Aug 18

Why Friday was a good day for the bulls

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 ended Friday’s session exactly where it left off Thursday. While it is tempting to call 0.0% a tie, this actually counts as a win for the bulls.

First, following three big down days, not falling for a fourth session is a meaningful accomplishment. Big stock crashes accelerate lower, and Friday’s 0.0% breaks our losing streak.

Second, stocks started Friday’s session deep in the red. Lucky for us, that opening low was as bad as it got, and stocks spent the rest of the session climbing out of that hole, ultimately recovering all of those losses by the close.

Luckily, my readers were not surprised by Friday morning’s rebound. This is the exact setup I told readers to be ready for Thursday evening, and hopefully, you were one of the many people who profited from this great setup:

As bad as Thursday looked, the thing to remember is this is the way it usually feels right before the bounce. We can debate how bad it needs to get before this gets good, but without a doubt, we are closer to the bottom than we were on Tuesday or Wednesday.

The nice thing about one-way selloffs like Thursday is they tend to bounce early the next session. That means if we buy early enough, that initial bounce will give us a handy profit cushion to play with.

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Friday morning, confident stock owners refused to join the herd selling. That’s all it took. No matter how bad things feel, once we run out of sellers, prices stop falling. That’s basic supply and demand.

At this point, confident owners are telling the market that enough is enough. That doesn’t mean the selloff cannot continue next week or next month. But for the moment, the bulls are back in charge.

This bounce is only a few hours old and remains fragile, but this is the price action we were waiting for.

By acting decisively Friday morning, we already have a nice profit cushion and can move our stops up to our entry points, greatly reducing our risk. If this bounce is the real deal, the profits will keep rushing in. If this is another fake bottom on our way lower, we get dumped out near our entry points and get to try again next time, no harm, no foul.

As for next week, if the index retreats back to Friday’s intraday lows, all bets are off. But until that happens, we have the green light to keep holding, adding, and lifting our stops.

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Aug 17

What nimble traders are doing Friday morning

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 tumbled another 0.8% Thursday as the wave of reflexive selling continued.

The index violated 4,450 support and the 50dma earlier in the week, and the latest victim was 4,400 support.

Wednesday’s weak price action left me watching Thursday’s tumble from the safety of the sidelines. When I have cash, I’m always looking for the next bounce, but Thursday’s price action didn’t give me an entry point and that means I’m still in cash. No harm, no foul.

As I wrote on Wednesday:

I hope prices will fall even further on Thursday and Friday. But if they don’t, I will be one of the first standing in line to buy the next bounce. I’d love to get in at much lower prices, but I don’t get to choose what the market gives me. If this wants to bounce at 4,400, I’m a buyer. If it waits until 4,300 to bounce, that’s even better. The only thing that matters is I don’t get left behind when the bounce finally arrives.

Remember, we don’t buy dips, we buy bounces. And as always, start small, get in early, keep a nearby stop, and only add to a position that’s working. Follow those simple rules and we will be ready for whatever comes next.

As bad as Thursday looked, the thing to remember is this is the way it usually feels right before the bounce. We can debate how bad it needs to get before this gets good, but without a doubt, we are closer to the bottom than we were on Tuesday or Wednesday.

The nice thing about one-way selloffs like Thursday is they tend to bounce early the next session. That means if we buy early enough, that initial bounce will give us a handy profit cushion to play with.

If the market capitulated Thursday, Friday’s early bounce will keep running and won’t look back. In that case, keep holding, adding, and letting those profits come to us.

On the other hand, if another wave of selling is headed our way, that early bounce will fail and the sell-off will resume. In that case, we pull the plug at our entry point and try again later Friday afternoon if the market attempts another bounce. But if Friday ends in another one-way selloff, that’s no problem. We buy Monday morning’s bounce and do this all over again.

Markets move in waves and no matter where this is headed over the medium and long term, a near-term bounce is headed our way. For nimble traders, that’s a profit opportunity. Don’t miss it.

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Aug 16

4,450 support failed. How smart money is trading what comes next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 decisively broke through 4,450 support and the 50dma on Wednesday. The index now finds itself just a hair above 4,400. And so continues the reflexive selling that started early Tuesday after China lowered rates in an attempt to revive its sluggish economy.

Stocks go up and stocks go down. No one should be surprised by this pullback from 4,600 following a nearly 800-point rally since January.

As I wrote back in late July when the index was testing 4,600:

The run to 4,600 was a good one, but rather than greedily hold for higher prices, I collected worthwhile profits and got ready for the next trade. At this point, I’m looking at 4,600 as a tipping point. Either we keep going higher, or we don’t. If the rally resumes later this week or next week, I will buy back in. But if the market is finally ready to take a break and cool off, I’m happy to short the step back to 4,400 support.

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Readers know I collected my short profits last week as the dip stalled near 4,450 support. A continued pullback to 4,400 was always possible, but I’m never one to risk holding too long when I have worthwhile profits in hand. In my opinion, there is no greater crime than letting a good trade turn bad, so I always err on the side of taking profits too early.

When the market attempted a bounce off of 4,450, I even gave the long side a shot again with a small position and a nearby stop. As everyone knows by now, that 4,450 bounce didn’t stick.

While buying this bounce didn’t work, I don’t mind. My loss on a partial position with a nearby stop was trivial. And to be honest, the lower this goes now, the more money I make buying the next bounce, so I’m actually happy my initial trade failed and I get to buy an even bigger discount when this finally bounces.

I hope prices will fall even further on Thursday and Friday. But if they don’t, I will be one of the first standing in line to buy the next bounce. I’d love to get in at much lower prices, but I don’t get to choose what the market gives me. If this wants to bounce at 4,400, I’m a buyer. If it waits until 4,300 to bounce, that’s even better. The only thing that matters is I don’t get left behind when the bounce finally arrives.

Remember, we don’t buy dips, we buy bounces. And as always, start small, get in early, keep a nearby stop, and only add to a position that’s working. Follow those simple rules and we will be ready for whatever comes next.

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Aug 15

Why I’m happy I was wrong

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 is teetering on the edge after the index shed -1.2% Tuesday and closed at the lowest levels in a month.

This retreat leaves the index just under 4,450 support and the 50dma. But at this point, the violation has only been by a handful of points, and we haven’t gone flying off the edge…yet.

China cut interest rates in the middle of the night as their officials struggle to restart their stalling economy. This move unnerved investors and kicked off Tuesday’s big wave of selling in US markets. But as I’ve written previously, it’s been years since China’s economy mattered to US stocks. Between Trump’s trade war and China’s multi-year lockdowns, the Chinese economy hasn’t mattered to the rest of the world in a long time.

Anything can trigger an impulsive wave of selling, but very few investors are basing their US equity buying decisions based on what China is doing. Even if China continues skidding, its consumers have largely shunned US brands in favor of domestic producers, so even their slowing consumption won’t put much of a dent in US corporate earnings. This whole thing is a non-issue.

That doesn’t mean US stocks can’t slip for a few more days, especially if the selling continues Wednesday and we undercut the next tranche of automated stop-losses. But even if the selling keeps up for another day or two, this is a buying opportunity and we need to be ready to jump aboard the next bounce.

As readers know, I liked Monday’s bounce and I was a buyer. I won’t deny that Tuesday’s poor open stung. Lucky for me, I recognized the risks of buying this market and I was careful. As I described on Monday:

Monday’s bounce was buyable with a stop near Friday’s lows. Start small, get in early, keep a nearby stop, and only add to a trade that’s working. If the selling resumes later this week, no big deal, pull the plug at our stops and try again next time. It really is that simple.

As it turned out, I was wrong. I got dumped out for a modest loss on a partial position, and you know what? It wasn’t that bad. No one is right all of the time, and that includes me. That’s why all of my positions start with defense in mind.

As for what comes next, just because I got dumped out on Tuesday doesn’t mean I’m giving up on this trade. If stocks bounce on Wednesday or even next week, I will be there to jump on those discounts. In fact, the lower we go now, the more money we can make buying the next bounce. That means I’m hoping I continue being wrong on Wednesday and Thursday. Bring on an even bigger wave of panic selling! After my stops moved me to cash, the lower we go, the better.

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Aug 14

Why bulls still have the advantage

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 started the week off on the right foot, adding 0.6% Monday.

Headlines didn’t say much, and the lack of bad news allowed this market to continue trading within a few percent of 52-week highs.

Monday’s resilience won’t surprise readers. As I wrote last week:

[T]he index’s wedging price action lower can actually be bullish. After countless attempts, the best bears can do is knock a few points off of the market at a time. If there was real downside potential here, these five and ten-point violations would spiral into 50 and 100-point losses within hours. The fact so few owners are interested in selling each day’s successive new low suggests we are on the verge of running out of supply and bouncing.

As much as people want to hate this too-high, too-far, too-fast market, it continues holding up amazingly well. Elevated inflation, multi-decade high interest rates, deflation in China, a lingering regional banking crisis, and everything else the critics are throwing at this market, but none of it is sticking.

Quite simply, if this market was going to break down because of any of these well-known problems, it would have happened by now.

Say what you want about the market’s stubbornly optimistic mood, but nothing the critics say is changing it. Rather than fight the tide, smart money is along for the ride.

Without a doubt, the index slipped 150 points from recent highs. But that’s a good thing! A) Everyone knows the market moves in waves. And B) a little cooling off is good for the long-term sustainability of a bull market.

We can argue over whether 150 points and a couple of weeks is enough to reset a multi-month rally. But at this point, anyone claiming we are on the verge of the next big crash is simply not paying attention. If this market was going to crash on well-known headlines, it would have happened many months ago.

If the market is ignoring these things, smart money is ignoring them too. To do anything else means giving money away, and only stubborn fools do that.

Monday’s bounce was buyable with a stop near Friday’s lows. Start small, get in early, keep a nearby stop, and only add to a trade that’s working. If the selling resumes later this week, no big deal, pull the plug at our stops and try again next time. It really is that simple.

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Aug 11

Why this week’s red closes are actually bullish

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 spent most of Friday bouncing around just under breakeven before finishing the session -0.1% in the red.

While red is red, Friday’s price action wasn’t all that bad. The index opened at one-month lows Friday morning, but within a handful of minutes, those sellers disappeared and prices bounced off of those early lows, even spending a portion of the day in the green.

Most noteworthy is the initial push to fresh lows didn’t trigger a follow-on wave of selling. In fact, it was quite the opposite, with buyers taking advantage of those discounts as they pushed the index above those early lows.

As I’ve written previously, the index’s wedging price action lower can actually be bullish. After countless attempts, the best bears can do is knock a few points off of the market at a time. If there was real downside potential here, these five and ten-point violations would spiral into 50 and 100-point losses within hours.

The fact so few owners are interested in selling each day’s successive new low suggests we are on the verge of running out of supply and bouncing. Quite simply, if we were going to crash, it should have happened by now.

To be clear, few things shatter confidence like tumbling prices, so the longer we hold near the lows, the more vulnerable we are. But as long as each fresh low keeps being met with indifference, the market is actually setting up for a bounce despite all the red closes we’ve seen over the last two weeks.

As I wrote on Thursday:

As crazy as it sounds, I will be happy to buy a bounce off of 4,450 Friday

That’s is exactly what I did. Start small, get in early, and keep a nearby stop.

This trade might not work, but I liked the way it set up, and by starting small, getting in early, and keeping a nearby stop, my risk is low. If prices fall on Monday, it is no big deal. I take my lump and get ready for the next trade. But if it works, I add more and lift my stops.

It really is that simple.

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Aug 10

The uptrend is not broken yet, but we are in dangerous territory

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 finished Thursday’s session essentially unchanged, but anyone who only saw that flat close would have no idea of the wild ride the market took us on.

Before the opening, we got the latest CPI data that showed inflation trucking along at a 3.2% rate in July. Not good, but also not bad. In fact, this initially appeared to be the Goldilox number many investors hoped for, and prices surged more than 60 points shortly after the open. So far, so good. Unfortunately, the market had other plans.

Rather than attract a follow-on wave of buying, big money started selling the early strength until it was all gone, and we finished the day right back where we started.

While we should resist the urge to get overly pessimistic following a session that closed flat, it is hard to find much good to say about Thursday’s price action.

This was the third time in recent weeks the market took a strong open and fumbled it into a disappointing close. Remember, how we close matters far more than how we start. And by that measure, it is hard to get excited about the market’s mood. We’ve passed up multiple opportunities to bounce back to the highs because the sellers keep taking over.

I’m not going to give up on this market just yet because trends are far more likely to continue than reverse, but we can only give it so many free passes before we have to take a far more critical look. 4,450 has been acting as support this week and the 50dma is quickly catching up. Stay above these key technical levels and smart money is still giving the uptrend the benefit of the doubt. But fall under these levels and all bets are off.

As crazy as it sounds, I will be happy to buy a bounce off of 4,450 Friday, but I will start small and keep a nearby stop because if the selling returns, it will get ugly and we shouldn’t expect 4,450 to save us again.

On the other hand, if a violation of 4,450 turns devolves into a waterfall selloff, that becomes a nice short entry with a stop just above Thursday’s close.

The market is at a tipping point and about to break strongly in one direction or the other. While bulls and bears are busy arguing over who is right, I’m waiting for the market to reveal its hand so I can jump aboard the next move. As long as I’m making money, it doesn’t matter to me who is right.

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