May 23

Why Bulls AND Bears keep getting this market wrong

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 tumbled -1.1% Tuesday, giving back a significant portion of last week’s big gains.

Easy come, easy go. Luckily, this reversal doesn’t surprise readers. As I wrote in last Friday’s free post when the index was pushing to multi-month highs:

This is a choppy market and if we’re not taking profits when we have them, we will be taking losses a few days later. The market is still acting well and we don’t need to run for the hills, but it definitely makes sense to peel off some profits, putting a nice chunk of change in our pocket and lowering the risk if this selling continues next week.

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And wouldn’t you know it, here we are a few days later, and anyone still holding watched a nice pile of profits slip through their fingers.

We buy when we don’t want to buy, which is exactly what I was telling readers to do last Monday before stocks popped:

Until something changes, I’m sticking with what is working and that is waiting for the index to rally up to, and through 4,200 resistance. The market is taking its time, but as I’ve been saying for a while, something that refuses to go down will eventually go up.

And we sell when we don’t want to sell, like last Friday when stocks were challenging multi-month highs.

Trading isn’t hard when we recognize what’s coming. Last week, this was a market that refused to go down, making 4,200 the next obvious target. But once we got there, it was time to switch directions because this is a choppy, indecisive market, not a directional one.

Bears betting on a breakdown last week were just as wrong as bulls this week betting on a breakout. Buy when the crowd claims stocks are on the verge of collapse and sell when the crowd is fat, dump, and happy.

This market will make a big directional move at some point, but this is not that point. We are slipping into the slower summer months, and institutional money managers are sneaking off to their summer cottages. Until they return in September, expect this choppiness and indecisiveness to continue. That means buying the dips and selling the rips for the foreseeable future.

If you are not taking profits when you have them, you won’t have profits left to take.

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May 19

Why even bulls should be taking profits near 4,200

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 started Friday’s session with nice gains, adding to Wednesday’s and Thursday’s big rallies. Unfortunately, the buying enthusiasm peaked in those early hours and the index eventually closed in the red, down a fairly modest 0.1%.

Debt ceiling negotiations broke off without plans to resume. Debt ceiling squabbles haven’t been a problem for this market thus far, but we haven’t been this high either. Higher prices mean higher expectations, which makes it easier for hopeful investors to end up disappointed.

Lucky for readers, Friday’s cooling exactly what I described in Thursday evening’s free post:

As for what comes next, momentum is still higher, but 400 points later is the wrong time to be jumping aboard this rebound. The big and easy profits came to those of us that had the courage to buy months ago.

I can see this going a little higher, but we are falling into the slower summer season and I don’t see a lot of institutional buying happing until after summer is over. That means this is the time to be taking profits, not adding new money.

We don’t need to sell everything here, but it makes sense to lift our stops and start peeling off some partial profits. It is amazing how good it feels to put some well-deserved profits in our pockets.

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Is Friday’s selling the start of the next big pullback? No, of course not. But recent gains flip the risk-reward against us. Higher prices increase the odds of a near-term step back, and that’s exactly what we got Friday.

There is no reason to read anything more serious into Friday’s price action. As expected, we finally challenged and even broke through 4,200 resistance, but now the sideways grind resumes. Friday’s cooling price action is nothing more than that.

We buy when it is hard to buy (low), and we sell when it is hard to sell (high). Follow those simple rules and we will always outperform the average trader buying when it is easy (high) and selling when it is easy (low).

Is this the start of a bigger selloff? No, probably not. But it could be, and I’m not willing to bet this week’s pile of profits on a trade with such a poor risk/reward. (The potential profits left in this move are far smaller than the risks hanging over us.)

This is a choppy market and if we’re not taking profits when we have them, we will be taking losses a few days later. The market is still acting well and we don’t need to run for the hills, but it definitely makes sense to peel off some profits, putting a nice chunk of change in our pocket and lowering the risk if this selling continues next week.

As for Monday’s session, start buying back in if the break above 4,200 resistance turns into a powerful short-squeeze. In the other direction, if the air continues coming out of this week’s rebound, the most confident and aggressive can start shorting the cooling off.

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May 18

Why cynics got this trade so wrong and what’s coming next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added another 1% Thursday and hit 4,200 for the first time since last September.

While this strength caught a lot of skeptics on the wrong side of the market, I’ve been calling for 4,200 for weeks.

Here is what I wrote back in early March when the index was probing multi-month lows:

As ugly as Thursday’s session [March 9th] looked, we can’t read too much into this price action because this wave of selling was nothing more than handwringing ahead of Friday’s [Feburary] employment report.

“Sell the rumor and buy the news” happens often enough that people have given it a name. All of this week’s bloodletting actually improved the odds of a bounce on Friday. Once a nervous owner sells all of his stocks, his opinion no longer matters. So for every nervous owner that bailed out on Thursday, they lost their ability to vote on what comes next.

And more than just taking away weak owners’ votes, these worrywarts have been replaced by confident dip-buyers. If these buyers were afraid of Friday’s employment report, they wouldn’t have been jumping in Thursday afternoon. Out with the weak and in with the strong. That doesn’t sound like a bad thing to me.

Odds are good that this week’s selling priced in a lot of bad news and anything that meets expectations, or better yet, turns out less bad than feared, will lead to a nice pop.

The market bottomed two sessions later and now we are up more than 10% from those lows. Anyone that caught this fairly obvious bounce in a 3x ETF, like I do, is sitting on a really nice pile of profits.

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Now to be clear, I’m a trader and I haven’t been holding the same trade since early March, but I’ve been buying the dips and selling the bounces the entire way because I recognized this market wanted to go higher, not lower. Trading gets a lot easier and is far more profitable when we have the direction right.

As for what comes next, momentum is still higher, but 400 points later is the wrong time to be jumping aboard this rebound. The big and easy profits came to those of us that had the courage to buy months ago.

I can see this going a little higher, but we are falling into the slower summer season and I don’t see a lot of institutional buying happing until after summer is over. That means this is the time to be taking profits, not adding new money.

We don’t need to sell everything here, but it makes sense to lift our stops and start peeling off some partial profits. It is amazing how good it feels to put some well-deserved profits in our pockets.

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May 17

The simple mistake bears keep making

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 popped 1.2% Wednesday, bouncing back from Tuesday’s mild selling as the index closed at the highest levels in over two weeks.

One day down, the next day up. I’ve been reminding readers for weeks that this is a choppy, sideways market, not one on the verge of collapse. As I wrote last week:

There have been more than enough excuses for this market to break down, yet every time the bears try, stocks bounce back in their face. A market that refuses to go down will eventually go up.

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Wednesday’s big bounce was not a surprise. If inflation, rate hikes, employment, banks, or debt ceilings were going to break this market, it would have happened by now.

Bears betting against this market are giving money away. Not that I mind, because their denial puts money in my pockets. But just because they are too stubborn to learn doesn’t mean we should allow them to scare us into following them down the drain.

I’m not expecting a big breakout anytime soon, especially since we are falling into the slower summer months, but a push to 4,200 resistance and even a modest poke above this level is in our near future. Maybe it doesn’t happen until next week or the week after, but no matter what the cynics claim, this market wants to go higher, not lower.

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May 15

What makes this market so easy to read right now

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Monday up 0.3% following another back-and-forth session.

Another day gone and not much changed. We are transitioning into the slower summer months and shouldn’t expect big fireworks. Rate hikes are paused, inflation is inching lower, employment remains robust, and the economy is slowing in a constructive, soft landing kind of way.

The debt-ceiling debate is ramping up, but in a divided government, this is standard operating procedure. Anyone expecting a deal before the deadline doesn’t understand how negotiations work.

If this is like all of the other contested debt ceiling standoffs, it will get pushed to the edge, and it will get ugly, but ultimately, something will get passed. The consequences are too great for this to end any other way. US debt got downgraded in 2011 when Republicans threatened default and the shockwaves that were created won’t be forgotten anytime soon.

Without a doubt, our politicians can screw this up, but it will get resolved eventually because there is no other choice. So from that perspective, as a trader, I would love to see stocks crash over the near term because buying irrational discounts is the easiest way to make lots of money very quickly.

At the same time, most stock owners know this too, so I doubt many will hit the panic button and sell their favorite stocks at steep discounts no matter how cantankerous this debt ceiling standoff gets.

If we could only be so lucky to see a big selloff, unfortunately, I don’t think we will be that fortunate. Until something changes, I’m sticking with what is working and that is waiting for the index to rally up to, and through 4,200 resistance. The market is taking its time, but as I’ve been saying for a while, something that refuses to go down will eventually go up.

Stocks climb a wall of worry, and so far, everything is still pointing higher.

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