Mar 24

Why both bulls and bears insist on losing a lot of money

By Jani Ziedins | End of Day Analysis

Free After-Hours Update

The S&P 500 surged more than 9% today, putting up one of the market’s strongest performances in 100 years. While nothing concrete happened, stocks rallied in anticipation of Congress’s comprehensive stimulus bill that is inching closer to becoming law.

Who could have possibly seen today’s huge rebound coming? Easy, anyone who’s been paying attention. (Or at least reading this blog.) The strong, unidirectional moves are long behind us. This market entered the choppy, basing period a couple of weeks ago, typified by extreme volatility in BOTH directions. While it feels like the market’s done nothing but go down over the last two-and-a-half weeks, that’s hardly been the case. Over this period, we’ve seen up-days of +5%, +9%, +6%, and now today’s +9%. In fact, nearly every day over the last 12 sessions alternated between huge gains and towering losses.

As much as bulls and bears want to believe the next move will be a huge, multi-day rally or collapse, we are most definitely in the choppy phase of this correction and that means a lot of back and forth. One day’s dip is followed by the next day’s pop. These are great swing trading opportunities for the bold and nimble, but it is chewing up anyone coming to the market with a strong bias. Savvy traders are buying these dips and selling these pops, not gloating on social media that the other side is dumb, only to be left looking like the fool 24-hours later while holding a pile of losses.

Chances are good we haven’t seen the lowest lows of this bear market yet, but rather than crash lower, further losses will be nibbling at the edges, like yesterday’s dip, only to see prices bounce back into the consolidation a day or two later. As we transition into the basing phase, almost all of these daily breakdowns/rebounds are false alarms that should be traded against, not jumped on.

Avoid the temptation to fall into the bull or bear argument. No matter what we believe long-term, if we want to trade this chop successfully, we need to be pragmatic. Even if we’re bullish, that means shorting an unsustainable move higher. Or if we’re bearish, buying the next oversold plunge.

There is a ton of money to be made in this chop. But that also means we can lose a lot of money if we go at this the wrong way. Keep your biases in check and you will be miles ahead of everyone else getting ground up by these swings.

As for what comes next? Look for today’s huge rebound to fizzle and retreat back to the lows. Maybe this reversal starts tomorrow at the open. Or maybe we rally into midday before running out of buyers. Either way, be ready to short the next stumble. There is a good chance the next leg lower will follow the stimulus bill’s announcement in a classic buy the rumor, sell the news reversal.

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every week.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have actionable analysis and a trading plan delivered to your inbox every day during market hours

Follow Jani on Twitter

Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Mar 23

Should we be buying or shorting these levels?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 tumbled another 3% Monday and set fresh lows for this selloff. Overnight futures were limit down, holding 5% losses for most of the night after the Congress failed to agree on a bailout package Sunday night. But spirits lifted shortly before Monday’s open after the Fed said they were prepared to buy “unlimited” Treasuries and mortgage-backed securities. Unfortunately, further gridlock on Capitol Hill rained on the Fed’s parade and is why stocks ultimately closed lower on Monday.

Higher, lower, or finding a bottom? That’s the question on everyone’s mind. Plenty of bulls are claiming this is a buyable dip while countless bears are screaming this is still the shorting opportunity of a lifetime. Who is right? At this point, both sides are doing nothing but blindly guessing in the dark. But they certainly don’t lack conviction in the accuracy of their blind guesses!

This is far and away the most uncertain time in anyone’s living memory, yet that uncertainty isn’t preventing anyone from telling us what they are convinced will happen next. I wish I had an answer for you, but no amount of fundamental, technical, or historical analysis will give us the answer. This situation is unique and it needs to be treated as such.

But just because this Coronavirus crash is unique doesn’t mean it will end any differently than any of the other “unique” crisis the market navigated. Assuming society doesn’t collapse, this is a buyable dip and is no different than any other crisis in market history. The only question is how low we go before bouncing.

Markets have fallen nearly 35% in a month. Could they fall 45%? Sure. But 6 months from now, how many people will be bragging about selling stocks when they were down 35%? Or is it more likely people will be bragging about buying stocks when they were down 35%?

The time to sell was four weeks ago when these waves of panic first hit the market, not now that the majority of the damage has already occurred. While prices could fall even further over the next few days and weeks, twelve months from now, no one will regret buying stocks at the lowest levels since 2016.

Once you admit you cannot pick the bottom, it simply becomes a choice between buying too early or too late. Either approach works well as long as it is consistent with a well thought out trading plan that includes risk management appropriate for this situation. (ie starting small, only buying sensible entry points, and keeping a valid stop nearby.) Don’t fall for the bull or bear arguments, be a pragmatic opportunist and the profits will come to you.

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every week.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have actionable analysis and a trading plan delivered to your inbox every day during market hours

Follow Jani on Twitter

Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Mar 20

Free Weekly Analysis and Look Ahead

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis and Look Ahead

The S&P 500 just finished its worst week since the 2008 Financial Crisis. The Covid-19 epidemic continues to spread uncontained and governments are taking extreme measures to “flatten the curve”. It has yet to be seen if these strategies will work, but one thing is for sure, it’s wreaking havoc on the global economy. Schools are closed. Non-essential businesses are closed. Anyone who can work from home is working from home. Others are less fortunate and find themselves without a paycheck. All while hospitals are bracing for the worst.

As I wrote last week, this situation is without a modern precedent. No one knows how long this epidemic will last. We don’t have any idea what the economic damage will be. And most importantly for markets, don’t have a clue about how long it will take before the world returns to business as usual. Are we talking about weeks? Months? Even years? With so much uncertainty swirling around us, no wonder investors are on edge.

Stocks have fallen 30% from February’s all-time highs only a few weeks ago. That pullback priced in a tremendous amount of bad news. But has it been enough?

If there is one thing we know for certain about markets, it’s that they overreact. What is already too far often goes even further. Have we already passed too far? Can this go even further? No amount of technical or fundamental analysis can answer those questions. This is a crowd psychology problem and the only way to figure out what comes next is to follow the herd.

Luckily for nimble traders like us, these dramatic moves are big, fast, and easy to trade. We can profit handsomely even if we don’t know which direction the market is headed next. Buy the bounce. If that doesn’t work, short the breakdown. Start small. Keep a nearby stop. Take profits early and often. And get ready to go the other direction the next day. One day up, the next day down. Repeat over and over again until we have more profits than we know what to do with.

Will Monday bounce? Probably. Over the last ten trading sessions, we’ve alternated between gains and losses. Odds are good Friday’s tumble will be followed by Monday’s rebound. The best way to trade the bounce is to buy shortly after the open. Put stop under the morning’s lows. And hold on. If prices tumble under our stops, close and consider shorting the weakness. Again with a nearby stop. If the dip proves to be a false alarm and rebound, switch directions again.

While it is frustrating to get hit by the inevitable whipsawed, being nimble and fast means we get in and out quickly and any losses are small. More important is that once that next big directional move takes hold, we are in the market and ready to take it all the way. While bull and bears are busy arguing about whether the next move is higher or lower, I’m over here making money. I’m an opportunist and could care less who is right. All we need to do is wait for that next turning point, grab on, and enjoy the ride.

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every week.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have actionable analysis and a trading plan delivered to your inbox every day during market hours

Follow Jani on Twitter

Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Mar 19

Why we should have seen this selloff coming and how to profit from it going forward

By Jani Ziedins | End of Day Analysis

The Coronavirus continues dominating financial headlines as “social distancing” takes a heavy toll on economic activity. What seemed like the worst-case scenario only a few weeks ago is now our reality. While the actual effect of the virus itself has yet to be felt by most people, preventative measures are definitely impacting everyday life.

I will be the first to admit I have a bullish bias and that’s because over the long-term, markets also have a bullish bias. But over the short-term, anything can happen and that’s why it pays to be pragmatic. Back in late February, when this crash first started, I told readers:

Whether the market is right or wrong about the Coronavirus, it doesn’t matter, we trade the market we are given. As it stands, this 3% kneejerk reaction could go either way. We bounce sharply off the lows and never look back as confident owners continue ignoring every bearish headline. Or this massive strawbale shatters the camel’s back and turns formerly confident owners into a herd of panicked sellers.

The next day I wrote

What happens next is where it pays to be pragmatic. Rather than dig in my heels and argue this selloff was unjustified, I recognized the market’s emotional state and knew a great trade was going to explode in one direction or the other. Sometimes these things bounce hard and fast. Other times they keep going. As an opportunist, it made no difference to me which way the market went as long as I was making money.

And the following day I shared an educational post about the best way to trade these volatile markets. This simple approach produced four weeks of outstanding trades.

If we know a big move is coming, all we need to do is jump on the next move that comes along and see where it takes us. Prices bounced this morning. Great, buy the dip, start small, get in there early, keep a stop near your entry, and only add more money after the trade starts working. If we’re wrong, prices slip under our stop, we take a small loss, and we try again next time. Maybe that is another rebound attempt. Maybe stocks tumble under the lows and we flip to shorting the weakness using the same sensible approach. It makes no difference to me what the market does next as long as it does something. If you leave your bullish or bearish biases at the door, you can make money too.

As for what comes next? We should be thankful for this buying opportunity the Coronavirus just gave us. Back during 2018’s late meltdown, I wrote a post about Bad Luck Brian who was unlucky enough to start investing at the dizzying height of the dot-com bubble. But as bad as his timing sounds, consistently buying the biggest market collapses in stock market history proved to be incredibly profitable for Brian.

And lucky for Brian, he kept buying those discounted Nasdaq shares for more than a decade. Accumulating 20 and 30 shares per month started paying off handsomely when the index finally climbed out of its hole. By the time the Nasdaq recovered to the old highs in 2015, Brian had been able to buy so many shares at a discount that his $93,000 of invested principle was worth $204,000! The index was flat, but amazingly Brian was up 120%!

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every week.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have actionable analysis and a trading plan delivered to your inbox every day during market hours

Follow Jani on Twitter

Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Mar 13

Was this the V-bottom?

By Jani Ziedins | Weekly Analysis

Free Weekly Analysis and Look Ahead

This has been a week for the record books. The oldest bull market in U.S. history died Thursday following the S&P 500’s worst day in over 30 years. As bad as that sounds, this week would have been even worse if it weren’t for Friday’s spectacular 200-point rebound that erased a big chunk of the midweek losses. In the end, the index “only” took a 10% haircut this week and is now 20% under the all-time highs set just a few weeks ago.

“The bull market is dead, long live the bull market.”

The end of one thing becomes the birth of something else. While bears want us to believe this crash is only just getting started, history is not on their side. This Coronavirus selloff bottomed at 27% this week and only a handful of times over the last 150 years has the market fallen even further.

While prices could absolutely continue making new lows next week, we are definitely a lot closer to the end of this move than the start of it. And even more reassuring, markets love symmetry and dramatic crashes typically capitulate in a V-bottom. If things get even uglier next week, it won’t be long before the market ricochets off the oversold bottom and creates the sharp right-hand recovery side of the Vee. (There’s even a good chance Thursday/Friday was the crash and rebound of the Vee capitulation.)

While I cannot tell you when this will be over, the one thing we know for certain is next week will be extremely volatile. That means big moves in both directions. One day’s up will be followed by the next day’s down. No doubt a lot of traders will continue getting cutup by these whipsaws, nimble traders who move confidently and proactively will continue printing money.

The greatest strength we have as individual traders is our nimbleness. We can go from full long to full short in a few mouse clicks. Use this power responsibly and we don’t need to be victims of the market’s gyrations. The only thing we need to know is the market is going to make big moves. During periods like this, we’re not bulls or bears, we’re opportunists. It makes no difference which direction the market goes as long as it goes somewhere in a spectacular way. Simply jump aboard these moves early and keep a close stop. Buy the first signs of a bounce. If that fizzles and undercuts the lows, switch direction and go short. Then buy the next day’s rebound. Follow that by shorting the next day’s fizzle. When that bounces, jump back in on the long side. In markets that move this fast and hard, all we need to do is be there to catch the next big wave. Who cares which direction it goes. And most importantly, just when we’re feeling really good about our profits, lock them in. If we don’t, they will be gone in a few hours.

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every week.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have actionable analysis and a trading plan delivered to your inbox every day during market hours

Follow Jani on Twitter

Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Mar 12

A trading plan for this worst of days

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The following is an updated excerpt of what I shared with subscribers today during the trading session. This explains how I feel about this situation and I wanted to share it with my free subscribers too:

The S&P 500 crashed at the open and the bloodbath triggered the second trading halt this week. A tsunami of headlines hit us yesterday between the NCAA basketball tournament closing its doors to the public, the NBA suspending its season, and Trump banning Europeans from entering the U.S. And not to be left out, the NHL, Nascar, Formula 1, and countless other leagues put the brakes on their seasons today too. This officially puts us in full panic mode.

The Fed tried to cheer traders up with promises of a fresh liquidity injection, but the enthusiasm was short-lived and prices quickly retreated back to the lows. Today ended as the single worst trading day since the 1987 crash and it officially killed the longest-lasting bull market in U.S. history. 

As bad as this sounds, it is important to keep in mind these selloffs bottom just when everything seems its worst. While the spread of the Coronavirus will continue to get worse before it gets better, we won’t see a perfect storm of successive headlines like this again. In fact, yesterday and today’s gut punches moved the bar so low that no matter what happens going forward, even horrible news will still be less bad than what many people are fearing right now. School closings and the MLB suspending its season are foregone conclusions. The only way for this to get worse is a national militarized lockdown. While that could happen, I don’t think any of our politicians are willing to make that draconian of a call for something that is realistically only marginally worse than the seasonal flu.

The Coronavirus is definitely running out of control, but without a doubt, fear of the virus will prove to be far more economically damaging than anything the actual virus does. While this is terrible for anyone that is seriously affected, for almost everyone else, it will be little more than an inconvenience. Humans are really good at rationalizing away risk. They will panic for a few days or weeks. But after the worst fails to materialize, people will get lazy and be less willing to tolerate the incontinence. They will wear masks for a few weeks, but after no one gets sick, they will stop bothering. Now parents are insisting schools close down. In a few weeks, these same parents will beg schools reopen. After 9/11, everyone claimed nothing would be the same. A few months later, the only thing that changed was airport security and a war half a world away. 

There is a good chance this is the market’s darkest day and everything starts getting better from here. I’m buying the dip, but I’m staying as cautious as ever. My positions are small and my stops are nearby. But even if I get stopped out, I’m going to try again tomorrow and the next day. The bottom is close, but in a world where markets move 5 and 10% per day, we definitely need to be careful. 

Trading Plan

Most Likely Next Move: The capitulation point is close and this headline tsunami could very well be our darkest hour. There is a good chance pessimism is peaking and going forward we will start seeing a lot more “less bad than feared”.

Trading Plan: Buy the bounce with a stop under the lows. Add to what is working but keep overnight position sizes modest until you have a comfortable profit cushion. If stocks bounce tomorrow, ride that wave higher. If they devolve into another panic, short the weakness. But when shorting, take profits early and often because the biggest up days always come in the worst bear markets. 

If I’m Wrong: The public starts dumping their 401k’s and this bloodbath is only getting started. Our stops will get us out and our plan will have us short further weakness. No matter what happens next, we are prepared and will profit from it.

Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every week.

What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have actionable analysis and a trading plan delivered to your inbox every day during market hours

Follow Jani on Twitter

Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

1 … 143 144 145 146 147 … 261