Dec 20

The more things change, the more they stay the same

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Markets take the stairs up and the elevator down. That phenomenon was in full effect Wednesday when one afternoon of losses wiped out a week’s worth of gains.

Luckily, my regular readers saw this coming. As I wrote in my free analysis two days ago: 

The bulls won again on Monday, but that doesn’t mean smart money was chasing these overbought levels. In fact, smart traders are sitting on a big pile of profits they collected last week and are getting ready for the next big trade. Maybe that’s shorting the reversion trade later this week. Maybe that’s sitting in cash until something more interesting happens in January. Either way, anyone expecting these big gains to keep rolling in clearly doesn’t understand how markets work.

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These things are so predictable, yet every time we find ourselves in the middle of these situations, the average trader cannot help but think, “This time is different.” Well, as Wednesday afternoon proved, the more things change, the more they stay the same.

While I was one of the first in line to buy the November rebound when that kicked off last month, I will fully admit I didn’t anticipate the huge size of this rebound. I was willing to stick through last week’s 4,600 breakout, but late last week was getting a little too rich for my blood, and I couldn’t help but start collecting some very worthwhile 3x ETF profits.

I was fully aware I was collecting profits too early, but since no one can consistently pick tops, that means we are left choosing between selling too early and holding too long.

Wednesday afternoon’s price action shows why I prefer being in cash when the next trade lands. While everyone else was filled with dread watching their profits vanish, I was primed and ready to jump aboard short bandwagon and profit from slow money’s pain.

I fully admit I sold the rally too early, but on days like this, I don’t mind.

As for what happens next, these are rarely one-day events, and it could get bumpy before it gets better. If you are not using trailing stops to protect your profits, this is a good time to start.

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Dec 18

Why smart money was watching Monday’s rally from the sidelines

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added a half percent Monday, on the first day of what will be a slow, holiday-affected week.

This will probably be the third slowest week of the year, following only Thanksgiving and next week between Christmas and New Year’s. For that reason, I don’t expect a lot of meaningful buying this week. Big money traders who wanted to buy ahead of year-end already bought. These managers have one foot out of the door and are not doing any serious work this week.

As I wrote during Thanksgiving, these holiday-affected sessions are vulnerable to elevated volatility as the retail traders and computers start doing wonky things without big money’s guiding hand.

At this point, I’m content watching this rally from the outside. Seven out of the last eight sessions ending in the green is a lot. The unfortunate thing for anyone buying these highs is the market has a habit of reverting to the mean. A stretch of down days to get us back to more normal levels wouldn’t surprise me at all.

Stocks move in waves, and bits of up are always followed by bits of down. Monday wasn’t that day. But it will be here soon enough, even if the selling does nothing but consign us to a sideways grind into January.

The bulls won again on Monday, but that doesn’t mean smart money was chasing these overbought levels. In fact, smart traders are sitting on a big pile of profits they collected last week and are getting ready for the next big trade. Maybe that’s shorting the reversion trade later this week. Maybe that’s sitting in cash until something more interesting happens in January. Either way, anyone expecting these big gains to keep rolling in clearly doesn’t understand how markets work.

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Dec 14

A warning for both bulls and bears

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday was a choppy session for the S&P 500 as the index bounced between gains and losses before finishing in the middle of the day’s range, up a modest 0.3%.

Wednesday’s 1.4% pop was one of the biggest up days since the November rebound kicked off. But buyers were a lot more cautious Thursday as fear of heights kicked in.

I’m not ready to call this a top, but anyone buying at these levels is going to need a TON of things to go right for them to make good money on their trade.

Everyone knows stocks move in waves, and we have gotten a tremendous amount of up since the November lows. It is only a matter of time before we get the next inevitable down wave. But like I said, I’m not calling this a top. The only thing more foolish than buying here is shorting for no other reason than stocks are too high. Momentum is a powerful force; just ask anyone foolish enough to short 4,400, 4,500, or 4,600.

This will top and turn into a great short at some point, but it needs to top and start going down before we short it.

I locked in some fantastic 3x ETF profits Wednesday afternoon and Thursday morning. Now it is time to get ready for the next trade. I’m most excited about shorting a near-term pullback. But I’m just as happy to buy the next big short squeeze up to 4,800 if that’s what the market wants to do.

Smart traders wait for the market to reveal its hand before committing their money. That’s why I’m waiting patiently from the sidelines, sitting on a big pile of profits from my last trade.

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Dec 13

Everything is great…and that makes me nervous

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 surged 1.4% Wednesday after the Fed told investors inflation came down faster than expected, and they penciled in three rate cuts for next year. That wave of buying led to the biggest one-day gains since mid-November.

Bulls are cocky, bears are defeated, and I’m nervous. As I wrote readers on Tuesday, even though I long this market and making good money with 3x leverage, I was already moving toward the exits:

While the market looks good, this is the tipping point where we shift our mindset from offense to defense. I’m not expecting a lot of upside, meaning I plan on collecting profits relatively quickly. I’m not selling right now, but I already have my eyes on the exit.

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The market has done nothing but go straight up since early November. And Wednesday’s gains were some of the biggest of the entire move. That looks a lot more like a climax than the start of the next big rally.

I’m not one to call tops, but this feels very toppy. I’m not saying momentum can’t keep pushing us higher over the next few days and weeks, but this late in the move, nearly everyone who wanted to buy has already bought. That means there are far fewer buyers left to keep pushing prices higher.

I bought the 4,600 breakout last week using 3x leverage, and it’s been a great ride. But I recognize good enough when I see it, and these gains were great. That’s good enough for me, and I have started collecting partial profits Wednesday afternoon.

Without a doubt, I’m probably pulling the ripcord prematurely, but since I don’t pick tops, that means I’m left choosing between selling too early and holding too long. Since I’m in this to make money, I always pick selling too early because that leaves me in the best position possible to be ready for the next trading opportunity.

Maybe that means I buy back in later this week, next week, or next month when prices keep racing higher. Or maybe I short the inevitable step-back when it finally gets here. But no matter what happens next, I will be ready for it.

We only make money when we close our best trades, and there is no way I’m letting this big pile of 3x profits escape.

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Dec 12

Why I’m already standing near the exit

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 started Tuesday’s session in the red after the monthly inflation reading came in somewhat elevated at 3.1%. But it didn’t take long for buyers to show up and push the index into the green. By the close, the S&P 500 added another 0.5%, and the slow-motion breakout above 4,600 resistance continues.

Weak opens and strong closes are typical of bull markets. We consumed a whole lot of upside getting to these levels, meaning slower times are ahead. It is hard to get excited about these small gains, but as long as we keep getting more up than down, there is only one way to trade this.

The Santa Clause rally arrived early this year, and stocks are slowly drifting higher this week. No one is getting rich from these few tenth-of-a-percent rallies, but when you add them up, they turn into real money. I’m not expecting a big short squeeze from this 4,600 breakout, but there are enough shorts getting squeezed to give us this near-term lift. As slow and boring as this feels, the slower it goes, the more sustainable it is.

While the market looks good, this is the tipping point where we shift our mindset from offense to defense. I’m not expecting a lot of upside, meaning I plan on collecting profits relatively quickly. I’m not selling right now, but I already have my eyes on the exit.

My stops have already been lifted to my entry points, turning this into a low-risk trade. I’m not ready to pull the rip cord just yet, but that day is coming. If we continue with a string of up days, I will start collecting some partial profits in the back half of the week.

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Dec 11

Why the bulls keep winning

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Monday’s session 0.4% higher, putting even more distance between the index and prior resistance at 4,600.

Lucky for readers, Monday’s gains were expected. As I wrote in last Friday’s post titled, “Bears Have Been Warned”:

The index is not going anywhere fast, but more up than down means there is only one way to trade this. Lift stops above recent lows, and see where this takes us.

We finally broke resistance, and these things usually go a bit before stopping. Keep expectations in check, but stick with what is working.

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The economy continues down the “just right” path. Not hot enough to keep inflation elevated and not weak enough to threaten employment and push us into a recession.

How much longer this “just right” lasts is anyone’s guess, but savvy traders focus on what the market is doing, not what could happen. At this point, 4,600 resistance is no longer a barrier. In fact, resistance often turns into support, so Monday’s confirmation further boosts the bull’s case.

The explosiveness in this move was used up weeks ago, meaning we are left with this slow grind higher. There is nothing wrong with that. We are stuck with what the market gives us. If we want to make money, this is how we do it. And making money sure beats what the bears are doing right now…

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