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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Tuesday up a respectable 0.4% as the widely expected pullback from last week’s unsustainable rebound failed to materialize.
Traders have a natural fear of heights, and that causes buying to dry up after big runs like we saw last week. But demand is only half of the equation. At this point, owners are feeling confident and few are interested in selling this big rebound, keeping supply tight and propping up prices.
This inevitable tapering of buying was obvious and is why I was collecting profits late last week. As I wrote last Thursday evening:
To be clear, I’m not calling this a top, but with a big pile of profits in hand, it would be criminal to allow hubris to turn these profits into losses. Remember, we only make money when we sell our best trades. Nearly 200 points in a 3x ETF is good enough for me. At this point, the rewards ahead of us are far smaller than the risks underneath us.
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Hold near 4,400 resistance for a few more days, and these levels will feel less risky. That’s when some of those left behind last week will find the courage to start buying. Until then, prices will likely remain stalled under 4,400 resistance. (Unless the market starts putting the screws to the bears again, and they are forced to cover again at rapidly rising prices, but this is a less likely outcome.)
I like the market here, but the upside is not big enough to justify the risks underneath us. Give it a few more days, and the risk/reward starts to shift in the other direction. But until then, this is a better time to be more cautious than aggressive.
I collected profits, and I have zero regrets, even if Tuesday’s close is a few points above where I sold. Holding a big move too long risks giving it all back, and it would be criminal to allow greed to let last week’s profits escape.
Momentum definitely favors higher prices over the near to medium term, but the incremental rewards of holding for a few more days are nowhere near big enough to justify the risks.
We only make money when we sell our best trades, and for me, that was peeling off very worthwhile profits late last week. Another trade is coming, but I’m comfortable watching the consolidation of last week’s gains from the sidelines.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 popped another 1.9% Thursday, making this four up-days in a row.
The Fed did exactly what everyone expected on Wednesday, meaning the Fed’s decision didn’t change anyone’s mind. Those that were bearish on Tuesday were still bearish on Thursday. What changed is the market ran out of impulsive sellers last Friday. The resulting oversold condition triggered this capitulation and 200-point rebound over four short trading sessions.
Easy come, easy go, as my dad loved to remind me when I was young.
There are two ways to trade: starting like a fool and ending like a genius, or starting like a genius and ending like a fool.
Without a doubt, I looked foolish last week when I told readers I was getting ready to buy last week’s blood bath as soon as it bounced. Here’s what I wrote in last Wednesday’s free post (Oct 25th):
Remember, stocks top when everything looks great, and they bottom when everything looks terrible. By that measure, this is definitely a good time to be bottom-fishing. To be clear, I am 100% opposed to buying on the way down. But every time we bounce, you will find me jumping in. Start small, get in early, keep a nearby stop, and only add to a position that’s working. Follow those simple rules, and bottom-fishing is extremely profitable.
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There were a lot of greedy bears gleefully criticizing my optimism last week. And without a doubt, they were right initially. But here we are a few days later, and the market has turned all of their profits into big piles of losses.
Luckily, I have no problem playing the fool in front of the crowd if it lets me rack up a pile of 3x ETF profits like this a handful of sessions later.
Of course, I’m not going to let myself fall into the same trap greedy bears were caught by. I am fully cognizant that markets move in waves, and one week’s genius becomes the next week’s fool. Thursday’s nearly 2% up day was the biggest gain of this rebound, and these things usually accelerate right before the end.
To be clear, I’m not calling this a top, but with a big pile of profits in hand, it would be criminal to allow hubris to turn these profits into losses. Remember, we only make money when we sell our best trades. And at this point, nearly 200 points in a 3x ETF is good enough for me. At this point, the rewards ahead of us are far smaller than the risks underneath us.
But now that I’m out of the market and sitting on a huge pile of profits, the very first thing I do is start looking for that next opportunity to get back in. Maybe that is buying the next dip and bounce. Maybe it is buying a huge short squeeze that powers through the 50dma. No matter what it is, I will be ready for it.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 popped another 1% Wednesday, making this three up days in a row.
While this still has a long way to go before getting back even half of the previous eight sessions of losses, three days of gains is a good start.
Lucky for me, this is the trade I was waiting for. As I wrote Tuesday evening:
I still have no idea how long this rebound will stick around, but now that prices are comfortably above my entry points, I lifted my stops to my purchase prices, making this nearly a risk-free trade. If the index retreats on Wednesday, I get out near breakeven. If the rebound continues, I will let those profits keep rolling in. These low-risk/high-reward trades are what I dream of.
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The Fed gave us another interest rate decision Wednesday afternoon, and as expected, they kept rates unchanged. More interesting is how little the market reacted to the news. Investors have correctly anticipated every Fed rate move this year, but that hasn’t stopped traders from overreacting to every announcement. So, it was actually refreshing to see the market maintain its composure this time. A calm market is a bullish market.
As for my 3x ETF trade that bought this bounce, this is passing the tipping point between offense and defense. While it is tempting to pat myself on the back for spotting a good trade, these gains actually make me nervous. That’s because I know markets move in waves, and all good things come to an end.
The index broke through 4,200 support/resistance and now rests just under the 200dma. It wouldn’t surprise me to see this rebound run into some headwinds. That would be the normal and healthy thing to do, and I’m comfortable holding a measured and methodical rebound. Less sustainable is triggering a powerful short squeeze, and that is what would cause me to punch out and collect profits over the next few sessions.
But no matter what happens, I’m already making a plan to collect my profits. In my book, selling too early always beats holding too long. Remember, we are only in this to make money, and we only make money when we sell our favorite trades.
Keep holding, but lift stops to guarantee some of these profits, and wait to see what Thursday brings.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 rallied another 0.6% Tuesday, extending this week’s rebound.
Nothing meaningful changed in the headlines to justify this bounce, but after a certain amount of selling, we always run out of sellers. This time, it took eight days to exhaust the supply of near-term sellers.
As I wrote last week, and again on Monday, this is the bounce I was waiting for:
I have no idea if Monday’s bounce will stick, but it was a good start, and that’s all I needed to put on a partial position. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.
If the index retreats on Tuesday, I will pull the plug for a small loss and try again next time. If the rebound keeps going, I will add more and lift my initial stops to near my entry points, greatly reducing my risk.
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I still have no idea how long this rebound will stick around, but now that prices are comfortably above my entry points, I lifted my stops to my purchase prices, making this nearly a risk-free trade. If the index retreats on Wednesday, I get out near breakeven. If the rebound continues, I will let those profits keep rolling in. These low-risk/high-reward trades are what I dream of.
The odds are still good this bounce will fail because two bounces fail for every one that works, but if this rallies just a little further, expect bears to start scrambling for covers as they get squeezed.
Maybe this week’s bounce is nothing more than a false bottom on our way lower, but as a nimble swing trader, I’m okay with that. I plan on collecting profits long before the next down wave hits.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 bounced 1.2% Monday.
We didn’t get a meaningful improvement in headlines over the weekend, but after eight of the previous nine trading sessions ended in the red, a green day was inevitable.
As everyone knows, stocks don’t move in straight lines. After a bit of down, it was finally time for a bit of up. It doesn’t matter why. Running out of sellers is just one of those things that happens naturally. And Monday was that day.
Last week, I said I was looking for a bounce, and Monday’s price action definitely qualifies:
Remember, stocks top when everything looks great, and they bottom when everything looks terrible. By that measure, this is definitely a good time to be bottom-fishing. To be clear, I am 100% opposed to buying on the way down. But every time we bounce, you will find me jumping in. Start small, get in early, keep a nearby stop, and only add to a position that’s working. Follow those simple rules, and bottom-fishing is extremely profitable.
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I have no idea if Monday’s bounce will stick, but it was a good start, and that’s all I needed to put on a partial position. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.
If the index retreats on Tuesday, I will pull the plug for a small loss and try again next time. If the rebound keeps going, I will add more and lift my initial stops to near my entry points, greatly reducing my risk.
As I frequently remind readers, buying bounces is hard because two-thirds of them fail. But if we limit our losses on the false starts by entering with partial positions and keeping stops nearby, riding a winner higher with a full position will more than offset any previous losses.
I have no idea if Monday’s bounce is the real deal, but it gave me a low-risk entry, and I took it. If this one doesn’t work, no big deal, I take a small loss and try again next time. But if the index bounces a little further on Tuesday, I will lift my stops near my entry points, turning this into a nearly free trade. It is hard to complain about that.
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