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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 continues probing recent lows and is testing the 200dma.
Headlines haven’t changed in a meaningful way since January, but the market’s mood couldn’t be more different. The half-full outlook that 2023 started with has given way to this recent wave of hand-wringing. Is this the result of a fundamental change in the market’s outlook, or just part of the market’s routine mood swings? Good question.
The market rallied 700 points from the October lows, so this 250-point retreat from recent highs shouldn’t surprise anyone. Two steps forward, one step back has always been the name of the game, and at this point, this latest slip from recent highs doesn’t look any more severe than one of those routine steps back.
But as long as we continue testing the lows, we are always at risk of making new lows. But as long as most owners keep shrugging and holding, any selling will be contained. If this crop of owners was skittish and prone to impulsive selling, we would have seen the bottom fall out a long time ago.
I’d love to see a buyable rebound from these levels, but the market is in charge and it dictates the pace. If we need to consolidate for a few more weeks, then I have no choice but to keep waiting and watching.
I will be there to buy the next bounce and the one after that. But because I know this is a low-energy environment, I will be quick to take profits because it won’t be long before those profits are gone.
A bigger directional move is coming, but it is still a way out. Until then, keep taking profits early and often.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The selling took a break on Monday as the S&P 500 added a modest 0.3%.
While green is green, the index was far higher in the first hour of the session. Unfortunately, potential buyers remain skittish given the recent price action and most are adopting a wait-and-see attitude.
While it is more fun to see prices race higher, buyers’ reluctance is actually a good sign if a person believes in buying fear and selling greed. At this point, the only ones feeling greedy are the bears. Everyone else is filled with trepidation as they wait for the next shoe to drop.
But as far as contrarian trading signals go, the market’s pessimism suggests this is the time to be looking for buying opportunities. The last time the AAII sentiment survey had this few bulls was back in early January, which as it turned out, was a great time to buy stocks because the index rallied nearly 10% over the next few weeks.
Are we on the verge of the next turning point? As everyone knows, there are no guarantees in the market, but the odds favor a near-term bounce and that’s what I’m getting ready for.
Buying bounces is never easy because there are always false positives, but if we start small, get in early, and keep a nearby stop, the cost of being wrong is small. And if we scale up our position when the real rebound finally arrives, the rewards will dwarf the small losses we take in the meantime.
Fortune favors the bold and savvy traders are getting greedy when everyone else is scared.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Friday’s S&P 500 session started off with a thud after an inflation data point went a tenth in the wrong direction. That sent the index tumbling 1.5% shortly after the open, but rather devolve into a mad dash for the exits, few owners decided to join in the selling and prices never retreated under those early.
No matter how bad the headlines get, there always comes a point where we run out of fearful sellers. What started four weeks ago as some routine profit-taking near multi-month highs has since devolved into this handwringing and talk of crashing to fresh bear market lows.
But as I’ve written many times before, every routine step back always feels like the world is ending. If it didn’t, no one would sell and prices wouldn’t fall. So by rule, people have to be scared or else they wouldn’t give up on their favorite stocks.
So who’s right here? While I would much rather be experiencing real victories instead of moral victories, Friday’s absence of follow-on selling was actually a good sign despite the red finish. An inflation reading ticked up and most investors kept their cool. That means it will take something even bigger and scarier to send these confident owners running for cover.
I know I sound like a broken record, but at this point, I don’t see anything in the headlines or price action that tells me this market is headed back to last year’s lows.
Stocks go up and stocks go down, that’s what they do. At this stage, this still looks like routine consolidation. Sure, it fell a little further than it could have, but stocks rallied 700 points from the October lows, so should we really be overreacting to a 250-point giveback?
Two steps forward, one step back. If that’s all this is, that means we are coming up on a nice buying opportunity. In a few weeks, most people will struggle to remember what they were so afraid of.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Thursday’s session was as bipolar as it gets for the S&P 500.
In a very disappointing fashion, the index turned respectable opening gains into fresh multi-month lows by lunchtime. That’s not the price action you expect from a healthy market. But just when all hope was lost, or more specifically, because all hope was lost, supply dried up and prices bounced decisively into the close, finishing near the intraday highs.
As bad as the morning looked, the afternoon’s rebound was doubly impressive. Remember, it’s not how we start, but how we finish that matters most. What very easily could have triggered another big wave of selling reversed course in a beautiful capitulation bottom.
This was the trading signal we’ve been waiting for and hopefully you didn’t miss it.
As I’ve been writing for a while, I don’t believe this latest pullback from the highs is the start of something more insidious. Stocks go up and stocks go down, that’s what they do. And no one should be surprised when stocks pull back from multi-month highs and consolidate those gains. This is very normal and healthy behavior.
But no one claimed traders have to be rational. Give the market a few down days and all of a sudden everyone is predicting the next big crash. Sure, the market failed to bounce at 4,100 support and even undercut 4k, but that is par for the course for a market that rallied four hundred points in little more than a month. Two steps forward, one step back. Everyone knows that’s how this game works, yet they always forget that simple truth in the heat of battle.
I really liked Thursday afternoon’s bounce. This was the bounce I was looking for and I bought it with open arms. Without a doubt, the selling could return Friday, but my stops near Thursday’s midday lows will keep me safe. And if I get dumped out, that’s okay too. I move to the sidelines and wait for the next buying opportunity, something that could arrive as soon as Friday afternoon.
Everyone wants stocks to pull back so they can buy more, but every time the market gods answer their prayers, most of these people are too scared to buy. Don’t be the average trader. Have a trading plan and stick to it. The hardest trades to make often turn into our biggest winners.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday turned into another back-and-forth session for the S&P 500 as the market digested the minutes from the latest Fed meeting. The index spent most of the session bouncing between small gains and losses before ultimately closing down a fairly trivial 0.15%.
While the Fed’s meeting minutes were responsible for triggering a late wave of selling, the modest size of the givebacks isn’t all that noteworthy. Stock crashes are breathtakingly quick, so giving back a handful of points in the final hours of the session isn’t that big of a deal. This bear market has seen more than its fair share of shocking headlines that trigged gigantic waves of panic selling that sent stocks tumbling 3%. Wednesday’s 0.15% loss was about as far away from that as you can get.
While it is more fun to watch stocks climb higher, everyone knows down days are a normal and healthy part of every market. And more than that, this latest two hundred points retreat from recent highs has changed the risk/reward.
Hindsight being 202/20, it’s obvious now that 4,200 was too high and it was time for a cooling off. More useful would be knowing this back when stocks were challenging 4,200 resistance. Lucky for readers of this blog, that is exactly what I did on February 2nd when the market peaked at multi-month highs.
Bears are quickly becoming an endangered species, but as nimble and agnostic traders, we have to get concerned when one side accumulates too much power because it often ends in a reversal in the other direction. Now, to be clear, I’m not picking tops, but 700 points above the October lows and we have to be aware that a huge portion of the near-term upside has already been realized.
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And wouldn’t you know it, here we are a few weeks later and bulls are the ones that have become an endangered species. And so continues the swinging pendulum of sentiment. But just as it was unwise to be chasing the market when everyone was bullish back near multi-month highs, it is just as risky to be overly bearish near recent lows.
Stocks move up and down, that’s what they do. Opportunistic traders take advantage of these price swings. Foolish traders don’t learn from their mistakes and keep drawing never-ending trend lines on their charts.
Can stocks keep falling? Absolutely, but is that the most likely outcome? If there was as much fear and uncertainty as the bears claim, prices would be falling a lot more than 0.15%.
Until proven otherwise, I will continue trading against these periodic swings, not betting on their continuation to extreme levels.
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