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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
On Monday the S&P 500 retreated 1.3% and gave back a big chunk of last week’s gains.
Easy come easy go. But this shouldn’t surprise readers because we knew something like this was coming. As I wrote last Friday:
Markets move in waves and after a nice bit of up, it is time to get ready for the next bit of down. It’s been a nice run since the December lows and that means we are sitting on a pile of profits. But rather than get greedy, this is when we need to shift to a defensive mindset. There are few things more humbling than watching a leak in our bucket rob us of all of these hard-earned profits.
Remember, we only make money when we sell our winners. As easy as it is to buy back in, there is no reason to stubbornly hold on to a winning position as it moves away from us.
Now, to be clear, I am in no way calling this a top. But the risk/reward has shifted against us after 300 points of upside has been realized and the air underneath our feet gets higher by the day. Markets move in waves, that’s what they do. And we shouldn’t be surprised when the next routine and healthy wave lower arrives.
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There is no reason to overreact to one day of selling, but it was fairly obvious the index was going to run into some resistance near the November and December highs. This is as basic as technical analysis gets and it shouldn’t surprise anyone when swing traders start locking in profits at these obvious technical levels.
As I wrote on Friday, I am in no way bearish and actually think this rebound still has room to go over the medium and longer term. But I also recognize markets move in waves. As I wrote on Friday, we only make money when we sell our winners, so challenging 4,100 resistance looked like a really good place to start locking in some very worthwhile profits.
Now, maybe prices don’t fall any further than Monday’s lows and it is all uphill from here. But as easy as it is to buy back in, I would rather lock in January’s worthwhile profits when I have them rather than risk letting them get away by getting greedy and holding too long.
Maybe I end up buying the next bounce Tuesday morning. But if that’s the case, no harm no foul. But maybe it takes a few more days for this down wave to bottom, in which case I will be getting in at even better prices. But no matter what happens next, the profits from my last trade are guaranteed and I will be in a great position to jump aboard the next trade no matter where and when it starts.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 added a modest 0.2% Friday after challenging the highest levels in months earlier in the session.
I’m not sure where all of the bears have gone, but everyone crowing about a larger breakdown back in December has suspiciously gone MIA. But January’s strength shouldn’t surprise anyone. As I wrote back in December before the Christmas break:
The S&P 500 crashed more than 100 points Thursday morning [December 22nd] after someone yelled “Fire” and impulsive traders climbed over each other trying to get out.
What was the catalyst for Thursday’s selling? Easy, there wasn’t one. This panic was nothing more than impulsive traders getting spooked by their own shadows and then the herd following them out the door.
But this isn’t a surprise. This was the second to last trading session before the Christmas holiday and institutional investors are already at their vacation chalets. Without big money’s guiding hand, there was no one to keep impulsive retail traders in check, and like irresponsible teenagers given too much responsibility, these retail traders made poor decisions.
Lucky for us, these retail traders have small accounts and quickly ran out of things to sell. By early afternoon, supply dried up and the index rebounded 60 points from those oversold levels, easily reclaiming 3,800 support.
As Forest Gump famously said, “Stupid is as stupid does.” And on Thursday, retail traders proved why they have such a poor reputation.
Well, here we are a little more than a month later and the market is up 300 points and challenging recent highs. Not bad for the baby that was almost thrown out with December’s bathwater.
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Of course, now we find ourselves on the other side of the pendulum. In December, we were challenging multi-month lows. Now we find ourselves challenging multi-month highs.
Did anything material change over the last several weeks other than the market’s price levels? No, not really. Inflation is moderating, just like it was in December. The economy is cooling, but only slightly and is still growing at a good clip, just like in December. And the Fed is poised to raise interest rates next week, but at a slower clip than previous raises, also like December.
So by a lot of measures, January’s rallied on “less bad than feared.” Unfortunately, this new-found half-full interpretation of headlines means we have a lot less room left to rally if headlines remain the same. At some point, “less bad than feared” is not enough and we actually need “better than expected” to keep pushing to fresh highs.
Will next week bring us the “better than expected” outlook from the Fed that we need to keep rallying? Or will the Fed rain on this parade like they have every other time the market got a little too far ahead of itself during this tightening cycle?
Markets move in waves and after a nice bit of up, it is time to get ready for the next bit of down. It’s been a nice run since the December lows and that means we are sitting on a pile of profits. But rather than get greedy, this is when we need to shift to a defensive mindset. There are few things more humbling than watching a leak in our bucket rob us of all of these hard-earned profits.
Remember, we only make money when we sell our winners. As easy as it is to buy back in, there is no reason to stubbornly hold on to a winning position as it moves away from us.
Now, to be clear, I am in no way calling this a top. But the risk/reward has shifted against us after 300 points of upside has been realized and the air underneath our feet gets higher by the day. Markets move in waves, that’s what they do. And we shouldn’t be surprised when the next routine and healthy wave lower arrives.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Unsurprisingly, the S&P 500 tumbled back under 4k support Wednesday morning.
While the market looked good Tuesday, as I’ve been writing over the last few weeks, the market is currently in a back-and-forth mood and that means every bit of up is followed by a bit of down. That’s why I told readers I was proactively pulling some profits off the table Monday and again on Tuesday:
At points like this, it makes sense to lock in some of our really nice profits because we don’t make money until we sell our winners. But at the same time, the market is still behaving well, so it is equally worth holding on to some of our positions too. With one foot in and one foot out of the market, we will be in good shape no matter what happens next.
If I had known Wednesday’s open would crash through 4k support, I would have sold everything, but tradng is a game of probabilities and the odds of a continuation versus a retest of support were 50/50. In cases like this, it is good to have some money in the market and some profits safely on the sidelines, that way no matter what happens, part of my trade is in the perfect position.
Wednesday morning it turned out that the part I sold was the better half, but it just as easily could have been the part I was still holding.
As for the rest of my trade, Wednesday morning’s givebacks undercut my stops, so I locked in those profits too. But rather than give up on this trade, as soon as I get out, I start looking for the next bounce, which is a good thing because it arrived an hour later.
As it turned out, most owners shrugged at Wednesday morning’s selling and kept holding. That reluctance to sell put a floor under prices and this turned into yet another piece of evidence that this market wants to go higher, not lower.
Red days are a healthy and normal part of every move higher, and so far I don’t see anything in this test of 4k support that says this is anything other than one of those normal and healthy step-backs on our way higher.
While holding through these gyrations would be easier than trying to trade around them, if we don’t pull the plug when prices fall, that means we are trading without a safety net. And while that might turn out okay most of the time, it only takes a few times of getting it wrong to erase all of those profits we made on the way up.
As much as I don’t like darting in and out of the market, it is a small price to pay for the safety of knowing I will never be caught on the wrong side of a big move. And many times it works out like it did on Wednesday where I end up getting back in at lower prices than where I sold on Monday and Tuesday. The difference doesn’t add up to a lot of money, but getting paid to reduce my risk is about as good of a deal as it gets.
I bought Wednesday morning’s bounce with a stop under the mid-morning lows. I added more around lunchtime, and even more when the index got back above 4k.
Act well Thursday and all of my stops will get moved above my entry points, making this a free trade. Not bad for a market that by most accounts should be going down. Good thing I trade the market and not other people’s opinions.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 retreated half a percent Tuesday morning before recovering almost all of those early losses, finishing the session down a trivial amount.
Stocks retreat quickly from unsustainable levels, so the longer we hold Monday’s 4k breakout, the more real it becomes. We tested support early Tuesday and the market passed that first exam with flying colors.
While one or two days don’t make a breakout, every sustained breakout starts with those first two days. At this point, headlines remain benign and this continues the less-bad-than-feared rebound from the October lows. As always, everything could get flipped on its head at a moment’s notice, but so far things look good.
Greedy when other people are fearful and fearful when other people are greedy. That simple strategy works more often than not, and now that the market is at multi-month highs, we have to tread carefully.
4k is an important level and so far it is holding steady. But as I wrote previously, this market is more choppy and sideways than up or down. And that means even if the trend higher remains intact, we should expect lots of back and forth along the way.
At points like this, it makes sense to lock in some of our really nice profits because we don’t make money until we sell our winners. But at the same time, the market is still behaving well, so it is equally worth holding on to some of our positions too.
With one foot in and one foot out of the market, we will be in good shape no matter what happens next. If the market gets rejected 4k yet again, we pull the plug at our recently lifted trailing stops. But on the other hand, if the breakout continues, we benefit through what we are still holding and then we put he accelerator down by buying back what we sold.
This is the highly enviable “no lose” position. The only reason we are here is because we had the courage to buy when everyone else was busy forecasting the market’s imminent demise.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 smashed through 4k resistance on Monday and powered its way to fresh 2023 highs. That’s a long way from last week’s fearful selling that challenged 3,900 support.
Just as last week’s tumble was not fueled by meaningful headlines, this latest rebound didn’t need a fundamental justification to blow up in bears’ faces either. If we can fall on no news, then we can also rally on no news.
This continues to be a sentiment-driven market and sentiment by itself can only push prices so far, meaning these swings are prone to snapping back, which is exactly what happened on Friday and Monday.
Stocks can’t stay in one place, and that means wobbling back and forth for no real reason at all. Last week it was down, this week it is back up. But this shouldn’t surprise readers of this blog, as I wrote last Wednesday:
I’m itching to get back in and will be looking for a bounce to buy Thursday morning or afternoon. And if not Thursday, then Friday. A bounce is coming, the only question is when.
and Thursday:
[N]othing has changed and that means this is most likely just another routine buyable dip on our way higher. At least that’s how I’m approaching it
Here we are, four days later and 120 points higher.
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As for what comes next, the 2023 up-trend is still intact, and that means higher prices over the medium term. Another wave of selling and profit-taking could push us back to 4k, but at this point, the market wants to go up, not down, so any near-term weakness is just another buying opportunity.
Monday’s nice pop shows why smart money was buying when everyone else was selling for no good reason. As independent traders, we don’t buy dips, but as soon as prices find a bottom and start bouncing, it is full speed ahead.
But now that the market is 120 points above Friday’s lows, we have to be more careful. We buy early and we get out early. That means it is already time to start thinking about an exit.
Move trailing stops up and even consider locking in some profits proactively. At this point, there is more risk underneath us than reward above us. Plan your next trades accordingly.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
What a difference a day makes. After falling for three sessions in a row, the S&P 500 came roaring back Friday, adding an impressive 1.9%.
As much as the financial press loves to attribute every zig and zag to some major fundamental catalyst, the truth is the market moved this week for no other reason than it can’t stand still.
The index ran up to 4k last week and that was all the excuse savvy swing traders needed to pull the ripcord and lock in some really nice profits. Their selling triggered reactive waves of follow-on selling as the crowd started to worry that 4k resistance, the 200dma, and 2022’s downtrend line signaled a major top and the market was on the verge of the next big crash.
But as is always the case, when we don’t have a significant and unexpected headline driving the market, the wave of selling exhausted itself and prices bounced.
Lucky for readers of this free blog, this is the exact setup I we were looking for. As I wrote Thursday evening:
[H]eadlines haven’t changed in a meaningful way and this retreat looks like little more than a routine pullback from overhead resistance. While down is down, routine reactions to technical levels rarely lead to big changes in the market’s direction. Think of these as the normal step back that follows every two steps forward…[N]othing has changed and that means this is most likely just another routine buyable dip on our way higher. At least that’s how I’m approaching it until proven otherwise.
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Instead of proving me wrong, the market proved me right in a big way on Friday by rallying nearly straight up. So much for all the fear-mongering and market-bashing going on this week.
But before we pat ourselves on the back too hard, the problem is if this week’s selloff didn’t have the strength to go very far, then we shouldn’t expect Friday’s rebound to carry us very far either. Expect this wave of buying to stall just as quickly as this week’s selling did.
Sometimes we buy the breakout and sell the breakdown. Other times we do the exact opposite. This happens to be one of those opposite times. The market isn’t poised for a big directional move and that means we trade against these breakouts and the breakdowns.
As good as Friday looked, expect the buying to stall over the next few sessions and it wouldn’t be a surprise to see the index retest 3,900 support over the next few weeks.
For savvy traders, this means taking profits when we have them. Everyone that bought Friday morning, move up our trailing stops and even consider locking in some profits proactively because we should be prepared for this choppiness to continue.
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What’s a good trade worth to you?
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