Aug 24

Why smart money was not surprised by Thursday’s aggressive selloff

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 opened Thursday morning above 4,450 as investors cheered NVDA’s AI-fueled earnings results. Unfortunately, the enthusiasm was short-lived. Not only did the index give back all of those opening gains, but it lost all of Wednesday’s pop, too.

Rising interest rates and the index running into overhead resistance at 4,450 and the 50dma were too much for the index to handle. Once the cracks started showing, skittish owners scrambled for the exits.

Lucky for us, running into resistance at these key technical levels doesn’t surprise regular readers. As I wrote in Wednesday’s free post titled: “Why smart money is already eyeing the exits”

Capturing a big portion of a 100-point move in a 3x ETF is real money! That’s why we are already shifting our mindset from offense to defense. Start looking for an opportunity to harvest profits. 4,450 is coming up quickly, which will bring prior support/resistance and the 50dma into play. At the very least, these levels will be a minor speed bump. At worst, we could hit hour heads and tumble back to the lows, so we need to be watching how the market behaves at these levels over the next couple of days.

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I will be honest; I was fairly certain I was collecting profits too soon when I pulled the plug Wednesday afternoon, and I never would have guessed the index would tumble as aggressively as it did on Thursday. But at the same time, I’ve been doing this long enough that nothing surprises me, and that’s why I was happy to sell “too early” Wednesday afternoon when I had a nice pile of profits.

This is a choppy market, and if we’re not taking worthwhile profits when we have them, the market will take all of those profits back.

As for what comes next, last Friday’s bounce is still alive, even if it is on life support. If we trade well Friday afternoon, Thursday’s selling will be nothing more than the herd getting spooked and panic selling. On the other hand, if the index falls under Friday’s lows, anything is possible. Lucky for us, we pulled the plug long before that can happen.

Buy a nice bounce on Friday and sell a continuation of Thursday’s selloff. As jumpy as traders are, something is going to happen, and all we need to do is hop on and enjoy the ride.

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Aug 23

Why smart money is already eyeing the exits

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

What a difference a day makes. Tuesday’s second thoughts were smashed by Wednesday’s 1.1% rally that surged through 4,400 and kept going.

As I wrote in Tuesday’s free analysis:

Keep holding Friday’s purchases with stops already moved up to at least our entry points. If the rebound continues, we let the profits roll in. If the selling resumes, we get out near our entry points and try again next time. Lots of upside and very little downside, what’s not to like about this trade?

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The market loves to make us second-guess our trades. If it wasn’t trying to get us to abandon our positions, it wouldn’t be doing its job. And as we all know, the market is very, very good at its job. But at this point, routine second-guessing is all that last week’s selloff appears to be. Headlines remain stable, and this rebound is simply the realization that last week’s Chinese fears were overblown, at least as far as U.S. equities go.

Capturing a big portion of a 100-point move in a 3x ETF is real money! That’s why we are already shifting our mindset from offense to defense. Start looking for an opportunity to harvest profits. 4,450 is coming up quickly, which will bring prior support/resistance and the 50dma into play. At the very least, these levels will be a minor speed bump. At worst, we could hit hour heads and tumble back to the lows, so we need to be watching how the market behaves at these levels over the next couple of days.

Remember, taking profits too early is always better than holding too long and letting all of these profits escape. Just because we lifted our stops above our entry points doesn’t mean we should let the index fall back to our stops before locking in profits. And remember, buying and selling are not binary decisions. We can always take some profits and let the remaining portion of our position ride, hedging our bets by taking the best from both approaches.

Keep holding, lifting stops, and start moving toward the exits.

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Aug 22

Why smart money is buying this bounce

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 gave up -0.3% on Tuesday after starting the session up a respectable 0.4%

Nothing much happened in the headlines, and this continues to be a sentiment based trade echoing last week’s Chinese rate cut.

As I said last week, it’s been forever since China mattered to U.S. stocks, and I don’t think that is going to change here. Instead, the market cooled off for no other reason then it needed to cool off, and it didn’t really matter what the headlines were.

Since there isn’t much bite to last week’s headlines, it won’t require a massive capitulation to reverse itself and pull out of this tumble. Odds are decent Friday could have been the worst of this latest wave of selling.

Luck for readers, we were ready for it. As I wrote on Friday:

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.

We will learn a lot about the market’s mood over the next three sessions. That’s when either the buyers or the sellers run out of ammunition and the market moves in the opposite direction. A strong performance in the back half of the week and the bounce is still on. Fall back to the lows and bears are still in c0ontrol. It really is that simple.

At this point, the bounce is still alive, and I’m giving it the benefit of the doubt until it proves me wrong.

Keep holding Friday’s purchases with stops already moved up to at least our entry points. If the rebound continues, we let the profits roll in. If the selling resumes, we get out near our entry points and try again next time. Lots of upside and very little downside, what’s not to like about this trade?

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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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