar 22

Should we be afraid of Wednesday’s pathetic close?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 shed 1.6% Wednesday after the Fed increased interest rates by 0.25%.

Two weeks ago the market would have cheered this 0.25% hike because at that point, many people were predicting 0.5%. But a lot can change in two weeks, namely the entire banking system falling under threat.

Because of the threat posed to banks, the Fed went ahead with this more measured 0.25% increase despite February’s hot employment report and stubborn inflation data.

But rather than cheer the Fed’s moderate step, investors got cold feet and started dumping stocks Wednesday afternoon.

Lucky for us, this giveback was not a surprise. As I wrote Tuesday afternoon following that day’s big surge higher:

Will this relief last? No, probably not. That’s why savvy bounce buyers are standing near the exits and even locking in some worthwhile profits proactively as we challenge 4k resistance.

Remember, we only make money when we sell our winners and this remains a choppy market. As I’ve been saying for a while, if we are not taking profits when we have them, then we will be taking losses a few days later.

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While I was taking profits before the Fed announcement, that wasn’t because I feared a big retreat. As bad as Wednesday’s 1.6% givebacks felt, this only brings us back to Monday’s close. That’s hardly panic material.

Sure, stocks can always fall even further, but we need a new and unexpected reason to crash to fresh lows and the Fed matching expectations is hardly new or unexpected.

Until further notice, continue trading this market as if it is rangebound. That means buying weakness and selling strength.

As I wrote Tuesday afternoon, if we are not taking profits early and often, we won’t have any profits left to take. This applies equally to both bulls and bears. This is not a directional market, this is a back-and-forth market. One day’s up turned into the next day’s down. Don’t get fooled into trading the breakout/breakdown, trade the reversal.

Wednesday’s close was ugly, but we didn’t learn anything new, so expect the selling to dry up fairly quickly. If you are short, be ready to take profits soon. If you’re in cash, that means getting ready to buy the next bounce.

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Mar 21

Is this the time to be greedy or fearful?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 popped Tuesday, adding another 1.3% to Monday’s nice gains.

As bad as the headlines seem, the best buying opportunities arrive when everyone is the most scared. As is often the case, the latest banking scare’s selling capitulated last week when headlines were their most dire and prices are now rebounding on less-bad-than-feared. We haven’t had another domino fall and investors are breathing a sigh of relief.

Will this relief last? No, probably not. That’s why savvy bounce buyers are standing near the exits and even locking in some worthwhile profits proactively as we challenge 4k resistance.

Remember, we only make money when we sell our winners and this remains a choppy market. As I’ve been saying for a while, if we are not taking profits when we have them, then we will be taking losses a few days later.

Bears that didn’t lock in short profits last week are taking losses this week and we will be saying the same thing about bulls that hold too long next week.

No doubt I will be taking profits too early, but that sure beats holding too long. Buying back in is far easier than convincing the market to go back to the levels you wish you sold at.

The Fed is meeting this week and we will have our next rate decision Wedensday’s afternoon. If the news is good, there will be plenty of time to buy back in and ride the next big wave higher. But until then, I’m happy locking in what I’ve got.

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Mar 20

Is the worst already behind us?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Monday 0.9% higher as the half-full outlook makes a comeback. While the banking crisis is far from being resolved, it isn’t spiraling out of control and this weekend’s less-bad-than-feared is enough to keep the sellers at bay.

More than simply cheering the helping hand being given to struggling banks, some investors are actually embracing this banking crisis as “bad news is good news”. This new wrinkle puts a tremendous amount of pressure on the Fed to slow rate hikes or risk turning this into a real crisis.

That said, this remains a choppy market and one day’s up is followed by the next day’s down. Monday’s bounce is a lot better than tumbling to fresh lows, but the coast is not clear and we need to remain cautious. While we might be avoiding the worst, we are awfully close to the edge and it won’t take much of a slip to send us flying off of the cliff.

Governments and big banks are propping up their struggling peers. While that has slowed the deposit withdrawals, is it enough to end this crisis of confidence? While it looks promising, only time will tell and we need to put a few more days of stability behind us. The problem with waiting for the all-clear is the good discounts will be gone by then.

I’m not happy buying this uncertainty, but the hardest trades often turn into our best trades. I’m nowhere near ready to start celebrating Monday’s small bounce, but it is working. I remain cautious and will be taking profits early and often, but I’m willing to give this bounce the benefit of doubt until it proves me wrong.

Start small, get in early, keep a nearby stop, and only add to a trade that’s working. And take those worthwhile profits when we have them because they won’t last long!

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Mar 10

I was wrong and why it didn’t cost me any money

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 shed another 1.5% Friday following a stronger-than-expected employment report.

This continues the “good is bad” theme as investors remain fixated on interest rates and continue rooting against the economy.

As I wrote Thursday evening, I actually expected the selling to capitulate and bounce Friday after the employment report:

“Sell the rumor and buy the news” happens often enough that people have given it a name. All of this week’s bloodletting actually improved the odds of a bounce on Friday. Once a nervous owner sells all of his stocks, his opinion no longer matters. So for every nervous owner that bailed out on Thursday, they lost their ability to vote on what comes next.

And more than just taking away weak owners’ votes, these worrywarts have been replaced by confident dip-buyers. If these buyers were afraid of Friday’s employment report, they wouldn’t have been jumping in Thursday afternoon. Out with the weak and in with the strong. That doesn’t sound like a bad thing to me.

Lucky for me, I don’t trade my opinion and was instead on the sidelines Friday morning, waiting for the market to tell me what it wanted to do:

Rather than guess about the employment numbers and then guess about the market’s reaction, I’ll wait for the market to tell me what it wants to do. This is one of those situations where I’d rather be a little late than a lot early.

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As it turned out, there were a lot more people waiting to sell stocks on Friday. As much as I liked Thursday’s setup, it didn’t work. That happens. If this game was easy, everyone would be rich and we know that’s not the case.

This continues to be a half-full market and no doubt dip-buyers will be scarce next week as we wait for the latest round of inflation data.

But just because stocks didn’t bounce on Friday doesn’t mean waiting for a bounce is a bad trading thesis.

Obviously, I was early, and in the stock market, early is the same thing as wrong. But at the same time, this trade could start working later next week or the week after that.

The market has a nasty habit of convincing us we are wrong moments before proving us right. I was clearly wrong on Friday, but since I was waiting for the market to make its move first, I was lucky to be wrong from the sidelines.

But if the market bounces following next week’s inflation data, I will be one of the first to jump aboard that bandwagon. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.

If the selling resumes and I get dumped out again for a small loss again, it happens. For every bounce that works, there will be two or three that don’t. But as long as my losses are on partial positions and my wins are with full positions, I will come out ahead in the end.

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Mar 09

Why savvy traders are not worried about Thursday’s dreadful price action

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Thursday’s S&P 500 session started out innocently enough with the index showing a modest gain, unfortunately, it was all downhill from there as the index shed nearly 2% by the close.

As ugly as Thursday’s session looked, we can’t read too much into this price action because this wave of selling was nothing more than handwringing ahead of Friday’s employment report.

“Sell the rumor and buy the news” happens often enough that people have given it a name. All of this week’s bloodletting actually improved the odds of a bounce on Friday. Once a nervous owner sells all of his stocks, his opinion no longer matters. So for every nervous owner that bailed out on Thursday, they lost their ability to vote on what comes next.

And more than just taking away weak owners’ votes, these worrywarts have been replaced by confident dip-buyers. If these buyers were afraid of Friday’s employment report, they wouldn’t have been jumping in Thursday afternoon. Out with the weak and in with the strong. That doesn’t sound like a bad thing to me.

As for what happens Friday, I have zero idea what the employment report will say, and more than that, even if I knew the number, there is no telling how the market will react to it anyway.

Is good still bad, or have we switched back to good being good again? Maybe stocks rally on bad, but what if it’s really bad? How bad is too bad??? No one knows what Friday holds and it isn’t even worth the effort trying to figure it out.

Rather than guess about the employment numbers and then guess about the market’s reaction, I’ll wait for the market to tell me what it wants to do. This is one of those situations where I’d rather be a little late than a lot early.

Give the market 30ish minutes Friday morning to get the knee-jerk out of its system. After that, the market won’t be able to hide its true intentions and it’s time to jump aboard the resulting move.

That said, odds are good that this week’s selling priced in a lot of bad news and anything that meets expectations, or better yet, turns out less bad than feared, will lead to a nice pop.

I will let the gamblers place their bets ahead of the employment report. I’m more than happy to show up a little late to this party if it dramatically lowers my risk. If this really is the start of the next big, multi-day move, being 30 minutes late isn’t going to change much.

But as I’ve been saying for a while, I believe we are stuck in a trading range. All of the hype surrounding Friday’s employment numbers will most likely result in a letdown and this will be old news by Friday afternoon. If we really are stuck in a trading range, Thursday’s retreat to the lower end of the range means stocks are buyable and I will be more than happy to snap up these discounts once all of the dust clears later Friday morning.

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Mar 08

Why smart money is betting on a trading range and not a breakout or breakdown

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

Wednesday turned into a mixed session for the S&P 500.

The index spent most of the day trading modestly in the red as Powell continued testifying in front of Congress for a second day, but a late surge of buying pushed the index into the green, closing up a somewhat trivial 01.%.

While no one is getting excited over a 0.1% gain, on the heels of Tuesday’s 1.5% tumble, any gain, even a tenth of a percent is an accomplishment.

As I’ve been saying for a while, if this market was fragile and vulnerable, stocks would have crashed a long time ago. Sure, inflation remains a stubborn problem that the Fed is still trying to fix, but we’ve been living under these conditions for a year. At some point, no matter how bad the news, eventually it gets priced in and stops mattering. And right now, this market seems okay with stubbornly elevated inflation.

Without a doubt, stocks could fall to fresh lows, but we need the headlines to be truly shocking and unexpected, simply more of the same isn’t going to break this market. Until something changes, expect this choppy sideways trade to continue.

Both the bulls and the bears are wrong on this one. We are not racing up to the highs and we are not crashing back to the lows any time soon. I will reevaluate my outlook if prices crash under last week’s lows, but until that happens, I will continue buying every bounce and taking profits early and often because nothing in this market will last long.

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Mar 07

Why Bulls AND Bears keep losing money

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 retreated 1.5% Tuesday after Powell threw cold water on last week’s rebound.

I’ve said it before and I will say it again, this is a choppy market and that means the only people making money are the ones locking in profits when they have them.

Both bulls and bears are too busy arguing with each other to make money. Bulls insist every bounce is the start of the next big move higher and bears gloat every time prices fall.

Unfortunately, this approach means both sides are making the exact wrong moves at the exact wrong time. Bulls are buying the highs when they feel the most confident and end up selling the lows a few days later when they get scared. And bears are doing the mirror image, gleefully shorting the lows and then getting spooked and covering after prices blow up in their face.

Buying strength and selling weakness works great in directional markets, but this is not a directional market, so everyone trading that way is getting killed.

Last week I told readers to buy the next bounce in my post titled, “Should we be worried about this test of the recent lows?” But equally important, I also warned readers to take profits quickly because they wouldn’t last.

I will be there to buy the next bounce and the one after that. But because I know this is a low-energy environment, I will be quick to take profits because it won’t be long before those profits are gone.

A bigger directional move is coming, but it is still a way out. Until then, keep taking profits early and often.

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Well, here we are a few days after stocks surged impressively from Thursday’s lows. Unfortunately, a big chunk of those profits have already been erased. This was an extremely profitable trade for everyone that treated it like a trade. For everyone else, they lost even more money reflexively buying Friday’s strength and selling Tuesday’s tumble.

Trading isn’t hard once we shed our bullish and bearish biases and start trading the market instead of our opinions.

As for what comes next, I will keep buying weakness and selling strength until the market tells me it is ready for the next big directional move. Until then, expect this volatile sideways chop to continue.

Powell will continue speaking to Congress on Wednesday, we have the monthly employment report coming Friday morning, and more inflation data next week. Expect these wild whipsaws to continue.

If you are not taking profits when you have them, then you will end up taking losses when the market inevitably swings in the other direction.

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