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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May 11

Why the trend is still higher

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday’s session took the S&P 500 on another wild ride as steep opening losses bounced off of those early lows. While the index finished down -0.2%, that was actually a fairly robust ending to a day that traded as low as -0.7%.

As I’ve been saying for a while, this is a choppy sideways market and it is handing these whipsaws out in spades. One day’s up becomes the next day’s down.

But if we zoom the chart out and look at the daily and weekly patterns, the market is actually trading well with multiple bounces off of 4,050 support.

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.

It is a worrying sign if the market is refusing to rally on good news, but the sentiment is overwhelmingly bearish as trader chatter continues to obsess over inflation, interest rates, tight employment, bank failures, and a looming recession.

There is a popular saying in the market that stocks climb a wall of worry, and the indexes trading near multi-year highs is a classic example of that.

For all the excuses the market has to go down, it keeps going up. Rather than argue with the market, follow its lead.

Until something changes, keep buying the bounces. At this point, it is only a matter of time before we are testing 4,200 resistance and even poking our heads above this key level.

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May 10

How smart money handled Wednesday’s wild ride

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Wednesday’s session 0.4% higher after inflation fell to 4.9% and this key metric is now at the lowest level in two years.

While the above statement makes it seem like Wednesday was a perfectly reasonable session, lift the hood and you see it was anything but. An 0.8% opening gain disintegrated into a 0.5% loss before bouncing nearly 1% to finish up 0.4%.

Curbing inflation is critical for the Fed and the economy, so obviously a lot of investors were paying attention. The result fell in the middle of the road, not too hot and not too cool, but that didn’t stop impulsive traders from overreacting to it.

But this impulsive behavior isn’t new. This is a volatile market and traders have been overreacting to headlines and price action for a long time.

For as wild as the ride was, Wednesday’s late rebound confirms this market is still on solid ground and that 4,200 is still the target. But as is usually the case, getting there is anything but a smooth ride.

As someone positioned for the bounce up to 4,200, the midday tumble was disappointing and it even convinced me to lock in some of Friday’s profits proactively. But just because I sell a position doesn’t mean I’m giving up on it. As easy as it is to buy back in, we should never be afraid of getting defensive when something doesn’t feel right.

While we can’t jump every time we see our shadow, there are instances like Wednesday when the market does something unexpected. As much as I liked Friday’s rebound, I’m not willing to ride this position back into the dirt and I always have a backup plan in case things go wrong.

But just as important as getting out is being willing to get back in after we recognize the weakness was a false alarm. Sometimes we get lucky and the false alarm moves far enough that we can buy back in at even lower prices. Other times, like Wednesday, the whipsaw is so compressed that we are lucky to get back in near where we got out.

It is a hassle to sell and then buy back a few hours later, it sure beats allowing a profitable position to turn into a loser.

Wednesday was a wild session, but the refusal to break down means the near-term trend is still higher.

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May 09

A market that refuses to go down will eventually go up

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 slipped half a percent Tuesday as it continues digesting Friday’s big gains.

While it is more fun to watch the index stack big back-to-back gains, trading is rarely that easy. But as long as the gains are bigger than the losses, the bulls are still in control.

The two near-term points to watch are Monday’s highs and Friday’s lows. Break through either of these and prices will keep going in that direction. On the upside, 4,200 is easily within reach. On the downside, 4k and the 200dma loom large.

Which will it be? The answer you get largely depends on the speaker’s bias. But for those of us without a bias, the market is trading well right now and that can’t be ignored. Prices bounced twice off of 4,050. If this market was as fragile and vulnerable as the critics claim, the selling would have accelerated, not dried up and bounced.

Minor red days like Tuesday are a normal and healthy part of every move higher. Two steps forward, one step back. Until proven otherwise, we continue giving this market the benefit of the doubt.

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May 08

Why Monday’s boring price action is bullish

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Monday’s session up 0.1%. While it is hard to get excited about such small gains, boring markets are bullish, especially ones following moves as big as Friday’s 1.9% rebound.

Stocks retreat from overbought levels quickly, so the longer we hold Friday’s gains, the more real they become.

This remains a choppy market, and we should expect lots of back-and-forth, but at the same time, something that refuses to go down will eventually go up. The fact we keep holding near 4,200 resistance means we will eventually hit and even exceed this widely followed level soon.

From Friday evening’s free post:

Friday gave us the bounce we’ve been waiting for, and there isn’t much to do other than keep holding, adding more, and lifting our stops. We will be locking in profits soon, but we still have upside left, and it is worth holding a little longer.

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Monday’s price action didn’t change anything. Keep holding Friday’s rebound and make sure our stops are at least as high as our entry points, making this a low-risk trade.

Slow is boring, but I don’t mind boring when it is profitable.

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