Oct 11

Why bulls should be collecting profits

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Wednesday was another volatile session for the S&P 500 as early gains gave way to midday losses that were then recovered by the close. After it was all said and done, the index finished up a respectable 0.4%. Not bad for a day’s work.

Aside from the developing situation in the Middle East, economic headlines haven’t changed in a meaningful way over the last few weeks. Wednesday’s gains make this four up-sessions in a row, and the index continues bouncing back nicely from September’s oversold levels.

As is often the case, sometimes we have to look like idiots before we can be geniuses. That was definitely the case buying last week’s lows. Lucky for me, I don’t I don’t have a problem looking like an idiot. In fact, the more people disagree with me, the better I feel about my position.

As I wrote in last week’s free analysis:

I have no idea if 4,200 support will hold up next week, but it is holding right now, and that is good enough for me. I bought [last week’s] bounce and already lifted my stops up to my entry points, turning this into another low-risk trade.

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Without a doubt, ending like a genius is far better than ending like an idiot. Just ask all of the greedy bears that watched nearly 200 points of profits evaporate in front of their eyes. Nothing is wrose than watching a nice profit turn into a painful loss.

But rather than get cocky and gloat, these 3x profits are making me nervous. Everyone knows stocks move in waves, and that means after a nice bit of up, it is time to collect our worthwhile profits and get ready for the next trade.

Without a doubt, I’m selling too early, but we only make money when we sell our winners, and I really like these 3x profits. It would be criminal to allow greed and hubris to make me join the bears by holding too long and watching all of my profits disappear.

The 50dma and 4,400 resistance is just above our heads, making this a good place to collect our 3x profits. If the rally wants to smash through 4,400 next week, it is easy enough to buy back in. Until then, I nothing beats the calm and clarity that comes from sitting on a pile of profits while enjoying the safety of the sidelines.

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Oct 09

Why the stock market doesn’t care about war in the Middle East

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

War broke out in the Middle East over the weekend, and no surprise, the S&P 500 opened Monday’s session in the red.

While fighting between Israel and Hamas doesn’t have a direct impact on U.S. corporate profits, the tension sent oil prices higher, adding a tax on nearly all economic activity. But by midday, equity traders breathed a sigh of relief when oil prices only rose a few percent, allowing stocks to rebound and finish Monday’s session nicely in the green.

As bad as everything looked last week, this weekend’s headlines made them look even worse. But paradoxically, stocks bounced hard over the last two trading sessions. Luckily, this doesn’t surprise readers of this blog. As I wrote Friday evening:

[N]o matter how bad the market felt these last few weeks, these waves of selling presented savvy traders with low-risk entry points. While no one can say if the bottom is in yet, we do know the market always overdoes things, which means at some point, this wave of reflexive selling will go too far, and then it will bounce hard.

I have no idea if 4,200 support will hold…but it is holding right now, and that is good enough for me. I bought [Firday’s] bounce and already lifted my stops up to my entry points, turning this into another low-risk trade.

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As it turns out, even war in the Middle East couldn’t stop last week’s rebound from oversold levels.

If this market wants to go down, there are more than enough reasons. The fact prices are up decisively, not down, tells us September’s selloff is running out of gas and this bounce has legs.

No matter what we think, we trade the market, not our opinions. Stocks are bouncing hard, and only fools are standing in the way. All of us who were savvy enough to buy last week’s bounce should be moving our stops well above our entry points, turning this into a low-risk/high-reward trade.

This is the point where smart money is moving from offense to defense. Another strong session on Tuesday, and it will be time to start locking in some very nice 3x ETF profits.

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Oct 06

Why smart money keeps buying these bounces

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 tumbled Friday morning after the monthly employment report came in unexpectedly strong. As has been the pattern for a while, the “good is bad” crowd hit the panic button because this increases the odds of another Fed rate hike.

The dumb thing about the “good is bad” trading philosophy is stock prices are based on corporate profits, not the Federal Funds Rate. Strong employment means people have lots of paychecks to throw around, boosting corporate profits. I don’t see how this is a negative for stock prices. And neither do most investors; that’s why those opening losses were quickly erased, and the index finished Friday up a very respectable 1.2%. There are lots of reasons for stocks to fall, but strong employment is most definitely not one of them.

As for trading opportunities, no matter how bad the market felt these last few weeks, these waves of selling presented savvy traders with low-risk entry points. While no one can say if the bottom is in yet, we do know the market always overdoes things, which means at some point, this wave of reflexive selling will go too far, and then it will bounce hard.

I have no idea if 4,200 support will hold up next week, but it is holding right now, and that is good enough for me. I bought this week’s bounce and already lifted my stops up to my entry points, turning this into another low-risk trade.

Maybe I get dumped out again next week, like my previous trades, but buying these bounces early and quickly lifting my stops meant every time I got dumped out, it was a breakeven trade. Being wrong and not losing money isn’t a bad way to trade. But it only comes from having the courage to buy these bounces early and the discipline to move my stops up once the bounce starts working.

I have no idea if Friday’s bounce will stick next week, but by getting in early, this is another low-risk/high-reward trade. If it works, I make a pile of money. If it doesn’t, I get out near my entry point and try again next time.

One of these bounces will stick. There is no reason it can’t be this one.

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Oct 04

Why smart money was buying Wednesday’s bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 bounced 0.8% on Wednesday.

Headlines haven’t changed in a meaningful way, and this rebound is nothing more than the market running out of herd-sellers and dip-buyers jumping on those discounts. Lucky for readers, this bounce is precisely what I wrote about in Tuesday evening’s free post:

The S&P 500 is quickly approaching 4,200 support and the 200 dma. No matter what the future holds, we should expect at least a modest bounce at these widely followed technical levels. Maybe we violate these levels a few days later, but over the next day or two, the odds are good prices will bounce, making this the wrong place to be aggressively pressing shorts.

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While Wednesday’s gains were not enough to offset Tuesday’s painful losses, not falling is a good first step.

I have no idea if Wednesday’s bounce is the real deal or if it is another false bottom on our way lower. But since this bounce was fairly obvious, savvy money jumped aboard it early and took advantage of the quick profit cushion it gave us.

With a fair bit of room between Wednesday’s close and our entry points, it is time to move our stops up to our entry points, turning this into a low-risk trade. If the rebound continues on Thursday, we allow those profits to come to us. If the selling resumes, we get out nearly our entry points, no harm, no foul.

Only a fool would turn his nose up at a free trade. Even if this isn’t the bottom, this is still a fantastic risk/reward and I will make this trade one thousand times over. Hopefully, you didn’t miss this great opportunity.

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Oct 03

Why bears should be taking profits and what to expect next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Tuesday’s session sharply lower as the bond market’s outlook dims.

This isn’t the trade I’ve been waiting for. Luckily, my trading plan is keeping me on the right side of the market. As I wrote Monday evening:

I am not a bear by any stretch of the imagination, but if this market is going to bounce, it needs to happen soon. I will buy back in if prices bounce on Tuesday, but I need to see constructive price action first. Until then, I’m sitting on my hands and watching this from the safety of the sidelines. (Aggressive traders can short another breakdown.)

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As readers know, I tried buying a couple of bounces over the last few weeks, and with hindsight being 20/20, obviously, those trades didn’t work as expected. Fortunately, those failed trades didn’t cost me any money because I bought the bounces early and was able to quickly move my stops up to my entry points. As I’ve written countless times, low-risk/high-reward trades are always worth trying, even when they don’t pay off.

I suppose I could have been bearish and profited more from this decline, but optimists amass far more money than pessimists because the market spends significantly more time going up than going down. If I’m going to error, it will always be buying the bounce because those work far more often than betting on a bigger breakdown that only occurs once every couple of years. As much as bears are boasting right now, they’ve been wrong all year. When it comes to trading, I’d much rather be right for 11 months instead of just one.

All of that said, stocks are only down 8% from their 52-week highs, so this still qualifies as a pretty vanilla step-back and something that happens once every year or two. Of course, the alternative interpretation is stocks have “only” fallen 8%, meaning there is a lot more downside if we are truly falling into a bear market.

Are we close to the bottom, or not even halfway? That’s the million-dollar question. But as nimble and savvy traders, it doesn’t matter. We get out of the way when prices fall, and we buy back in when prices bounce. In fact, the lower prices go now, the more money we make riding the next wave higher, so bring on more selling!

The S&P 500 is quickly approaching 4,200 support and the 200 dma. No matter what the future holds, we should expect at least a modest bounce at these widely followed technical levels. Maybe we violate these levels a few days later, but over the next day or two, the odds are good prices will bounce, making this the wrong place to be aggressively pressing shorts.

Wait for the bounce, then follow the market’s lead. Either the bounce will stick, or it won’t. Savvy traders will be basing their next trade on what happens after 4,200.

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Oct 02

Why Monday’s strange price action didn’t surprise savvy traders

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Monday’s session unchanged. This isn’t the price action most investors would have expected if they knew a last-second deal would avert the October 1st gov’t shutdown. But the market has a nasty habit of not doing what most people think. (Hence why so many inexperienced traders complain, “the market is fixed.”)

There are a few reasons this weekend’s budget deal didn’t move markets. First, this is nothing more than a patch job that, at best, delays the budget fight for a few more weeks. Second, if the disgruntled Republicans depose McArthy, then the next round of negotiations could end up being even more contentious. And lastly, a gov’t shutdown happens every few years. It isn’t a big deal, and the market wasn’t really worried about it. If stocks don’t fall much on a headline, they don’t have much room to rebound after everything gets solved.

As readers know, I bought last week’s bounce:

Thursday’s price action played out as expected, and everyone with the courage to buy Wednesday afternoon’s bounce is sitting on a nice profit cushion. Move stops above our entry points and this is practically a free trade. If the rebound continues, we make a pile of profits. If the selling resumes, we get out near our entry points for a breakeven trade. That’s a phenomenal risk/reward, and only a fool would criticize it.

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As it turned out, I got stopped out for a small gain Friday afternoon after lifting my stops above my entry points. While this wasn’t the trade I was looking for, being wrong about the bounce and still making money isn’t a bad thing. Give me a free trade and I will take it a million times over.

As for what comes next, not falling on Monday is always better than falling, especially given what September looked like. Unfortunately, the longer we hang out near recent lows, the more likely it becomes that we make new lows.

I am not a bear by any stretch of the imagination, but if this market is going to bounce, it needs to happen soon. I will buy back in if prices bounce on Tuesday, but I need to see constructive price action first. Until then, I’m sitting on my hands and watching this from the safety of the sidelines. (Aggressive traders can short another breakdown.)

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