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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 came back from the long weekend in a foul mood, shedding another 2% and finishing at the lowest levels since late January.
Half-full or half-empty? Thus far the pessimists have been dominating the market’s mood. The current line of reasoning is the economy is “too good” and that will require the Fed to be even more aggressive with its rate hikes to push the economy into a recession.
The problem with this line of thought is the Fed is not trying to push the economy into a recession. If the Fed can tame inflation without a recession, that would be the best possible outcome. But so far traders are more fixated on the half-empty side of the glass and don’t want to think about positive interpretations of recent data points.
But for all of the people calling for the indexes to tumble another 10% from here, I just don’t see it. We reached those 2022 lows when fear and uncertainty were at their peak. When we had no idea how high inflation would get, how devastating the rate hikes would be, or how bad the energy situation would get following Russia’s invasion of Ukraine.
Well, over the last year we gained a lot more clarity. Inflation is no longer spiraling out of control and has come a long way off of the summer highs near 9%. Consumers still have jobs and money to spend. And Europe is navigating the energy crisis a lot better than many envisioned. So what’s not to like?
In truth, the market’s recent slump is a lot easier to explain, stocks rallied nicely off of last year’s lows and it is simply time for one of those very normal and healthy stepbacks. Nothing more and nothing less.
Despite what the naysayers claim, we are actually navigating all of the risks surrounding us quite nicely. Inflation is coming down and the current 6% readings are exaggerated because the way rent is calculated doesn’t show the month-to-month declines in lease renewal rates.
Rather than run and hide, this is the time to be looking for the next buyable bounce. Friday’s midday bounce looked good to me and I bought a partial position, but obviously, it didn’t work. Fortunately, my trading starts small, gets in early, and kept a stop nearby. So while Friday’s bounce didn’t work, it didn’t cost me much.
In fact, Tuesday’s wave of selling is actually good for me personally because it means I will be able to make even more money buying the next bonce. And if the next bounce fails, that’s alright too, I get out and try again from even more attractive levels.
A lot of traders need to be right, lucky for me, I’m only here to make money and that makes navigating these whipsaws so much easier.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 lost another 0.3% on Friday, turning this into the second losing week in a row. (That said, the weekly loss was a very inconsequential 0.3%.)
Friday’s session kicked off very ominously by crashing under 4,100 support, a level that had been propping up the market all February long. But rather than unleash a tidal wave of reactionary selling, supply dried up and prices bounce off of 4,050.
So much for teetering on the edge of a massive breakdown. The market violated support and most owners shrugged and kept holding. And most optimistic of all, Friday’s session finished at the intraday highs.
But this contrarian price action doesn’t surprise readers of this blog, as I wrote Thursday evening:
This is the “opposite market” and the smart trade is going against conventional trading signals instead of following them. Maybe stocks open poorly Friday, but rather than jump aboard the selling bandwagon, be on the lookout for that next bounce because odds are good it will come hard and fast.
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Remember, it’s not how we start, but how we finish that matters most. And Friday was yet another session where the bears tried to break the market and failed. Sure, we finished in the red, but starting low and finishing at the intraday highs is bullish, not bearish.
Trading would be so much easier and more fun if every session ended in the green. But we know that’s impossible and down days are inevitable. But at this point, I don’t see anything in this price action that says this is anything other than a very vanilla consolidation of recent gains under 4,200 resistance.
Making money gets so much easier after we shed our bull and bear biases and trade what is in front of us. This market doesn’t want to go up and it doesn’t want to go down, so stop getting fooled by these false alarms. Until further notice, these dips are buyable and the bounces are sellable. And if we are not taking profits when we have them, the market will steal them back a few hours later.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Thursday’s session was one of those days where both bulls and bears got their butts kicked and the market proved it is still the boss.
The session started poorly for the S&P 500 after January’s PPI report showed wholesale inflation remains stubbornly resilient. That headline sent the index tumbling 1.5% shortly after the opening. But just all hope was lost and bears were feeling their most confident, supply dried up and prices bounced hard, recovering a majority of those early losses by Thursday afternoon.
This bounce shouldn’t have surprised anyone. First, the PPI data wasn’t new or unexpected and it fell in line with recent Fed, consumer, employment, and economic data. If equity owners weren’t dumping stocks following last week’s headlines, why should we think this PPI report would suddenly change their minds?
That midday bounce send bears scrambling for cover as the index recovered a majority of those opening losses. But what’s good for the goose is good for the gander. Just when bulls were starting to feel good about themselves, the market pulled the rug out from underneath them and sent stocks tumbling back to the opening lows.
Just like the early bounce, Thursday’s late retreat shouldn’t have surprised anyone either. As I’ve been writing for weeks, this is a choppy market and that means lots of back-and-forth. In fact, Wednesday evening I reiterated that sentiment when I told readers:
No matter what the bulls and bears claim, this market is not going to explode higher and it is not going to crash lower. But that’s okay for the savvy and opportunistic trader. Buy the dip, sell the bounce, and repeat as many times as the market lets us. But remember, if we are not collecting profits early and often, the market will take back all of those profits and turn our trade into a loser.
And for good measure, on Monday I said:
Keep buying the dips and selling the pops because this market is going nowhere fast. This choppiness means we need to collect profits early and often because holding a few hours too long is the difference between worthwhile profits and watching a winning trade turn into a loser.
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I could go on and on with similar statements from previous posts because we’ve been in this sideways grind for a while. Anyone trying to trade the next breakout or breakout is getting chewed up by these reversals. But that doesn’t stop bulls and bears from making the same mistakes again the next day.
No one can trade these wild whipsaws perfectly, so don’t even try. But when you have a profit, you better be taking it because odds are good it will be gone in a few hours.
As for what comes next, expect more of the same. As bad as Thursday’s close looked, Wednesday’s close looked good. And we saw how that turned out. This is the “opposite market” and the smart trade is going against conventional trading signals instead of following them.
Maybe stocks open poorly Friday, but rather than jump aboard the selling bandwagon, be on the lookout for that next bounce because odds are good it will come hard and fast.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Wednesday’s session up a modest 0.3%, but if you only looked at the finishing print, you’d miss everything the market was trying to tell us.
It’s not how you start, but how you finish that matters most. And while no one is getting excited by a 0.3% gain, the market started the session down 0.8% and finishing in the green is actually a noteworthy accomplishment.
The thing about Wednesday’s resilience is it mirrored Tuesday’s bounce back from the midday lows. Lucky for readers, everything I wrote in Tuesday evening’s blog post was fully on display during Wednesday’s session:
The reflexive selling Tuesday morning would have triggered a bigger follow-on wave of selling if this market was overbought and vulnerable. Instead, supply dried up as most equity owners shrugged and kept holding. That tells us the ground under our feet is far more solid than most people think.
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Wednesday was strike two bears, adding more proof to the idea that this market wants to go up not down. A market that refuses to go down will eventually go up and it is only a matter of time before we are challenging 4,200 support again.
That said, we don’t want to get too excited because this market is still consolidating January’s gains under 4,200 resistance. As much as I’d love to see the index explode higher, it simply doesn’t have the energy to do that right now. Instead, expect this back and forth under 4,200 to continue.
No matter what the bulls and bears claim, this market is not going to explode higher and it is not going to crash lower. But that’s okay for the savvy and opportunistic trader. Buy the dip, sell the bounce, and repeat as many times as the market lets us.
But remember, if we are not collecting profits early and often, the market will take back all of those profits and turn our trade into a loser. Don’t let that happen to you.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
As expected, Tuesday morning’s release of the latest CPI data triggered a wave of impulsive volatility as bears and bulls argued over what these latest data points mean.
But also not a surprise, the CPI result gave both camps something to crow about, meaning this half-empty/half-full news didn’t change anyone’s mind. (i.e. bulls stayed bullish and bears stayed bearish)
When people don’t change their minds, stocks tread water, which explains Tuesday’s trivial -0.03% loss.
As I explained to readers Monday evening, I didn’t expect the CPI data to trigger a meaningful move in stock prices and that’s exactly what we got:
We get another inflation reading Tuesday. Expect volatility for the first 30 minutes as impulsive traders overreact to the headlines. But after that, the market will return to what it was doing previously, which is this choppy consolidation under 4,200 before the next push higher. Unless the inflation reading is truly shocking, don’t expect it to have a lasting impact on the market.
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While the result of Tuesday’s session was a draw, tie-breakers go to the prior trend, which was consolidating recent gains under 4,200 resistance.
The reflexive selling Tuesday morning would have triggered a bigger follow-on wave of selling if this market was overbought and vulnerable. Instead, supply dried up as most equity owners shrugged and kept holding. That tells us the ground under our feet is far more solid than most people think.
If this market was going to break down, it would have happened by now. While no one is excited about a 0.0% day, it counts as a win for bulls because it shows bears still don’t have any influence.
Keep buying the dips and selling the pops because this market is going nowhere fast. This choppiness means we need to collect profits early and often because holding a few hours too long is the difference between worthwhile profits and watching a winning trade turn into a loser.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 added 1.1% Monday, continuing Friday’s bounce and putting the index back above 4,100 support.
Headlines haven’t changed in a meaningful way and that stability is allowing the market’s half-full mood to keep prices near multi-month highs.
I expected last week’s selling to stall and bounce fairly quickly because there wasn’t any real bite to last week’s selling. Which is exactly how it played out. As I wrote in Friday’s free blog post:
Friday’s session wasn’t all that bad…While no one is bragging about a 0.2% gain, bears had the perfect setup to send stocks tumbling for the third day in a row. But rather than trigger the next wave of defensive selling, supply dried up and prices bounce. As I said Thursday evening, this was the [buyable] setup I was looking for.
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While some people scoff at a 1.1% gain, make that trade in a 3x ETF and now we’re looking at a 3.3% profit in a single session. It only takes a handful of sessions like that to have a very good year.
As for what comes next, just like there wasn’t a reason for stocks to tumble last week, there isn’t a reason for them to pop this week either. As quickly as last week’s selling stalled, expect the same to happen to this week’s rebound.
This is a choppy market and that means taking profits when we have them because holding a few hours too long is the difference between collecting worthwhile profits and watching a winning trade turn into a loser.
We get another inflation reading Tuesday. Expect volatility for the first 30 minutes as impulsive traders overreact to the headlines. But after that, the market will return to what it was doing previously, which is this choppy consolidation under 4,200 before the next push higher. Unless the inflation reading is truly shocking, don’t expect it to have a lasting impact on the market.
Buy the dips, sell the bounces, and repeat as many times as the market keeps throwing us these softball pitches.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Friday was another back-and-for session for the S&P 500.
For as bad as this week looked, Friday’s session wasn’t all that bad. While we opened the day with losses, that was as bad as it got and it was all uphill from there. The index ultimately closed in the green and near the highest levels of the day. Not bad, not bad at all.
While no one is bragging about a 0.2% gain, bears had the perfect setup to send stocks tumbling for the third day in a row. But rather than trigger the next wave of defensive selling, supply dried up and prices bounce.
As I said Thursday evening, this was the setup I was looking for:
At this stage, only fools are expecting these wobbles to trigger the next big breakdown. The rest of us realize stocks spend most of the time going up and down for no real reason at all. Without a significant fundamental driver behind Thursday’s selling means I’m looking to buy the next bounce. Maybe it arrives Friday morning. Maybe Friday afternoon, or even early next week. But a bounce is coming because it always does.
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Because I arrived Friday morning with a plan to buy the next bounce, I was ready when Friday’s early weakness failed to trigger a bigger wave of defensive selling. When bears couldn’t deliver on that perfect setup, that meant they were already out of gas and it was time to start buying. I initiated a partial position and a stop under the early lows. And when the market continued to trade well in the afternoon, I added more.
To be clear, there are no guarantees in the market and the selling could resume Monday morning. In that case, my stops will keep me safe. But buying fear is never easy and it often means making a hard trade. As easy as it is to hate this latest pullback from 4,200 resistance and violation of 4,100 support, trades that start out feeling wrong often end up being right.
I have no idea what next week holds, but I saw a great buying opportunity and I jumped on it. If I get dumped out at my stops next week, no big deal, I step to the sidelines and wait for the next bounce, most likely closer to 4k support. In fact, being wrong here would actually be a better outcome for me because the further this falls now, the more money I make when it finally bounces back.
Plan your trade and trade your plan. As cliche as that sounds, there are few things more essential to trading successfully.
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What’s a good trade worth to you?
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For less than $1/day, receive actionable analysis and a trading plan every day during market hours
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