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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 added 0.4% Monday, extending last week’s big run above 4,100.
These gains leave the index near the highest levels of the year, a far cry from the banking crisis lows from a couple of weeks ago.
It is obvious now that buying the overblown fear was the right call; luckily, readers were ready for it. As I wrote last month, just before the market bottomed and bounced:
[I]f the market bounces following next week’s inflation data, I will be one of the first to jump aboard that bandwagon. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.If the selling resumes and I get dumped out again for a small loss again, it happens. For every bounce that works, there will be two or three that don’t. But as long as my losses are on partial positions and my wins are with full positions, I will come out ahead in the end.
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Now, to be clear, I wasn’t predicting a 300-point rally from those lows over the next few weeks, but I did recognize that the rubber band had stretched pretty far in one direction and the potential for a reversal was high. And that’s exactly what we got.
But now that we are 300 points higher and the crowd is far more comfortable, I’m worried about the opposite.
Stocks move in waves; they always have and always will. After a nice run like that, rather than pat myself on the back for profiting from March’s reversal, I’m getting nervous that too much of a good thing can end poorly for anyone that holds too long.
Don’t get me wrong, I’m not calling this a top. Momentum is far more likely to continue than it is to reverse, but with 300 points of upside in our rearview mirror, this is the wrong time to be getting greedy. Savvy traders are taking worthwhile profits and getting ready for the next opportunity.
That said, the other critical thing is to resist the urge to fall for “too far too fast.” No doubt this latest wave of buying will end in a wave of selling, but we want to see that wave start before we jump aboard the short bandwagon. There are few ways to lose money faster than shorting “too far too fast.” This is one of those times when it is better to be a little late than a lot early.
It’s been a good run, but now is the time to lock in profits and prepare for the next trade. (Which could include catching the next wave higher if the short squeeze keeps going.)
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Unsurprisingly, the S&P 500’s choppy behavior continued on Wednesday as Tuesday’s midday slump reversed and turned into the highest close in nearly a month. A similar misleading signal came out of last week’s big -1.6% retreat that turned into this week’s big gain.
As I’ve been saying for a while, anyone trading in the direction of these breakouts/breakdowns is getting chewed up by the inevitable reversal a handful of hours later.
Savvy traders are coming to this market as opportunists, not bulls or bears. Buy (or short) the reversal and take profits quickly because anyone bragging about their profits is watching those turn into losses a day or two later.
As soon as you feel good about a position, that is a clear sign it is time to get out while the getting is still good.
No doubt the market can rally for another day or two after finally clearing 4k resistance, but Thursday and Friday will be the time to take profits, not chase prices higher.
Until further notice, this is a choppy market. That means taking profits when you have them because if you don’t, you will be taking losses a few days later.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Tuesday down little more than a tenth of a percent as the choppy, sideway trade continues.
Not much is going on in the headlines and like a kid with ants in his pants, the market can’t stop moving. But just because we’re moving doesn’t mean we are going somewhere. Every bit of up is followed by a bit of down and we continue consolidating in between 3,800 support and 4,200 resistance.
Headlines are fairly stable and that means few people are changing their minds. Nothing has convinced bulls to sell or bears to buy, which means we are stuck bouncing around current levels. No doubt this will change at some point, but it will take a significant and unexpected headline to break this stalemate. Until that happens, expect more of the same.
Until further notice, buy the bounces, sell the breakdowns, and most importantly, take profits quickly. This is the trade the market is giving us and that’s what we are stuck with. No doubt a bigger, directional move is coming, but it will take a fundamental driver to get us there.
That said, if nothing bad happens, expect the market to drift higher over the next few weeks on less-bad-than-feared relief.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 kicked off Monday morning with nice gains after nothing bad happened over the weekend. Unfortunately, that early push above 4k resistance turned back and the index gave up a big portion of those initial gains by the close.
As I’ve been saving for a while, anyone anticipating a big directional move is getting chewed up by these whipsaws. Friday’s violation of last week’s lows ended in a big bounce and Monday’s push to recent highs was turned back by 4k resistance.
Smart money is trading against these swings, not in their direction. As I wrote Friday afternoon:
Bears were right for a few minutes [Friday] morning, but if they held on much longer than that, they watched all of those profits go flying out the window. And no doubt it will be the bulls’ turn [this] week when we hit our head on 4k resistance yet again. This is the kind of market where if you are not taking profits, you will be taking losses a few hours later.
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Well, here we are Monday afternoon following a rejection by 4k resistance. If someone is surprised by these reversals, clearly they are not paying attention.
Savvy traders see the market for what it is, not what they want it to be. And that simple nuance is the difference between making money and losing money. Bulls and bears need to be right, I just want to make money and don’t care who wins. And that is making all the difference here.
As for what comes next, expect more of the same. Buy the bounce and sell the breakdown. But remember, we only make money when we sell our winners. If you are not taking profits when you have them, you will end up taking losses days, if not hours later.
Stay nimble and ignore everything coming out of bulls’ and bears’ mouths. This is a choppy trading range. Only fools are trading it like it is going somewhere.
If the index bounces above 4k resistance Tuesday or Wednesday, that is a buy signal. If the selling continues Tuesday, that is shortable. And no matter what happens, take profits early and often because if you don’t, the market will take everything back a few hours later and you will be left holding the bag.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 closed Friday up a very respectable 0.6%.
While a half percent gain is normally nothing to get excited about, this finish was actually a great outcome considering the index found itself in a -1% hole shortly after the open when investors got spooked by a run on another European bank.
Stubbornly high inflation, a tight labor market, the fastest rate hikes in a generation, and now a banking crisis. Sounds like a one-two-three-four punch and the market should be down and out for the count. But it looks like someone forgot to tell the market because it is nearly 500 points above the October lows.
As I’ve been writing for a while, this is a back-and-forth market and anyone trading the breakout or breakdown is getting killed by these reversals. As I wrote Thursday evening:
This is the kind of market where if you are not locking in worthwhile profits, you are left taking losses a few hours later. It really is that simple. Greedy bulls and bears are getting killed while savvy and opportunistic traders are printing money.
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One day’s up is turning into the next day’s down. And now it looks like that time frame has been shrunken down to hours. Bears were right for a few minutes this morning, but if they held on much longer than that, they watched all of those profits go flying out the window.
And no doubt it will be the bulls’ turn next week when we hit our head on 4k resistance yet again. This is the kind of market where if you are not taking profits, you will be taking losses a few hours later.
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If you find these posts useful, help me out by liking and sharing them!
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What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, receive actionable analysis and a trading plan every day during market hours
Follow Jani on Twitter @crackedmarket
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