Jan 24

What savvy traders are doing with all of these profits

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 retreated half a percent Tuesday morning before recovering almost all of those early losses, finishing the session down a trivial amount.

Stocks retreat quickly from unsustainable levels, so the longer we hold Monday’s 4k breakout, the more real it becomes. We tested support early Tuesday and the market passed that first exam with flying colors.

While one or two days don’t make a breakout, every sustained breakout starts with those first two days. At this point, headlines remain benign and this continues the less-bad-than-feared rebound from the October lows. As always, everything could get flipped on its head at a moment’s notice, but so far things look good.

Greedy when other people are fearful and fearful when other people are greedy. That simple strategy works more often than not, and now that the market is at multi-month highs, we have to tread carefully.

4k is an important level and so far it is holding steady. But as I wrote previously, this market is more choppy and sideways than up or down. And that means even if the trend higher remains intact, we should expect lots of back and forth along the way.

At points like this, it makes sense to lock in some of our really nice profits because we don’t make money until we sell our winners. But at the same time, the market is still behaving well, so it is equally worth holding on to some of our positions too.

With one foot in and one foot out of the market, we will be in good shape no matter what happens next. If the market gets rejected 4k yet again, we pull the plug at our recently lifted trailing stops. But on the other hand, if the breakout continues, we benefit through what we are still holding and then we put he accelerator down by buying back what we sold.

This is the highly enviable “no lose” position. The only reason we are here is because we had the courage to buy when everyone else was busy forecasting the market’s imminent demise.

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Jan 23

Why this rebound was inevitable

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 smashed through 4k resistance on Monday and powered its way to fresh 2023 highs. That’s a long way from last week’s fearful selling that challenged 3,900 support.

Just as last week’s tumble was not fueled by meaningful headlines, this latest rebound didn’t need a fundamental justification to blow up in bears’ faces either. If we can fall on no news, then we can also rally on no news.

This continues to be a sentiment-driven market and sentiment by itself can only push prices so far, meaning these swings are prone to snapping back, which is exactly what happened on Friday and Monday.

Stocks can’t stay in one place, and that means wobbling back and forth for no real reason at all. Last week it was down, this week it is back up. But this shouldn’t surprise readers of this blog, as I wrote last Wednesday:

I’m itching to get back in and will be looking for a bounce to buy Thursday morning or afternoon. And if not Thursday, then Friday. A bounce is coming, the only question is when.

and Thursday:

[N]othing has changed and that means this is most likely just another routine buyable dip on our way higher. At least that’s how I’m approaching it

Here we are, four days later and 120 points higher.

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As for what comes next, the 2023 up-trend is still intact, and that means higher prices over the medium term. Another wave of selling and profit-taking could push us back to 4k, but at this point, the market wants to go up, not down, so any near-term weakness is just another buying opportunity.

Monday’s nice pop shows why smart money was buying when everyone else was selling for no good reason. As independent traders, we don’t buy dips, but as soon as prices find a bottom and start bouncing, it is full speed ahead.

But now that the market is 120 points above Friday’s lows, we have to be more careful. We buy early and we get out early. That means it is already time to start thinking about an exit.

Move trailing stops up and even consider locking in some profits proactively. At this point, there is more risk underneath us than reward above us. Plan your next trades accordingly.

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Jan 20

Why no one should have been surprised by Friday’s rebound

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

What a difference a day makes. After falling for three sessions in a row, the S&P 500 came roaring back Friday, adding an impressive 1.9%.

As much as the financial press loves to attribute every zig and zag to some major fundamental catalyst, the truth is the market moved this week for no other reason than it can’t stand still.

The index ran up to 4k last week and that was all the excuse savvy swing traders needed to pull the ripcord and lock in some really nice profits. Their selling triggered reactive waves of follow-on selling as the crowd started to worry that 4k resistance, the 200dma, and 2022’s downtrend line signaled a major top and the market was on the verge of the next big crash.

But as is always the case, when we don’t have a significant and unexpected headline driving the market, the wave of selling exhausted itself and prices bounced.

Lucky for readers of this free blog, this is the exact setup I we were looking for. As I wrote Thursday evening:

[H]eadlines haven’t changed in a meaningful way and this retreat looks like little more than a routine pullback from overhead resistance. While down is down, routine reactions to technical levels rarely lead to big changes in the market’s direction. Think of these as the normal step back that follows every two steps forward…[N]othing has changed and that means this is most likely just another routine buyable dip on our way higher. At least that’s how I’m approaching it until proven otherwise.

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Instead of proving me wrong, the market proved me right in a big way on Friday by rallying nearly straight up. So much for all the fear-mongering and market-bashing going on this week.

But before we pat ourselves on the back too hard, the problem is if this week’s selloff didn’t have the strength to go very far, then we shouldn’t expect Friday’s rebound to carry us very far either. Expect this wave of buying to stall just as quickly as this week’s selling did.

Sometimes we buy the breakout and sell the breakdown. Other times we do the exact opposite. This happens to be one of those opposite times. The market isn’t poised for a big directional move and that means we trade against these breakouts and the breakdowns.

As good as Friday looked, expect the buying to stall over the next few sessions and it wouldn’t be a surprise to see the index retest 3,900 support over the next few weeks.

For savvy traders, this means taking profits when we have them. Everyone that bought Friday morning, move up our trailing stops and even consider locking in some profits proactively because we should be prepared for this choppiness to continue.

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Jan 19

Is it finally time to give up on this market?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 lost 0.8% Thursday, adding more pain to this week’s retreat from 4k resistance. Thursday’s losses leave the index a hair under 3,900, a level that provided support in late November and early December.

While it is hard to find good things to say about a three-day losing streak, the index appeared to find support at 3,900 after an early violation bounced back above this key support level in afternoon trade. The problem is a big chunk of those afternoon claw-backs disappeared by the close and the index finished in the lower third of the daily range.

As I wrote Wednesday evening, I was out of the market and looking to buy the next bounce. I bought a partial position Thursday afternoon and was fully prepared to add more if the index closed near the intraday highs. Unfortunately, the late selloff didn’t allow me to do that.

I’m still holding my initial partial position with a stop under Thursday’s intraday lows. I will add to that position if the bounce resumes Friday morning, but I will pull the plug if the index falls under my stops. This is a pretty straightforward setup for me with limited risk if the selloff continues and a pile of profit opportunity if the market bounces.

As for what I think is coming next, headlines haven’t changed in a meaningful way and this retreat looks like little more than a routine pullback from overhead resistance.

While down is down, routine reactions to technical levels rarely lead to big changes in the market’s direction. Think of these as the normal step back that follows every two steps forward.

At this point, it would take a significant and unexpected headline to send the index back to last year’s lows. And at this point, I don’t see anything that says current conditions are worse than the “less bad than feared” that allowed us to bounce off the October lows.

Now, a big and unexpected surprise could pop up at any time, but savvy traders trade what is happening, not what could happen. And right now, nothing has changed and that means this is most likely just another routine buyable dip on our way higher. At least that’s how I’m approaching it until proven otherwise.

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Jan 18

Why smart money hasn’t given up on this market yet

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 shed 1.6% on Wednesday as the index continues struggling with 4k resistance, the 200dma, and 2022’s downtrend line.

Retail sales fell 1% in December, and wholesale price inflation slipped to the lowest levels since last winter.  The market’s knee-jerk reaction was to buy those headlines in hope of a quicker end to the Fed’s tightening cycle. But the relief was short-lived and prices ended up tumbling nearly 200 points through the session.

Did this morning’s headlines actually change anyone’s mind about the trajectory of the market? Or is this simply some profit taking near obvious technical levels?

The thing to remember about technicals is they should be drawn with a crayon, not a straight edge. These are regions and not specific levels. Bounces and stalls almost always come at some level other than the exact technical levels everyone is watching. Sometimes it is before, other times it is after. But the rarest of them all is a reversal on top of the key level.

To me, this turn-back at 4k looks too tight and clean to be real. I’m not saying that it can’t be real, just that it usually doesn’t work this way. And since trading is a game of probabilities, it is nice to know what outcome is more likely than another.

At this point, Wednesday’s selling looks to me like some profit-taking at the widely followed 4k level followed by waves of reactionary selling as follow-on sellers started fearing another rejection by resistance levels that stymied this market in the final months of 2022.

Real rejection or just another false alarm on our way higher? Lucky for us, we won’t have to wait long to get the answer. A bounce on Thursday and all is forgotten and forgiven. On the other hand, continued selling means lower prices are ahead, but even if that happens, we never stop looking for the next buyable bounce because it could come as early as Thursday afternoon.

All of that said, as much as I’m looking for a bounce from Wednesday’s retreat, I’m a disciplined trader and that means I pulled the plug on my last trade because the market’s retreat undercut my trailing stops. As easy as it is to buy back in, there is no reason to let all of my recent profits escape because I held too long. Buy early, sell early is how l like to play this.

But now that I’m out, I’m itching to get back in and will be looking for a bounce to buy Thursday morning or afternoon. And if not Thursday, then Friday. A bounce is coming, the only question is when.

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Jan 17

Why savvy traders don’t need to fear this technical triple-witching

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished the first day back from the long holiday weekend down a modest 0.2%.

Not much happened headlines wise and this continues to be a sentiment-driven market. Given how the index rests nearly 200 points above where it started the year, there has definitely been a thawing of last year’s half-empty way of looking at things.

While the economy is still struggling with some headwinds, we clearly avoided last year’s worst-case scenario and stock prices are rallying on this less-bad-than-feared news.

But for as nice as this 200-point rally looks in the rearview mirror, we are currently struggling with the triple-witching of 4k resistance, the 2022 downtrend line, and the 200dma. Any one of these is more than enough to put the lid on a rebound, and all three of these did exactly that a various points in 2022.

So the question becomes, should we be afraid of another rejection, especially with all three hitting us at the same time?

While there are lots of reasons to doubt this rebound, we trade the price action, not our beliefs and fears. Sure, these hurdles could send prices tumbling back to the lows. But until they actually start doing that, we have to give this rebound the benefit of the doubt.

A trend is far more likely to continue than reverse, and no matter what anyone else says, the trend is higher. Without a doubt, we should expect some choppiness near these significant technical hurdles, but until these resistance levels actually break the market, we should be positioned for the continuation, not the reversal.

The greatest advantage of being an independent trader is the nimbleness of our size. We don’t need to trade the breakdown until after it starts happening. If our trailing stops get hit, we get out. Until then, keep riding this wave higher.

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