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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 lost 0.8% Thursday, adding more pain to this week’s retreat from 4k resistance. Thursday’s losses leave the index a hair under 3,900, a level that provided support in late November and early December.
While it is hard to find good things to say about a three-day losing streak, the index appeared to find support at 3,900 after an early violation bounced back above this key support level in afternoon trade. The problem is a big chunk of those afternoon claw-backs disappeared by the close and the index finished in the lower third of the daily range.
As I wrote Wednesday evening, I was out of the market and looking to buy the next bounce. I bought a partial position Thursday afternoon and was fully prepared to add more if the index closed near the intraday highs. Unfortunately, the late selloff didn’t allow me to do that.
I’m still holding my initial partial position with a stop under Thursday’s intraday lows. I will add to that position if the bounce resumes Friday morning, but I will pull the plug if the index falls under my stops. This is a pretty straightforward setup for me with limited risk if the selloff continues and a pile of profit opportunity if the market bounces.
As for what I think is coming next, headlines 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.
At this point, it would take a significant and unexpected headline to send the index back to last year’s lows. And at this point, I don’t see anything that says current conditions are worse than the “less bad than feared” that allowed us to bounce off the October lows.
Now, a big and unexpected surprise could pop up at any time, but savvy traders trade what is happening, not what could happen. And right now, nothing 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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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 shed 1.6% on Wednesday as the index continues struggling with 4k resistance, the 200dma, and 2022’s downtrend line.
Retail sales fell 1% in December, and wholesale price inflation slipped to the lowest levels since last winter. The market’s knee-jerk reaction was to buy those headlines in hope of a quicker end to the Fed’s tightening cycle. But the relief was short-lived and prices ended up tumbling nearly 200 points through the session.
Did this morning’s headlines actually change anyone’s mind about the trajectory of the market? Or is this simply some profit taking near obvious technical levels?
The thing to remember about technicals is they should be drawn with a crayon, not a straight edge. These are regions and not specific levels. Bounces and stalls almost always come at some level other than the exact technical levels everyone is watching. Sometimes it is before, other times it is after. But the rarest of them all is a reversal on top of the key level.
To me, this turn-back at 4k looks too tight and clean to be real. I’m not saying that it can’t be real, just that it usually doesn’t work this way. And since trading is a game of probabilities, it is nice to know what outcome is more likely than another.
At this point, Wednesday’s selling looks to me like some profit-taking at the widely followed 4k level followed by waves of reactionary selling as follow-on sellers started fearing another rejection by resistance levels that stymied this market in the final months of 2022.
Real rejection or just another false alarm on our way higher? Lucky for us, we won’t have to wait long to get the answer. A bounce on Thursday and all is forgotten and forgiven. On the other hand, continued selling means lower prices are ahead, but even if that happens, we never stop looking for the next buyable bounce because it could come as early as Thursday afternoon.
All of that said, as much as I’m looking for a bounce from Wednesday’s retreat, I’m a disciplined trader and that means I pulled the plug on my last trade because the market’s retreat undercut my trailing stops. As easy as it is to buy back in, there is no reason to let all of my recent profits escape because I held too long. Buy early, sell early is how l like to play this.
But now that I’m out, 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.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished the first day back from the long holiday weekend down a modest 0.2%.
Not much happened headlines wise and this continues to be a sentiment-driven market. Given how the index rests nearly 200 points above where it started the year, there has definitely been a thawing of last year’s half-empty way of looking at things.
While the economy is still struggling with some headwinds, we clearly avoided last year’s worst-case scenario and stock prices are rallying on this less-bad-than-feared news.
But for as nice as this 200-point rally looks in the rearview mirror, we are currently struggling with the triple-witching of 4k resistance, the 2022 downtrend line, and the 200dma. Any one of these is more than enough to put the lid on a rebound, and all three of these did exactly that a various points in 2022.
So the question becomes, should we be afraid of another rejection, especially with all three hitting us at the same time?
While there are lots of reasons to doubt this rebound, we trade the price action, not our beliefs and fears. Sure, these hurdles could send prices tumbling back to the lows. But until they actually start doing that, we have to give this rebound the benefit of the doubt.
A trend is far more likely to continue than reverse, and no matter what anyone else says, the trend is higher. Without a doubt, we should expect some choppiness near these significant technical hurdles, but until these resistance levels actually break the market, we should be positioned for the continuation, not the reversal.
The greatest advantage of being an independent trader is the nimbleness of our size. We don’t need to trade the breakdown until after it starts happening. If our trailing stops get hit, we get out. Until then, keep riding this wave higher.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Thursday’s trading session took the S&P 500 on a wild ride, but you wouldn’t know it if all you saw was the day’s modest 0.3% gain.
The extreme volatility kicked off after the monthly Consumer Price Index showed inflation falling for the sixth month in a row. While no one is excited by 6.5% inflation, it sure beats the 9% recorded back in June. And even more impressive, some categories actually saw price declines from November.
While it is premature to claim the inflation beast has been slain, there is enough history to say conclusively inflation is not spiraling out of control. It won’t get resolved nearly as quickly as some are hoping, but we are definitely headed in the right direction.
The most impressive thing about Thursday’s wild swings is how balanced they were. Every bit of down was matched by a bit of up and almost every bit of up was matched by an equally sized bit of down. To the point where within minutes of the close, the index was tracking near breakeven before a minor lift gave us that modest 0.3% gain.
Stocks couldn’t sustain a move on the CPI data because it didn’t change anyone’s mind. Bears were just as bearish as bulls were bullish. Prices don’t move when people don’t change their minds and this morning’s just-right result split the difference.
While it would be easy to call this a tie, in this instance the tie-breaker goes to the prior trend, which is up. In addition, as easily as stocks fall, holding steady is another win for bulls.
It doesn’t look like a lot happened Tuesday, but until something changes, bulls are still in control of this market.
The next big hurdle is the 200dma and 4k resistance. These technical levels proved too much for the market to overcome back in November and December. Will this time be any different? Only time will tell, but until prices actually start falling, we have to keep giving the benefit of the doubt to the rebound.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 added 1.3% Wednesday and the index now finds itself at the highest levels since early December.
So much for Monday’s ugly intraday reversal. But that’s the way this goes sometimes. If this were easy, everyone would be rich. The market frequently throws curveballs at us and Monday was one of those days. Sometimes it has to convince us we are wrong moments before proving us right.
The key to surviving these whipsaws and false alarms is staying nimble and having a solid trading plan. Anyone winging this is getting eaten alive as they keep getting fooled into buying high and selling low. But if we have a thoughtful trading plan that gets us in early and gets us out early, then not only are we surviving these whipsaws, we are actually thriving in this volatility.
As hard as it was to buy Tuesday’s rebound following such awful price action on Monday, that was clearly the right call. And a savvy trader was adding even more money Wednesday morning. Big money came back from Christmas vacation in a buying mood and smart money is following those whales.
Now that the index is well above our entry points, we can lift our stops, making this a low-risk trade where at worst we get dumped out for breakeven.
If we’re right, we make money. If we’re wrong, we lose nothing. It is impossible to beat that risk/reward.
4k resistance and the 200dma are up next. These were stumbling blocks back in November and December. But at this point, the market is acting well and deserves the benefit of the doubt. That means we keep riding this wave until it breaks down. Move stops up and see where this goes.
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By Jani Ziedins | Free CMU
Free After-Hours Analysis:
The S&P 500 added 0.7% on Tuesday, bouncing back from Monday’s ominous intraday reversal. Not bad given how poor Monday’s price action appeared.
If there is one hard and fast rule in the stock market, it is there are no hard and fast rules in the stock market.
Monday morning’s impressive breakout above 3,900 resistance fizzled and evaporated by the close. That intraday reversal is about as bearish as price action gets. But as is always the case, trading signals operate in probabilities, not absolutes.
While a majority of the time price action like Monday’s leads to further declines, it didn’t happen this time, which is normal and expected. Even something that works 80% of the time will still fail one time for every four times it succeeds.
The lack of guarantees in the markets is why I always trade with contingencies in mind. Even though I liked the short setup Monday afternoon, I started with a partial position and placed a stop nearby. That way, if I was wrong, I had an exit plan in place. And it’s a good thing because I ended up using that exit plan Tuesday and that is the only reason my losses were so modest.
No one is ever right all the time, but traders that succeed over the long term make sure their trading plan limits their losses when they are wrong.
While seeing how things turned out Tuesday, it would be easy to say shorting Monday’s intraday reversal was a mistake, but starting with a small position and a nearby stop, my loss was far smaller than the potential reward if I got it right.
I will take that trade every day of the week because while it didn’t work this time, it will produce big profits more often than not.
Small losses and big rewards are how we make money in the market.
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