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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 gapped under 4,400 support Thursday morning and kept going as Wednesday’s fear trade continued. By the time it was all said and done, the index finished down a dreadful -1.7%. That was enough to make this the lowest close since June. Ouch.
The Fed didn’t say what investors wanted to hear Wednesday afternoon, and that kicked off this 120-point tidal wave of reflexive selling.
There are two ways this plays out: either we bounce, or we don’t. It really is that simple. Since I don’t believe Wednesday’s headlines changed anything, I’m looking for a continuation trade. After this wave of volatility and reflexive selling passes, the market will go back to what it was doing previously, which was consolidating this summer’s gains between 4,400 support and 4,400 resistance.
The thing to keep in mind is the market only changes its long-term trend every other year, give or take a few years. While something this vague can’t be used as a timing signal, it is a useful fact to keep in mind when debating if the market’s long-term trend has changed. If we get 400 sessions of continuation for every one change in direction, the odds always heavily favor a continuation, not a change in trend.
Until proven otherwise, I will continue giving the bull market the benefit of the doubt and will view this weakness as a buying opportunity.
Since the market didn’t pop Wednesday afternoon, that means I’m trading the dip and bounce. Maybe we bounce Thursday morning and never look back. Maybe we fall a little further under 4,400 support before bouncing. Either way, I’m waiting for the bounce and then jumping aboard. The lower this goes now, the more money I make buying the bounce in a 3x ETF.
Just because buying the bounce didn’t work on Wednesday or Thursday doesn’t mean that strategy won’t work on Friday or even next week. The market has a nasty habit of convincing us we are wrong moments before proving us right.
Without a doubt, this could be the start of the next major bear market, and we need to protect our backside because there is no excuse to ride a losing position all the way into the dirt, but until I see something more compelling, I will keep waiting for the bounce. Even if this is the start of a bear market, a bounce is still headed our way because bear markets bounce too. In fact, some of the easiest and fastest money is made trading bear market rallies.
Of course, Thursday’s price action reminds us why only fools buy dips. Low has a nasty habit of getting even lower, and this is definitely one of those times where it is better to be a little late than a lot early. Savvy traders wait for the bounce. Start small, get in early, keep a nearby stop, and only add to a position that’s working.
And if our first, second, and third trades get stopped out? No big deal. We make mistakes with small positions and nearby stops, while we ride the winner with full positions and a far larger profit targets. Follow this simple plan, and the math will work out in our favor.
As I wrote Wedensday, when I’m standing safely on the sidelines, I’m happy to be wrong. Bring on another wave of selling because the lower this goes now, the more money I make buying the inevitable bounce.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 shed 1% Wednesday after the Fed kept interest rates unchanged.
That non-move was widely expected, so stocks were not responding to the September rate decision, but to what the Fed said about the remainder of 2023 and 2024. At this point, the Fed’s data telegraphs one more rate hike this year and keeping rates that high through the end of 2024.
None of this surprises anyone because the Fed’s been consistent in their messaging for weeks, if not months. But it does poke a hole in the hopes that the end of this tightening cycle is closer than 2025.
That said, odds are good the Fed isn’t going to stick to its plan through the end of 2025 because when else have they correctly forecasted the economy a year and a half ahead of time?
Most likely, the Fed is simply leaving the door open to further hikes so they don’t disappoint investors if they need to hike again. This is the classic under-promise, over-deliver.
Since the Fed decision and outlook were exactly what the crowd expected, it is already priced in, and we shouldn’t expect Wednesday’s selling to turn into anything more than another test of 4,400 support. It takes new and shocking developments to send the stock market into a tailspin, and we didn’t get anything remotely close to that Wednesday afternoon. Two steps forward, one step back. Rinse and repeat.
As I wrote Tuesday evening, I am approaching this as a buying opportunity. The only question was if I was going to buy a pop Wednesday afternoon or wait through the dip and bounce:
I’m a buyer on Wednesday afternoon if the index trades well after the Fed statement. If prices fall, I’m still interested in buying, but I will wait for capitulation first. Maybe that happens Wednesday afternoon, or maybe we need one last puke-out Thursday. But no matter what, I am looking at this as a buying opportunity. The only difference is if I buy on Wednesday afternoon or wait until Thursday or Friday.
Since the market didn’t pop Wednesday afternoon, that means I’m trading the dip and bounce. Maybe we bounce Thursday morning and never look back. Maybe we fall a little further under 4,400 support before bouncing. Either way, I’m waiting for the bounce and then jumping aboard. The lower this goes now, the more money I make buying the bounce in a 3x ETF.
Anyone trading Wednesday’s decline like the world is ending clearly isn’t paying attention. The market is consolidating the summer’s gains near 4,400 support—nothing more, nothing less.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Tuesday’s session off a modest 0.2%. Not bad, considering the index was down nearly 1% in midday trade.
All eyes are on the Fed’s meeting. While there is near universal agreement the Fed will keep interest rates steady Wednesday afternoon, the crowd is far more interested in what they have to say about November’s meeting and beyond. Will they keep hinting at another rate hike this year? Will they mention the possibility of rate cuts next year? Those questions will drive the next waves of buying and selling.
That said, the Fed tries really hard not to spook the market, so we shouldn’t expect anything surprising. After a brief reflexive knee-jerk of volatility Wednesday afternoon, the market will quickly go back to what it was doing previously, which is consolidating the summer gains above 4,400 support.
Tuesday’s midday selling actually increases the odds of a decent finish on Wednesday afternoon. That’s because the market got rid of a bunch of weak-kneed owners, and once those people sell, their opinions don’t matter anymore.
As is typically the case, we can ignore the first 15-ish minutes after the Fed announcement because those knee-jerk swings often go in the wrong direction. But after 30-ish minutes, the market can’t hide its true intentions, and that’s when we have the green light to jump aboard the next trade.
I’m a buyer on Wednesday afternoon if the index trades well after the Fed statement. If prices fall, I’m still interested in buying, but I will wait for capitulation first. Maybe that happens Wednesday afternoon, or maybe we need one last puke-out Thursday. But no matter what, I am looking at this as a buying opportunity. The only difference is if I buy on Wednesday afternoon or wait until Thursday or Friday.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 tumbled -1.2% Friday on relatively benign headlines.
We got some decent economic headlines from China, while the UAW hit The Big Three with targeted strikes. While the UAW strikes have the potential to affect the US economy if they drag on long enough, The Big Three stocks were actually up during the session, so if their knowledgeable investors are not worried, then the rest of the market shouldn’t be too concerned.
Instead, Friday’s givebacks were nothing more than the routine gyrations of an index consolidating 2023’s impressive gains. Stocks go up, and stocks go down, the same way you and I breathe. This is all very standard stuff. There is no reason to read more into Friday’s dip than that.
Luckily, none of this surprised readers. I wrote the following a week ago, and the subsequent price action played out exactly as expected:
As for what comes next, these swings are vanilla sentiment gyurations and nothing more. Going up and down like this is as natural as breathing for the market. Since the latest wave of selling wasn’t propelled by meaningful and unexpected headlines, it won’t go far and we are nearing the bottom.
That means locking in our short 3x ETF profits and getting ready to buy the next bounce. It will probably take one or two more tests of 4,400 support before we bounce for good, but taking profits a little early makes sure we are in the right spot to take advantage of the next trading opportunity, which is most likely buying the bounce Friday or early next week.
The funny thing is I could be copy and paste last week’s analysis into Friday’s analysis because not one thing has changed.
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As for what comes next, expect more of the same. We are stuck in a trading range between 4,400 support and 4,600 resistance. Until something more meaningful comes along, exepect this sideways chop to persist.
As for trading, that means catching these waves and then taking profits early and often because if we hold one or two days too long, those profits will be long gone.
This is the wrong time to be trading for a big directional move and stubborn bulls and bears will keep getting chewed up. For the rest of us, keep squeezing these profits out of the market a few dozen points at a time. While that doesn’t sound like a lot, make these trades in a 3x ETF and now we are taking about real money, especially for what ammounts to a few days of work.
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