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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 popped 0.6% Thursday, adding to Wednesday’s late rebound.
Lucky for readers, this is the exact setup I was waiting for. As I wrote in Wednesday evening’s free analysis:
I don’t know if Wednesday was the true capitulation bottom I’ve been waiting for, but I do know that buying the bounce is the best trade a person could make here.
By getting in early, a savvy trader is already sitting on a profit cushion and moving their stop up to their entry points, making this a low-risk trade. If the selloff resumes Thursday, no big deal, we get out near our stops, no harm, no foul. But if the bounce continues, a wave of profits will come rolling in hard and fast. Low-risk, high-reward trades are what dreams are made of.
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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.
As for what comes next, nothing meaningful changed in the headlines, and all of the problems that triggered the September selloff haven’t been resolved. But as I’ve written before, this is a sentiment trade, and sentiment frequently swings back and forth without rhyme or reason.
Between the Fed keeping interest rates higher for longer and the Federal gov’t on the verge of shutting down, there really isn’t a lot of good news going around right now, but that’s the point. When all of the headlines are bad, they can only get better. As I’ve written before, stocks will bounce long before the good news hits the presses. That means we must be brave enough to buy when everyone else is still in a foul mood. Anyone waiting for the news to become official will be way late to the party.
Is the worst of the September selloff already behind us? I have no idea. But I like this bounce, and it is giving us a ton of headroom to lift our stops, making this trade worthwhile even if it doesn’t work out in the end.
Maybe bears are right, and we’re wasting our time buying this bounce, but if we can do it in a low-risk way, why not give it a shot? One of these bounces will stick, and this could easily be it.
At this point, keep doing what is working and move our stops up to at least our entry points, turning this into a low-risk trade. If it works, great. If not, we get out and try again next time.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
It looked like Wednesday would be another ugly session for the S&P 500 as the index skidded another -0.8% in midday trade. But just when all hope was lost, the index bounced hard, erasing all those losses over a handful of minutes.
While it is definitely premature to claim September’s selloff is over, when it ends, this is what it will look like.
As I wrote Tuesday evening, I was looking for a bounce, and Wednesday afternoon’s pop definitely qualifies:
Maybe prices bounce in the second half of the week, or maybe it doesn’t happen until next week. But as long as I wait for capitulation and the inevitable bounce (and keep a nearby stop), any false bottoms won’t be a problem. More importantly, I stay alert and ready to go because the market loves symmetry and the inevitable bounce will come hard and fast. Wait a few hours too long, and you will miss a big pile easy and fast profits.
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I don’t know if Wednesday was the true capitulation bottom I’ve been waiting for, but I do know that buying the bounce is the best trade a person could make here.
By getting in early, a savvy trader is already sitting on a profit cushion and moving their stop up to their entry points, making this a low-risk trade. If the selloff resumes Thursday, no big deal, we get out near our stops, no harm, no foul. But if the bounce continues, a wave of profits will come rolling in hard and fast. Low-risk, high-reward trades are what dreams are made of.
As I said above, it is way too early to claim the selloff is over, but this is the best buying opportunity we’ve had in a while. And if this bounce doesn’t work, no big deal, we get out and try again next time. One of these is going to work spectacularly well, and we don’t want to miss it.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 shed another -1.5% Tuesday as last week’s fear trade comes roaring back.
Last week, it was the Fed telling us they will keep interest rates higher for longer than most investors were hoping for. This week, fear of a U.S. gov’t shutdown/default is adding to the pessimism. Of course, none of these headlines are new or unexpected, and this weakness simply reflects the never-ending swing of sentiment.
While it is hard to watch these losses pile up over the near-term, most investors knew these things were coming, so we shouldn’t expect a significant repricing of stocks based on widely known and expected headlines.
Sure, the US could actually default on its debt this time, sending the global economy into a tailspin. But we’ve been down this path so often that very few investors actually believe this will happen. Number one, this latest round of equity selling won’t turn into anything significant because the consequences of default are too dire and a budget deal is coming. But number two, if the unthinkable actually happens, the consequences are so dire a 20% crash in stock prices wouldn’t be enough.
That turns this into the infamous black swan trade. It most likely won’t happen, but if it does, it will be bad!
Lucky for us, we are nimble, independent traders, and we can pull the ripcord long before markets fall 20%. In fact, I pulled the rip cord last week and have been watching this week’s carnage from the safety of the sidelines.
As much as I want to buy these discounts, savvy traders don’t buy the dip, they wait for the bounce.
If history repeats itself, as it almost certainly will, Republicans and Democrats will eventually come together and save us from themselves at the eleventh hour. And more than waiting for this bipartisan agreement, stocks will rebound days, even weeks, before a deal is reached, so savvy traders are following the market’s price-action and not waiting on the headlines.
The market is in a bad mood, but like all bad moods, it will eventually improve. The only question is when.
We didn’t get a bounce last week, and we’re not getting one in the first half of this week, but that doesn’t mean it isn’t going to happen. While my inclination is to buy this oversold tumble, I need to see the selling capitulate and bounce first. That simple requirement is saving me a truckload of money this week.
Maybe prices bounce in the second half of the week, or maybe it doesn’t happen until next week. But as long as I wait for capitulation and the inevitable bounce (and keep a nearby stop), any false buttons won’t be a problem. More importantly, I stay alert and ready to go because the market loves symmetry and the inevitable bounce will come hard and fast. Wait a few hours too long, and you will miss a big pile easy and fast profits.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 started Friday’s session off well enough, bouncing back from Wednesday’s and Thursday’s bloodbath. Unfortunately, those feelings of optimism didn’t last long, and the index fell into the red by the end of the day.
Knowing what we know now, most people would think buying Friday morning’s bounce was a mistake. But I actually think it was a brilliant move, especially since I did it!
After two days of hard selling, the market was ripe for a bounce. Even the most brutal selloffs have up hours and even up days, so Friday’s early bounce shouldn’t surprise anyone.
But what we do with those bounces is where amateur and savvy traders separate themselves. As I wrote Thursday evening, I was angling to buy the next bounce:
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.
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And buying Friday morning’s bounce is exactly what I did. But I’m not an idiot, I was smart and strategic in buying. I waited for the bounce, I started small, I got in early, and I kept a nearby stop. Within hours, prices had risen enough that I could lift my stops to my entry points, and that’s when the magic happened.
Now, I’m sitting on a free trade. If the bounce takes off, I rake in piles of profits in a 3x ETF. If the index retreats, I get out at my entry point, no harm, no foul. Only a fool would pass up on a free trade, regardless of how it turned out.
Sure, the index could have retreated before I was able to lift my stops to my entry points, but since that was on a partial position with a nearby stop, it wouldn’t have hurt much. Even that was a worthwhile trade with a low risk and a high reward, especially when the market was ripe for a bounce after two days of brutal selling.
Critics will claim buying Friday morning’s bounce was a mistake, but it was a mistake I will happily make every chance I get. Bring on those free trades. While this one didn’t work, one of them will, and that’s when I will collect a mountain of free profits.
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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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What’s a good trade worth to you?
How about avoiding a loss?
For as little as $1.28/day, receive actionable analysis and a trading plan every day during market hours
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