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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished down 0.2% in Wednesday’s relatively quiet session.
As always, there are two ways to look at this week’s price action. The bulls will point to the index holding the vast majority of last Thursday’s 2% pop. The bear’s counterpoint is the rally stalled and is out of gas because it hasn’t been able to add to that pop.
At this point, both sides are stubbornly dug in, leaving us with this sideways draw just under all-time highs.
Too high? Or, not high enough? That’s the million-dollar question.
While both sides have valid arguments and could easily be right, as I wrote on Monday, my money is on the short side. Not because I think the bears are going to win, but because I could enter that trade in a low-risk way.
The rally stalled Friday afternoon, and that lethargic close gave me a short entry with a nearby stop above the intraday highs. If I was wrong, I would get dumped out for a fractional loss. But if the index falls into a very normal and healthy pullback to 5k support, that represents a 2% profit at even money and as much as 6% in a 3x trade.
Even if this short trade has 50/50 odds of working, the simple fact the reward is so much larger than the risk makes this a great trade.
Now, I have no idea if this trade will pay off in the end, but since putting it on last week, I’ve been able to lower my stops to my entry points, even further lowering my risk. I could very easily be wrong and get stopped out at my entry points, but if it doesn’t cost me anything, who cares? It’s like a free lottery ticket. Just because it didn’t pay off doesn’t mean scratching it off was a mistake.
While I’m still holding my short position and the market is moving ever so slowly in my direction, I am getting impatient. If the short trade is going to work, it needs to start working soon. If not, I will pull the plug before my stops get hit. When a trade isn’t working, our stops are our last line of defense, not our only defense.
If prices rally on Thursday, I will pull the plug and collect some trivial profits. While it’s not the trade I wanted, it is hard to complain about being wrong and still collecting a few bucks for my effort.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 added a modest 0.2% in another mostly irrelevant session as the index continues digesting last week’s big NVDA pop.
As popular as NVDA is as a momentum stock, its success is largely limited to the AI sector, and the company’s success doesn’t tell us much about what Main Street consumers are doing. That means NVDA’s success shouldn’t have a big influence on the board market the way a bellwether stock like AAPL or AMZN would. And no doubt that limited reach is why NVDA’s big results haven’t triggered a multiday rally.
Instead, we are stuck with three largely sideways sessions following last Thursday’s big gains. As I wrote Monday evening, there are two ways to interpret this sideways trade. Either the market is catching its breath before the next leg higher, or this is the last gasp of buying before the inevitable step back.
Both points of view have solid logic behind them, and I could easily see either scenario playing out. So what are we supposed to do as traders, flip a coin?
Nope, savvy traders look at the setup and pick the low-risk/high-reward trade. As I wrote Monday evening, I shorted the market. Not because I’m bearish, but because I could enter that trade with a stop near Friday’s highs. If the index continues slipping, I rake in a pile of profits. If prices bounce back above Friday’s highs, I close my position for a small loss and then change direction, buying the push to fresh highs, this time with a stop under this week’s lows.
As luck would have it, this trade has already worked well enough that I was able to lower my short stops to my entry points, making this nearly a free trade. At that point, it doesn’t really matter if I’m wrong because this is like a free lottery ticket. I make money if it pays out. If it doesn’t, I close my short near breakeven and get ready for the next trade, most likely buying a continued rally past last week’s highs.
Too high or not high enough? I don’t really care because I have a low-risk/high-reward trading plan that works in both directions.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slipped 0.4% Monday, following last week’s big run to record highs.
Impressive earnings from market darling NVDA sent the index flying 105 points last Thursday, but so far, the index is struggling to add to those big gains in the follow-up sessions.
Too high, or not high enough? That’s the million-dollar question.
Both sides have compelling arguments. Few things are more powerful than momentum, and this rally is red-hot. But on the other side, all good things must come to an end and this rally is no different.
At this point, I give a very slight near-term edge to the bears. Not because I think this rally is topping but because savvy traders can enter a low-risk/high-reward short trade at current levels.
The market is pausing at 5,100, giving us a low-risk shorting opportunity with a stop near Friday’s intraday highs. If momentum continues higher, we get stopped out for a small loss. On the other hand, a very vanilla pullback to 5k will produce profits of many multiples of that risk.
Low-risk, high-reward trades are what traders dream of, and here’s a good one.
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