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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 started the second week of 2023 off well enough, adding more than 1% and extending Friday’s employment-fueled gains. Unfortunately, those midday gains proved fleeting and the index retreated back to breakeven by the close.
Over the last few weeks, we could have written off this impotent price action because institutional money was on vacation and this was nothing more than over-active retail traders running amok. But by now most institutional money managers are back in the office and that means this price action counts.
And Monday’s failed breakout doesn’t look good. Stocks rallied to start the week and rather than embrace the strength, big money turned its back and let prices fall.
While one day can’t kill a market by itself, it can put a serious dent in any rebound attempt. Fall much lower and all of Friday’s gains are vulnerable.
The market is at a critical tipping point and how it responds Tuesday will tell us a lot about the market’s mood going forward. Retreat back to 3,800 over the next few sessions and 3,600 becomes the next most obvious target. But on the other hand, if buyers return Tuesday, Monday’s indigestion is forgotten and 4k is up next.
Plan your next trade accordingly.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
2023 started the same way 2022 ended, volatile and directionless. The S&P 500 opened Tuesday’s session with nice gains, but minutes later the index retreated into the red and quickly retested 3,800 support.
As dramatic as that 80-point collapse felt, rather than trigger a bigger wave of follow-on selling, supply dried up and prices bounced, which wasn’t a surprise because that’s exactly what we’ve seen every time the market tested 3,800 support over the last couple of weeks.
Big money is still on vacation, and that means retail investors are still in control. And in typical retail fashion, these impulsive traders overreact to every little bump in the road. Lucky for us, their accounts are so small they run out of money long before they can do any real damage.
Big money starts returning to the office later this week and into next week. That’s when we will get a better sense of the market’s mood and what direction we’re headed next. Until then, expect these choppy reversals to continue.
As for trading this chop over the next couple of sessions, if dumb money is selling, the smart move is fading that weakness. I bought this morning’s bounce off 3,800 support with a stop just under this level. While not a high-probability, high-reward trade, if I can get in with such limited risk, why wouldn’t I give it a shot?
And the same goes for when prices approach the upper end of the recent trading range Wednesday. When dumb money starts buying is when I plan on harvesting profits in this trade.
The next directional move is coming, but we will get a few more of these dramatic intraday reversals first. Might as well take advantage of them while we can.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 crashed more than 100 points Thursday morning after someone yelled “Fire” and impulsive traders climbed over each other trying to get out.
What was the catalyst for Thursday’s selling? Easy, there wasn’t one. This panic was nothing more than impulsive traders getting spooked by their own shadows and then the herd following them out the door.
But this isn’t a surprise. This was the second to last trading session before the Christmas holiday and institutional investors are already at their vacation chalets. Without big money’s guiding hand, there was no one to keep impulsive retail traders in check, and like irresponsible teenagers given too much responsibility, these retail traders made poor decisions.
Lucky for us, these retail traders have small accounts and quickly ran out of things to sell. By early afternoon, supply dried up and the index rebounded 60 points from those oversold levels, easily reclaiming 3,800 support.
As Forest Gump famously said, “Stupid is as stupid does.” And on Thursday, retail traders proved why they have such a poor reputation.
As for how I traded this, I came into Thursday holding long positions that I bought earlier in the week. Lucky for me, I already had a nice profit cushion and moved my stops above my entry points Wednesday, making this a low-risk trade for me.
As much as I wanted to see Wednesday’s rally continue, it didn’t turn out that way and I got dumped out at my trailing stops. To the cynics, that makes me wrong, but if my mistakes end in modestly profitable trades, I can live with that.
And in fact, after pulling the plug at my stops above 3,800 support, the waves of impulsive selling actually allowed me to rebuy those positions under 3,800 when the market bounced a few hours later. So not only did I get out of my previous trade for a small profit, I was able to get back in at even better prices.
If that’s what being wrong looks like, I don’t mind being wrong.
As for what comes next, a big wave of impulsive traders bailed Thursday morning and are no longer a risk to the market. I really liked Thursday afternoon’s bounce and that means I’m already a buyer.
If the selling resumes Friday, no big deal, I get out at my stops and try again next week. And if I’m really lucky, prices crash hard Friday and I get to buy even lower prices.
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