May 18

Another profitable mistake

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 crashed 4% Wednesday in the biggest loss since 2020.

The weekly losses were partially offset by Tuesday’s nice 2% pop, but no matter how we try to rationalize it, -4% is a horrific day any way you cut it.

As most readers know, I bought last Thursday’s late bounce and that trade was working well enough that I was able to lift my stops above my entry points this week. And good thing I did because that allowed me to lock in a modest profit Wednesday morning before the selling really got carried away.

While no one is getting rich arbitraging these small swings, the good news is I could be wrong about the bounce but still make money on the trade. It is hard to beat that risk/reward! If I’m right, I make a big pile of money. If I’m wrong, I make a small pile of money. I will take those trades every day of the week!

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Now, it doesn’t always work out this way, but for people that are willing to jump aboard these bounces early, it happens more often than you think.

Now, compare my modestly profitable trade to the more conventional approach of waiting for confirmation before buying. Those people bought Tuesday’s 2% bounce, and unfortunately, almost every single one of them got dumped out for a loss Wednesday.

Getting in early is scary, but it is usually the safest time to be buying.

As for what comes next, there is no silver lining to a 4% loss. Dip buyers had the opportunity to jump aboard this latest bounce, instead, they sold it with everything they had. If this market was oversold, it would have bounced and not looked back. Instead, we were left with this bloodbath.

At this point, I can’t see any way around crashing through last week’s lows near 3,850 and making the bear market official. And from there, only one bear market over the last 70 years bottomed at -20%, meaning odds are good once we hit -20%, the selling keeps going.

I’m still waiting for that next bounce, and it is coming, but lower prices are ahead of us first. Lucky, I’m watching this carnage from the safety of the sidelines. (Aggressive traders can short this weakness but be ready to take profits quickly because these things bounce hard and fast.)

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May 17

Why buying bounces is a lot easier and safer than most people think

By Jani Ziedins | End of Day Analysis , Free CMU

Free After-Hours Analysis:

The S&P 500 added 2% Tuesday and finds itself more than 200 points above Thursday’s intraday lows. Not bad, not bad at all.

Blink and you missed a great trade. But that was always going to be the case. Stocks snap back from oversold levels quickly. Wait a day or two for confirmation and you missed a whole lot of gains. And more than just lost profits, buying this late leaves a person vulnerable to a routine intraday step back, like the 40-point retreat we saw Tuesday morning.

As risky as it feels, buying the bounce early is the safest place to jump aboard. Distilled to its core, risk is nothing more than a function of height. The higher we are, the more room we have to fall. And on the other end, the further we fall, the less room we have left to fall.

It never feels this way in the heat of the moment. Most people are most confident at the top and scared at the bottom. But savvy traders know real risk is the exact opposite of perceived risk.

Everything felt great in January, but with 20/20 hindsight, obviously, January was a terrible time to be buying and holding stocks.

Now that the index is nearly 900 points lower, everyone is terrified of stocks, but common sense tells us it is far safer to be buying stocks down here than it was back in January.

It never feels good buying stocks after big pullbacks and buying Thursday’s late bounce was anything but easy. But three sessions later and the index is dramatically higher. It’s gotten to the point where my stops are already comfortably above my entry points, making this mostly a free trade for myself.

Keep going and I make a pile of money. Retreat and I get out at my stops and collect a few bucks for my time. Not a bad way to be wrong. But the only reason this trade is working so well for me is because I had the courage to get in early.

But none of this will surprise readers of this blog. As I wrote last Thursday:

While I feel a little silly buying [Thursday’s] bounce given how many false bottoms we’ve had over the last several weeks, I did it anyway because that’s what my trading plan told me to do. I started with a small position and a stop under intraday lows.

Will Thursday’s late rebound stick? Probably not. But I buy all of the bounces because I’m not psychic and I don’t know which one will work. The only way to make sure I don’t get left behind is to buy all of them. And by starting small, getting in early, keeping a nearby stop, and only adding to a trade that is working, I can buy these bounces with very little risk.

Well, here we are a few days later and I’m sitting on a nice pile of profits.

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As for what comes next, most of the market’s failed bounces turned tail within days, so four days into this bounce and it already looks different than the ones that let us down.

There are no guarantees in the market and this one can fail at any moment too, but it looks good so far and that means I will continue giving it the benefit of doubt. Anything above 4k and we are doing well.

I’m lifting my stops and watching to see how far this rebound goes. Hopefully, you are right there with me.

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May 13

Did something change Friday? It sure feels like it

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis 

The S&P 500 finished Friday up 2.4%, the first meaningful gain in nearly two weeks and the first strong Friday close since March’s big rebound.

There were not any meaningful headlines driving Friday’s strength and instead, this is simply a routine bounce from oversold levels. Without any real meat behind this move, it could fizzle like all of the other failed bounces over the last several weeks. But as we know, markets move in waves and a bigger bounce is inevitable even if lower prices are still ahead of us. After falling 700 points over the last few weeks, even bears should be willing to admit a near-term bounce is imminent (at least the sensible bears).

Is this the start of a bigger bounce? It definitely feels like something changed, most notably the willingness to buy stocks ahead of the weekend. Rather than fear the weekend and get defensive, investors were finally willing to buy ahead of it.

But as is always the case, only time will tell and Monday’s price action will give us big clues about the market’s mood. Unfortunately, anyone waiting for Monday’s confirmation will be a couple of hundred points late to the party.

This remains a volatile market. While the risk of large swings feels scary, in reality, it actually makes this easier (and safer) to trade. That’s because once these things get going, they tend keep going. As we’ve seen over the last few weeks, violate support and the selling accelerates. But the same also applies in the other direction, once a rebound gets going, expect it to keep going as a wave of dip-buyers start chasing prices higher.

As long as we are decisive and make our moves early, it is easy to stay on the right side of a volatile market. Especially one like this that makes most of its big moves during trading hours (as opposed to large opening gaps).

I have no idea if Friday’s bounce will stick around next week, but it is acting well enough to give it the benefit of doubt. I bought Thursday afternoon’s bounce, added more Friday, and lifted all of my stops up to my entry points. Sitting on a nice profit cushion, even if this fizzles next week, I will get out near my entry points, no harm no foul.

One of these bounces is going to work, the problem is it will only happen after most people have given up. That simply means we need to be more persistent than most.

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May 12

The low-risk/high-reward trade staring us in the face. Plus a great way to play Bitcoin.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Thursday mostly where it started. While the final result sounds fairly innocuous, getting there was anything but a smooth ride. In mid-afternoon trade, the index was down as much as 2% before a late rebound came to our rescue and erased nearly all of those losses.

As has been the case for a while, not much new is going on in the headlines, ie everything that is broken has been broken for a while. Instead, traders are mostly arguing over how bad the looming US recession is going to be. And right now bears are winning.

As I wrote on Monday, if 4k failed, 3,840 was up next. Why 3,840? Because that represents a 20% pullback from recent highs and makes this officially a bear market.

Thursday’s pullback stalled at 3,858 before bouncing, but when it comes to the market, this isn’t hard science, and getting within a handful of points is close enough. At least that’s what Thursday afternoon’s dip buyers thought.

While I feel a little silly buying this bounce given how many false bottoms we’ve had over the last several weeks, I did it anyway because that’s what my trading plan told me to do. I started with a small position and a stop under intraday lows.

Will Thursday’s late rebound stick? Probably not. But I buy all of the bounces because I’m not psychic and I don’t know which one will work. The only way to make sure I don’t get left behind is to buy all of them. And by starting small, getting in early, keeping a nearby stop, and only adding to a trade that is working, I can buy these bounces with very little risk.

In fact, I’ve made more money over the last three weeks buying these quick bounces than I’ve lost. When the market gives us free trades, only a fool passes those up.

If this trade blows up Friday, I’m only on the hook for partial position and at worst, I take a small loss. But on the other hand, if this rebound takes us back to 4,300, that’s a whole lot of profits. Small losses versus large profits? Yeah, I’m taking that trade every time.

Buy Thursday’s bounce. If the index retreats in early trade Friday, I get out and wait for the next bounce. If the Thursday’s late bounce keeps going, then move my stops up and buy more.

Everyone knows markets move in waves and we’ve been going down for a while. Even bears should be willing to acknowledge we are setting up for a near-term bounce.


Did the cryptocurrency market just go pop? I don’t know. But 50% off the highs for Bitcoin is definitely not good. And unfortunately, most alt-coins wish they were only down 50%.

While I’m not a bitcoin fan, I do love bounces, and Bitcoin’s bounce back above $30k Thursday evening is interesting, especially if the equity indexes find a bottom Friday.

Start with a small position, a stop under $30k, and see where this goes. If the trade works, add more. If it doesn’t, pull the plug for a small loss.

Low-risk/high-reward? These are the trades we dream of.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AAPL $AMZN