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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Nov 17

When is a loss bullish?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday was another wild session for the S&P 500. Overnight futures traders abandoned ship and sent the index tumbling at the open. But rather than join the dash for the exits, big money started buying those discounts and it was all uphill from there.

As I often remind readers, it’s not how we start but how we finish that matters most. And by that measure, Thursday’s 0.3% loss was actually a very bullish performance. Rather than join the selling, most owners shrugged and kept holding. That resilience is always a good sign. If this market was overbought and as fragile as the cynics claim, we would have opened low and kept falling. Instead, the selling stalled out of the gate and the index recovered almost all of those early losses by the close. For a down day, it doesn’t get much better than that.

The market loves to convince us we are wrong moments before proving us right. And now that we moved past the “convincing us we are wrong” part, it is time to get on with “proving us right”. As I said above, if this market was weak, we would be challenging the lows, not bouncing back toward the highs. 4,100 is still very much in the cards.

As for trading this morning’s weakness, if a person was tricked out by those early losses, there is nothing wrong with that. More important is we stay nimble and open-minded after getting out. Sometimes the next buying opportunity is only hours away. And today was one of those days. As easy as it is to get back in, we should never let ourselves get left behind if the market tricked us with one of these false alarms.

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