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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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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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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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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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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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What’s a good trade worth to you?
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