Jan 12

Bull or Bears: Which side is in control

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday’s trading session took the S&P 500 on a wild ride, but you wouldn’t know it if all you saw was the day’s modest 0.3% gain.

The extreme volatility kicked off after the monthly Consumer Price Index showed inflation falling for the sixth month in a row. While no one is excited by 6.5% inflation, it sure beats the 9% recorded back in June. And even more impressive, some categories actually saw price declines from November.

While it is premature to claim the inflation beast has been slain, there is enough history to say conclusively inflation is not spiraling out of control. It won’t get resolved nearly as quickly as some are hoping, but we are definitely headed in the right direction.

The most impressive thing about Thursday’s wild swings is how balanced they were. Every bit of down was matched by a bit of up and almost every bit of up was matched by an equally sized bit of down. To the point where within minutes of the close, the index was tracking near breakeven before a minor lift gave us that modest 0.3% gain.

Stocks couldn’t sustain a move on the CPI data because it didn’t change anyone’s mind. Bears were just as bearish as bulls were bullish. Prices don’t move when people don’t change their minds and this morning’s just-right result split the difference.

While it would be easy to call this a tie, in this instance the tie-breaker goes to the prior trend, which is up. In addition, as easily as stocks fall, holding steady is another win for bulls.

It doesn’t look like a lot happened Tuesday, but until something changes, bulls are still in control of this market.

The next big hurdle is the 200dma and 4k resistance. These technical levels proved too much for the market to overcome back in November and December. Will this time be any different? Only time will tell, but until prices actually start falling, we have to keep giving the benefit of the doubt to the rebound.

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Jan 11

How savvy traders are profiting from this volatility

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added 1.3% Wednesday and the index now finds itself at the highest levels since early December.

So much for Monday’s ugly intraday reversal. But that’s the way this goes sometimes. If this were easy, everyone would be rich. The market frequently throws curveballs at us and Monday was one of those days. Sometimes it has to convince us we are wrong moments before proving us right.

The key to surviving these whipsaws and false alarms is staying nimble and having a solid trading plan. Anyone winging this is getting eaten alive as they keep getting fooled into buying high and selling low. But if we have a thoughtful trading plan that gets us in early and gets us out early, then not only are we surviving these whipsaws, we are actually thriving in this volatility.

As hard as it was to buy Tuesday’s rebound following such awful price action on Monday, that was clearly the right call. And a savvy trader was adding even more money Wednesday morning. Big money came back from Christmas vacation in a buying mood and smart money is following those whales.

Now that the index is well above our entry points, we can lift our stops, making this a low-risk trade where at worst we get dumped out for breakeven.

If we’re right, we make money. If we’re wrong, we lose nothing. It is impossible to beat that risk/reward.

4k resistance and the 200dma are up next. These were stumbling blocks back in November and December. But at this point, the market is acting well and deserves the benefit of the doubt. That means we keep riding this wave until it breaks down. Move stops up and see where this goes.

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Jan 10

How savvy traders deal with their mistakes

By Jani Ziedins | Free CMU

Free After-Hours Analysis: 

The S&P 500 added 0.7% on Tuesday, bouncing back from Monday’s ominous intraday reversal. Not bad given how poor Monday’s price action appeared.

If there is one hard and fast rule in the stock market, it is there are no hard and fast rules in the stock market.

Monday morning’s impressive breakout above 3,900 resistance fizzled and evaporated by the close. That intraday reversal is about as bearish as price action gets. But as is always the case, trading signals operate in probabilities, not absolutes.

While a majority of the time price action like Monday’s leads to further declines, it didn’t happen this time, which is normal and expected. Even something that works 80% of the time will still fail one time for every four times it succeeds.

The lack of guarantees in the markets is why I always trade with contingencies in mind. Even though I liked the short setup Monday afternoon, I started with a partial position and placed a stop nearby. That way, if I was wrong, I had an exit plan in place. And it’s a good thing because I ended up using that exit plan Tuesday and that is the only reason my losses were so modest.

No one is ever right all the time, but traders that succeed over the long term make sure their trading plan limits their losses when they are wrong.

While seeing how things turned out Tuesday, it would be easy to say shorting Monday’s intraday reversal was a mistake, but starting with a small position and a nearby stop, my loss was far smaller than the potential reward if I got it right.

I will take that trade every day of the week because while it didn’t work this time, it will produce big profits more often than not.

Small losses and big rewards are how we make money in the market.

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Jan 09

The importance of the market’s next step

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 started the second week of 2023 off well enough, adding more than 1% and extending Friday’s employment-fueled gains. Unfortunately, those midday gains proved fleeting and the index retreated back to breakeven by the close.

Over the last few weeks, we could have written off this impotent price action because institutional money was on vacation and this was nothing more than over-active retail traders running amok. But by now most institutional money managers are back in the office and that means this price action counts.

And Monday’s failed breakout doesn’t look good. Stocks rallied to start the week and rather than embrace the strength, big money turned its back and let prices fall.

While one day can’t kill a market by itself, it can put a serious dent in any rebound attempt. Fall much lower and all of Friday’s gains are vulnerable.

The market is at a critical tipping point and how it responds Tuesday will tell us a lot about the market’s mood going forward. Retreat back to 3,800 over the next few sessions and 3,600 becomes the next most obvious target. But on the other hand, if buyers return Tuesday, Monday’s indigestion is forgotten and 4k is up next.

Plan your next trade accordingly.

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Jan 03

Why this market isn’t falling under 3,800 support

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

2023 started the same way 2022 ended, volatile and directionless. The S&P 500 opened Tuesday’s session with nice gains, but minutes later the index retreated into the red and quickly retested 3,800 support.

As dramatic as that 80-point collapse felt, rather than trigger a bigger wave of follow-on selling, supply dried up and prices bounced, which wasn’t a surprise because that’s exactly what we’ve seen every time the market tested 3,800 support over the last couple of weeks.

Big money is still on vacation, and that means retail investors are still in control. And in typical retail fashion, these impulsive traders overreact to every little bump in the road. Lucky for us, their accounts are so small they run out of money long before they can do any real damage.

Big money starts returning to the office later this week and into next week. That’s when we will get a better sense of the market’s mood and what direction we’re headed next. Until then, expect these choppy reversals to continue.

As for trading this chop over the next couple of sessions, if dumb money is selling, the smart move is fading that weakness. I bought this morning’s bounce off 3,800 support with a stop just under this level. While not a high-probability, high-reward trade, if I can get in with such limited risk, why wouldn’t I give it a shot?

And the same goes for when prices approach the upper end of the recent trading range Wednesday. When dumb money starts buying is when I plan on harvesting profits in this trade.

The next directional move is coming, but we will get a few more of these dramatic intraday reversals first. Might as well take advantage of them while we can.

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