Dec 13

Why Tuesday’s bearish reversal doesn’t mean anything

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Tuesday was another wild ride for the S&P 500 as an encouraging monthly inflation report sent stocks flying at the open. Unfortunately, that was as good as it got and the index gave up a majority of those early gains when follow-on buyers failed to show up.

Usually, this kind of bearish reversal is well…bearish. But Tuesday’s price action doesn’t count because the market discounted those early gains. As I’ve been saying for days, the only thing this market cares about is the Fed’s policy outlook and we won’t know what that is until Wednesday afternoon. While Tuesday’s fizzle would ordinarily be a big red flag, given what is really important to this market, the lack of follow-on buying was expected because a modestly improved inflation report is not what is driving this market.

That said, Tuesday’s big pop does show what kind of potential there is to the upside if we get the right cocktail of encouraging news Wednesday. So as high as it feels like we are given inflation and a potential economic slowdown, high is far more likely to get even higher than it is to peak and reverse.

I count myself as an optimist and am looking for prices to continue rallying from the October lows over the near term, but I’m not married to that outlook and will grab on whichever direction the market wants to go Wednesday afternoon.

Give the market a few minutes to process the news and be careful because the initial knee-jerk is often in the wrong direction, but after a handful of minutes, the market will no longer be able to hide its true intention and it will be a big move. Whether that is up or down is anyone’s guess, but as nimble traders, there is no need to guess. Follow the market’s lead and let the profits come to us.

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Dec 12

The safest way to get ready for the Fed

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Monday was a good session for the S&P 500 as it recovered all of Friday’s losses and then some on its way to a +1.4% gain.

As expected, the market is trading sideways ahead of the Fed’s interest rate policy announcement on Wednesday, and anyone overreacting to these daily gyrations is having a tough time. The catalyst for the next big move comes Wednesday afternoon. Until then, everything else is random noise.

The only thing that would interest me over the next 48 hours is if the selling or buying gets carried away ahead of the rate announcement and that’s only because it skews the risk/reward in the other direction. The higher (or lower) we go ahead of time, the less room there is to keep going higher (or lower), and conversely, there is a lot more free space to reverse and go the other direction if the news disappoints (or beats expectations).

I wasn’t expecting much and Monday’s gains erasing Friday’s losses confirms that the direction is sideways, not up or down.

As I’ve written many times since the October lows, I like this market and think the odds of a continuation higher is the most likely outcome. The offset is there is more risk to the downside if anything goes wrong.

Rather than put myself in a position where I could get run over by a freight train Wednesday afternoon if I was wrong, I’m happy being a little late to the party to make sure I get on the right side of this trade.

Until Wednesday afternoon, I’m mostly just watching and waiting. Once the next big directional move reveals itself, I’m grabbing on and enjoying the ride.

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Dec 06

Why I’m not giving up on the rebound yet

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 crashed through 4k support Tuesday and ended up threatening 3,900 support before recovering a handful of points in the final minutes of the session to finish in the mid-3,900s.

Again, economic headlines were mostly benign and this continues to be a sentiment-driven trade as recent “hope for less bad” morphs into “fear of worse”.

Big stock market crashes are driven by significant and unexpected developments. So far, we can say neither of those criteria have been in play this week. Instead, this is little more than a normal and healthy pullback from multi-month highs.

Everyone knows stocks cannot go up every single day and down days are part of every move higher. But that never stops the naysayers from coming out every time the market slips a handful of points.

As I wrote Monday evening, this is the 8th retreat from relative highs since the October lows. And for those that are counting, seven of those retreats ended with stocks rebounding to even higher prices. While it is too early to say conclusively this will bounce higher, if we want to bet on the high probability outcome, always bet on the continuation because rallies continue countless times but they can only die once.

But just because we expect this dip to bounce doesn’t mean we need to hold it all the way down. I locked in some really nice profits at my trailing stops in the mid-4k’s and I’ve been waiting for the next bounce from the safety of the sidelines. And as a matter of fact, since I’m in cash, the lower this goes now, the more money I make buying the inevitable bounce, so lower is better for me.

But as I said above, I don’t see a lot of downside potential in this pullback and we are most likely close to the bounce. If not Wednesday morning, then that afternoon or over the next two days. Don’t stray too far because the next buying opportunity is almost here.

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Dec 05

Is smart money betting the eighth time is finally the real one?

By Jani Ziedins | End of Day Analysis , Free CMU

Free After-Hours Analysis: 

The S&P 500 fell -1.8% Monday and finds itself retesting the all-important 4k level after smashing through this key resistance level only four sessions ago.

As impressive as last Wednesday’s 3% blast through 4k resistance was, it turns out a lot of investors have a fear of heights and few were willing to chase Wednesday’s surge even higher. That lack of follow-on demand allowed the index to slip all the way back to the widely followed 4k level.

Often resistance turns into support and we will learn early Tuesday if that’s the case this time. If the selling continues Tuesday morning, last Wednesday’s buying frenzy could finally be the climax top bears have been calling for and it is all downhill from here. But what are the odds?

As you can see from the above chart, there have been eight potential “tops” since the October lows. And seven of those “tops” ended in even higher prices. Is the eighth time the charm? Will this one finally be the real top?

While only time will tell what comes next, the one thing we know about up-trends is they continue countless times but they can only reverse once.

Trading is a form of betting, so the question is, should we bet on the outcome that happens 90%+ of the time? Or the trade that is right less than 10% of the time?

Until proven otherwise, I will continue giving the October rebound the benefit of doubt and there is nothing in the last three sessions of selling that changes my outlook.

All of that said, as much as I believe this latest swoon will ultimately resolve to the upside, my trailing stops got me out in the mid-4k’s. And no matter how much I disagree with a selloff, there is one thing I never do and that is argue with the market.

But just because I locked in profits Monday morning doesn’t mean I need to stay out. I’m already looking for that next bounce and I could be buying back in as soon as Tuesday morning if we get a nice bounce off of 4k support.

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Dec 02

Why smart money is sticking with the October rebound

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 tumbled -1.5% Friday morning after the monthly employment report beat expectations.

If this reflexive selling felt strange, you are not alone and the stock market spent all Friday rallying back from those opening levels, erasing virtually all of them by the close.

Apparently some investors still believe “good is bad”, but as we saw Friday, the majority of the market doesn’t agree.

Inflation is steering the Fed’s interest rate policy decisions and if the Fed can bring inflation down without crushing employment, all the better. This is the widely hoped-for “soft landing”. Is it possible? Maybe, maybe not, but with inflation headed in the right direction while employment remains robust, that suggests this Goldilocks scenario is still possible.

At this point, the market remains in a half-full mood and that means it is not buying the bearish interpretation of November’s better-than-expected employment. Until something changes, that means the path of least resistance remains higher.

If this market wanted to go down, there have been more than enough excuses to send prices tumbling. The simple fact we remain near multi-month highs tells us the ground under our feet is solid and Friday’s rebound confirms it.

Quite simply, if this market was truly fragile and vulnerable, it would have crashed by now.

Sometimes the hardest thing to do is to stick with a winning trade when everyone around us is telling us why we are wrong. But since we trade the market, not opinion, this counter-intuitive strength is far more important than what anyone else says. The simple fact prices keep going up when the crowd thinks it should be going down is our signal to stick with it.

We will run out of buyers at some point, but this is not that point.

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