Mar 23

The obvious mistake bulls and bears keep making

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday’s +0.3% finishing print in the S&P 500 fails to convey what a wild ride we took through the session.

A huge opening rally erased all of Wednesday’s -1.7% slump as the whipsaw price action continues. But just when the bulls were the smuggest, demand dried up and the index gave back all of those early gains.

This wild price action shouldn’t surprise anyone. As I’ve been writing for a while, this is a back-and-forth market, not a directional one. Every bit of up is followed by a bit of down. As I warned readers Wednesday evening:

[I]f we are not taking profits early and often, we won’t have any profits left to take. This applies equally to both bulls and bears. This is not a directional market, this is a back-and-forth market. One day’s up turned into the next day’s down. Don’t get fooled into trading the breakout/breakdown, trade the reversal.

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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.

This market is not breaking down and it is not breaking out, so stop trading like it is. The crowd is losing a ton of money. Lucky for us, their losses can turn into our gains.

Obviously, this pattern cannot last forever, but I don’t see any hints this price action is changing. Keep buying the dips and selling the rips until the market proves otherwise. Remember, lock in worthwhile profits early and often because if you don’t, the market will hand you a pile of losses a few hours later.

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Mar 22

Should we be afraid of Wednesday’s pathetic close?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 shed 1.6% Wednesday after the Fed increased interest rates by 0.25%.

Two weeks ago the market would have cheered this 0.25% hike because at that point, many people were predicting 0.5%. But a lot can change in two weeks, namely the entire banking system falling under threat.

Because of the threat posed to banks, the Fed went ahead with this more measured 0.25% increase despite February’s hot employment report and stubborn inflation data.

But rather than cheer the Fed’s moderate step, investors got cold feet and started dumping stocks Wednesday afternoon.

Lucky for us, this giveback was not a surprise. As I wrote Tuesday afternoon following that day’s big surge higher:

Will this relief last? No, probably not. That’s why savvy bounce buyers are standing near the exits and even locking in some worthwhile profits proactively as we challenge 4k resistance.

Remember, we only make money when we sell our winners and this remains a choppy market. As I’ve been saying for a while, if we are not taking profits when we have them, then we will be taking losses a few days later.

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While I was taking profits before the Fed announcement, that wasn’t because I feared a big retreat. As bad as Wednesday’s 1.6% givebacks felt, this only brings us back to Monday’s close. That’s hardly panic material.

Sure, stocks can always fall even further, but we need a new and unexpected reason to crash to fresh lows and the Fed matching expectations is hardly new or unexpected.

Until further notice, continue trading this market as if it is rangebound. That means buying weakness and selling strength.

As I wrote Tuesday afternoon, if we are not taking profits early and often, we won’t have any profits left to take. This applies equally to both bulls and bears. This is not a directional market, this is a back-and-forth market. One day’s up turned into the next day’s down. Don’t get fooled into trading the breakout/breakdown, trade the reversal.

Wednesday’s close was ugly, but we didn’t learn anything new, so expect the selling to dry up fairly quickly. If you are short, be ready to take profits soon. If you’re in cash, that means getting ready to buy the next bounce.

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Mar 21

Is this the time to be greedy or fearful?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 popped Tuesday, adding another 1.3% to Monday’s nice gains.

As bad as the headlines seem, the best buying opportunities arrive when everyone is the most scared. As is often the case, the latest banking scare’s selling capitulated last week when headlines were their most dire and prices are now rebounding on less-bad-than-feared. We haven’t had another domino fall and investors are breathing a sigh of relief.

Will this relief last? No, probably not. That’s why savvy bounce buyers are standing near the exits and even locking in some worthwhile profits proactively as we challenge 4k resistance.

Remember, we only make money when we sell our winners and this remains a choppy market. As I’ve been saying for a while, if we are not taking profits when we have them, then we will be taking losses a few days later.

Bears that didn’t lock in short profits last week are taking losses this week and we will be saying the same thing about bulls that hold too long next week.

No doubt I will be taking profits too early, but that sure beats holding too long. Buying back in is far easier than convincing the market to go back to the levels you wish you sold at.

The Fed is meeting this week and we will have our next rate decision Wedensday’s afternoon. If the news is good, there will be plenty of time to buy back in and ride the next big wave higher. But until then, I’m happy locking in what I’ve got.

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Mar 20

Is the worst already behind us?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Monday 0.9% higher as the half-full outlook makes a comeback. While the banking crisis is far from being resolved, it isn’t spiraling out of control and this weekend’s less-bad-than-feared is enough to keep the sellers at bay.

More than simply cheering the helping hand being given to struggling banks, some investors are actually embracing this banking crisis as “bad news is good news”. This new wrinkle puts a tremendous amount of pressure on the Fed to slow rate hikes or risk turning this into a real crisis.

That said, this remains a choppy market and one day’s up is followed by the next day’s down. Monday’s bounce is a lot better than tumbling to fresh lows, but the coast is not clear and we need to remain cautious. While we might be avoiding the worst, we are awfully close to the edge and it won’t take much of a slip to send us flying off of the cliff.

Governments and big banks are propping up their struggling peers. While that has slowed the deposit withdrawals, is it enough to end this crisis of confidence? While it looks promising, only time will tell and we need to put a few more days of stability behind us. The problem with waiting for the all-clear is the good discounts will be gone by then.

I’m not happy buying this uncertainty, but the hardest trades often turn into our best trades. I’m nowhere near ready to start celebrating Monday’s small bounce, but it is working. I remain cautious and will be taking profits early and often, but I’m willing to give this bounce the benefit of doubt until it proves me wrong.

Start small, get in early, keep a nearby stop, and only add to a trade that’s working. And take those worthwhile profits when we have them because they won’t last long!

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Mar 10

I was wrong and why it didn’t cost me any money

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 shed another 1.5% Friday following a stronger-than-expected employment report.

This continues the “good is bad” theme as investors remain fixated on interest rates and continue rooting against the economy.

As I wrote Thursday evening, I actually expected the selling to capitulate and bounce Friday after the employment report:

“Sell the rumor and buy the news” happens often enough that people have given it a name. All of this week’s bloodletting actually improved the odds of a bounce on Friday. Once a nervous owner sells all of his stocks, his opinion no longer matters. So for every nervous owner that bailed out on Thursday, they lost their ability to vote on what comes next.

And more than just taking away weak owners’ votes, these worrywarts have been replaced by confident dip-buyers. If these buyers were afraid of Friday’s employment report, they wouldn’t have been jumping in Thursday afternoon. Out with the weak and in with the strong. That doesn’t sound like a bad thing to me.

Lucky for me, I don’t trade my opinion and was instead on the sidelines Friday morning, waiting for the market to tell me what it wanted to do:

Rather than guess about the employment numbers and then guess about the market’s reaction, I’ll wait for the market to tell me what it wants to do. This is one of those situations where I’d rather be a little late than a lot early.

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As it turned out, there were a lot more people waiting to sell stocks on Friday. As much as I liked Thursday’s setup, it didn’t work. That happens. If this game was easy, everyone would be rich and we know that’s not the case.

This continues to be a half-full market and no doubt dip-buyers will be scarce next week as we wait for the latest round of inflation data.

But just because stocks didn’t bounce on Friday doesn’t mean waiting for a bounce is a bad trading thesis.

Obviously, I was early, and in the stock market, early is the same thing as wrong. But at the same time, this trade could start working later next week or the week after that.

The market has a nasty habit of convincing us we are wrong moments before proving us right. I was clearly wrong on Friday, but since I was waiting for the market to make its move first, I was lucky to be wrong from the sidelines.

But if 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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