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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Blink and you missed this week’s collapse and bounce-back in the S&P 500. While Monday’s tumble was the biggest one-day drop in three months, Tuesday’s rebound was equally impressive. And here we stand a few days later, right back where we started and wondering what the heck just happened?
But this pick-up volatility isn’t a surprise for readers of this blog. As I wrote over a week ago, we needed to approach this run to 4,400 with a healthy dose of skepticism and that proved to be valuable advice as the index shed nearly 150 points over the next three trading sessions:
Now to be clear, I’m not calling a top, simply pointing out the risk/reward is no longer skewed in our favor. In fact, following a 5% move over four short weeks, the risk/reward is most definitely skewed against us.
The first part of my comment, “I’m not calling a top”, is now the most relevant part for us going forward from here.
Three days later and Monday’s selloff is dead. Emotional selloffs need emotion to keep going and this one lost all of its momentum following this three-day bounce. Nervous owners are no longer nervous and that makes a world of difference when it comes to convincing people to make irrational trading decisions.
But just because owners are confident again doesn’t mean everything is back to the way it was last week. No, those with cash are still having second thoughts and reservations about chasing stocks near all-time highs.
Confident owners that don’t want to sell and gun-shy buyers afraid of these high prices is the perfect recipe for a prolonged sideways grind under 4,400 resistance. Something that will stretch out for the rest of the summer.
That said, while I don’t expect this market to go anywhere anytime soon, buying Tuesday’s bounce was still a great entry point. For anyone that got in early, they can move their stops up to their entry points, giving themselves a free trade. While the market might not go anywhere for a while, it is hard to beat the risk/reward of a free trade! (go up and we make money, go down and we get out at breakeven)
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday was another lazy summer session for the S&P 500 as it added a barely noticeable 0.12%.
Nearly a month ago things looked far less constructive as the index crashed through 4,200 support. But four short weeks later, we are a stone’s throw from 4,400. Funny how that works.
But just like how last month’s dip was bound to bounce, this months’ rally is going to stall. That’s how this game works. Buy when other people are fearful, sell when they are greedy.
Now to be clear, I’m not calling a top, simply pointing out the risk/reward is no longer skewed in our favor. In fact, following a 5% move over four short weeks, the risk/reward is most definitely skewed against us.
Sometimes it makes sense to buy the uncertainty. Other times it makes sense to sell the confidence. And the most important thing to remember is we only make money when we sell our winners. And often the best time to sell is when we are the most reluctant to let go.
Often the most reliable trading signals are buying when you don’t want to buy and selling when you don’t want to sell. Think about that for a second. How many great trades did you miss because you were too afraid to pull the trigger? And on the other side, how many great trades did you let implode because you didn’t want to lock in some nice profits when you had them?
Maybe stocks continue higher. Maybe they stall at 4,400 for a while. Or maybe they retreat and retrench a little before the next leg higher. But no matter what they do, the odds are most definitely stacked against another 5% rally over the next four weeks.
ZM is showing us what happens when we hang on a little too long. As I wrote a couple of months ago, the bounce off of $300 was an attractive buyable entry. But after the stocks rallied more than 30%, I told readers last week this was a good time to protect those profits. And here we are a handful of days later and the stock has already given back 40% of those nice profits. Easy come easy go.
As the stock market saying goes, “bulls make money, bears make money, and pigs get slaughtered”. Don’t be a pig.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Tuesday proved to be a mixed session for the S&P 500. Early strength tagged yet another intraday record high, this time cresting 4,390. This latest move put the index within whispering distance of the psychologically significant 4,400. Unfortunately, a midday selloff prevented us from closing at those levels and instead, the index gave up a very modest third of a percent.
Two steps forward, one step back, that’s how this game works. But the thing is, a third of a percent retreat doesn’t really count as a step back, especially following a 5% rally in less than a month…
At the very least, we should expect the rate of gains to stall at 4,400 for a while. Probably even the remainder of the summer. And here’s the thing, stalling at 4,400 doesn’t mean flatlining at 4,400. There will be some choppiness in this sideways trade, but there is no reason (yet) to think any near-term weakness will trigger larger declines. Instead, this latest run to 4,400 needs to catch its breath and this will most likely transition into a sideways grind.
Quite simply, we need to dial back our expectations for the remainder of the summer. This rally has been moving in 200 point increments and challenging 4,400 puts us at the top of that next step. It is totally unreasonable to expect this rate of gains to continue non-stop to 4,600.
So what’s a trader to do? There is no reason to abandon a flat market, but it does make sense to start locking in some of these nice profits. If this pops above 4,400 sooner than expected, it is easy enough to buy back in. But as I often remind readers, we don’t make money until we sell our winners. And for the nimble swing traders in the audience, these are definitely worthwhile profits that need some pruning.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 set yet another record closing high, this time cresting 4,380.
We didn’t have any headlines driving the buying and instead, this was little more than a continuation of the market’s half-full mood. Investors continue seeing the sunny side in everything and are sweeping everything else under the rug.
How much longer can this complacency last? Well, the last meaningful dip (10%) was right before the 2020 election and that was more than half a year ago.
While bears will point to this long stretch of uninterrupted prosperity as proof the next fall is imminent. I look at it the other way. If we lasted 180 days without a meaningful pullback, what are the odds the situation changes tomorrow? (FYI, I also don’t mind getting on rickety old airplanes with rickety old pilots because if they lasted this long, they will almost certainly last one more flight. I fear the young and untested, not the battle-proven.)
No doubt this rally will stall like all of the other rallies that came before it. But don’t expect this reversal to happen in the middle of the slow summer months on zero news. Things could get far more interesting this fall as large investors return from summer vacation and start moving things around ahead of year-end. But until that happens, don’t expect much.
Keep holding for higher prices and lift our trailing stops. The worst thing that will happen to this market is stalling near 4,400. And you know what, that means a few down days are ahead of us so resist the urge to overreact to every bump in the road.
If a person fears a routine 2-3% pullback in the indexes, keep stops close and be ready to lock in some nice profits soon. If these minor gyrations don’t bother you, then keep hanging on and wait to see what comes later this fall.
TSLA popped following Elon’s testimony on Monday. He will take the stand again on Tuesday, but so far most investors like what they hear. And to be honest, a worst-case, $2 billion fine is pocket change for one of the richest men in the world. So while this makes for juicy financial press gossip, it really isn’t material to TSLA. (Some people think this will land Elon in jail. LOL)
Far more important than this trial is $600 support. Fail that and it could trigger another wave of defensive selling. But until that happens, last week’s bounce just above support is buyable. That said, this doesn’t get real interesting until it gets above recent resistance near $700, but so far, so good.
Keep holding TSLA for higher prices but always be ready to pull the plug if this falls under $600.
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What’s a good trade worth to you?
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