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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Well…that was unexpected. People predicted a lot of different outcomes for Tuesday’s session following the monthly inflation report, but I guarantee no one saw a -2% open in the S&P 500 turning into a nearly +3% finish.
This was the kind of day where everyone was right. The bears got the crash they predicted and the bulls got the strong rebound they predicted. The ironic thing about days where everyone is right is almost everyone loses money.
The bulls saw the early tape move against them and bailed out before things got worse. And just when bears thought everything was going their way, the market stole all of their profits and left them with a black eye instead.
Everyone was right and somehow, most people still managed to lose money. Funny how that works.
Lucky for me, I wasn’t trying to game the inflation report. As I wrote Wednesday evening:
I’m not placing trades ahead of the inflation report. This is one of those cases where I’d rather be a little late than a lot sorry, so I’m happy sitting in cash and waiting for the market to tell me what it wants to do next instead of joining everyone else in the game of guessing and gambling on the outcome.
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I fully expected to give up some profits by missing the opening move, either higher or lower. But that’s the price I was willing to pay for a lower-risk trade. What I didn’t expect is that sitting on the sidelines Thursday morning would allow me to make even more money!
I came into Thursday with a bullish bias simply because stocks were at the lowest levels of the year and bears had a much higher bar to clear to extend the selloff than bulls had to trigger a relief rally on “less bad than feared”.
Premarket futures proved my optimism wrong and I was glad I didn’t follow my bullish bias Wednesday evening.
Lucky for me, I didn’t run for the bunkers after the open like everyone else. Big gaps tend to bounce because large institutions often disagree with overnight futures. And as it turned out, Tuesday was one of those days. Rather than abandon ship when the inflation report was largely in line with the previous reports, big money looked at those opening discounts and couldn’t resist the temptation to snap them up. And that was the moment everything turned around.
As for my personal positions, when the early weakness failed to trigger a follow-on wave of selling, that was my signal to buy the early stability with a stop under the opening lows. (Start small, get in early, keep a nearby stop, and only add to a trade that’s working.) And when prices started rallying, that told me to keep adding more and lifting my stops.
I would have been thrilled with a -2% open turning into a -0.5% finish. That’s a great trade and a very bullish reversal. But once these fevers break, there is no telling how far they can go. After a month of non-stop selling since the September highs, that rubber band was stretched too far and it was ready to snap back. Thursday’s capitulation and subsequent rebound was all we needed for those tardy dip buyers to finally show up and save the day.
I knew Thursday was going to be important, but I never expected it to be this dramatic. At this point, there is nothing to do other than keep holding on and lifting our trailing stops. The market likes symmetry and the next rebound will be as dramatic as the selloff from the September highs.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Wednesday in the red for the sixth session in a row. As bad as that sounds, the index only lost -0.3% in an almost trivial down day given recent volatility.
As I’ve been telling readers over the last several sessions, the market is stuck in a holding pattern ahead of Thursday’s monthly inflation report and we can’t read anything into this price action. The real move will follow Thursday’s inflation report, which will be one of three things; higher than expected, lower than expected, and the middle ground, meets expectations.
Higher and lower than expected inflation will result in a big stock move in the opposite direction. A break in inflation will send stocks flying, while stubbornly high inflation will trigger the next big selloff. (God help us if inflation spikes to a fresh high!)
What about “meets expectation”? Well, that largely depends on where the market is, and right now we are at the lowest levels of the year, meaning expectations are fairly pessimistic. Some would say overly pessimistic. At these repressed prices, we are setting up for a relief rally if inflation comes in “less bad than feared”.
Stocks rally in two cases, beats and meets expectations, and they fall in one, misses expectations. Those are fairly favorable odds for a rally Thursday afternoon.
That said, even if bulls have the edge with stocks at the lowest prices of the year, I’m not placing trades ahead of the inflation report. This is one of those cases where I’d rather be a little late than a lot sorry, so I’m happy sitting in cash and waiting for the market to tell me what it wants to do next instead of joining everyone else in the game of guessing and gambling on the outcome.
The market likes to throw in a few head fakes immediately after the news lands, but within 30 minutes, the pent-up supply and demand will be too strong to continue the charade and the market will be tracking straight and true for the next big, multi-day move. All we have to do is grab on and enjoy the ride.
Buy strength and sell weakness, it doesn’t get any simpler than this.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 skidded Tuesday, making this the fifth losing session in a row and the index closed at fresh 2022 lows.
If that description is all you heard, you’d assume this was another -3% or -4% bloodbath given the way things have been going lately. But no, the best this fifth-loss-in-a-row could manage was -0.6%, barely more than half a percent.
But Tuesday’s limited selling isn’t a surprise for readers of this blog. As I wrote Monday evening:
With the latest inflation readings just days away on Thursday, that leaves the market in a holding pattern until then. Since Friday’s selloff put the market back into a half-empty mood, that likely means further weakness near recent lows, but don’t expect a crash until after the inflation data is released on Thursday. (If one is going to happen.)
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Knowing nothing much was going to come from Tuesday’s early violation of the lows made this a decent time to be locking in profits on our shorts positions, which is exactly what I was doing Tuesday. (We can’t make money until we sell our winners.)
I’m not one of those people pretending like I know what’s going to happen Thursday. As far as I’m concerned, the odds of stocks popping on moderating inflation are as good as stocks crashing if inflation remains stubbornly high.
Without an edge, I’m happy to watch this unfold from the sidelines and then jump aboard the resulting move after it starts happening. If that’s another crash lower, great, I’m putting my short positions back on. If stocks race higher, even better, I jump aboard that rally and let those profits come to me.
I’m agnostic and don’t care what happens as long as something happens. (That’s the trader in me talking. The human being in me is hoping for a quick resolution to this inflation/recession mess so it affects the fewest number of people possible.)
A big trade is around the corner, we just need to be patient and wait for it to come to us. Don’t let these meaningless, near-term gyrations throw you off. But once it gets here, don’t be afraid to grab hold because there will be lots of easy and fast profits to be had.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 skidded another -0.8% Monday as investors continue reacting negatively to Friday’s fairly positive employment report. As I wrote previously, these market reactions are rarely one-day events and today was no exception.
Economic headlines haven’t changed in a meaningful way over the last several weeks as inflation remains stubbornly high and the measurable fallout from the Fed’s aggressive rate hikes have yet to be felt by most of the economy.
Later this week we get September’s inflation report and no doubt that will drive the next big move in the stock market. A material slowdown in inflation and stocks are off to the races. Remain near existing levels and stocks will tumble. (And God help us if inflation surges to new highs!)
With the latest inflation readings just days away on Thursday, that leaves the market in a holding pattern until then. Since Friday’s selloff put the market back into a half-empty mood, that likely means further weakness near recent lows, but don’t expect a crash until after the inflation data is released on Thursday. (If one is going to happen.)
Last week got off to a great start. We bought the bounce early, collected a few bucks after it started stumbling Thursday afternoon, and now many of us find ourselves short following Friday’s big tumble.
At this point, there isn’t a lot to do other than lower our trailing stops to at least our entry points and then start looking for the next bounce.
If we get a decisive bounce Tuesday, it could be time to start taking profits in those short positions. That said, I don’t expect anything big in either direction until after we get Thursday’s monthly inflation. The most likely trade for Tuesday is a continuation of Monday’s exhale that tests the 2022 lows ahead of the inflation data.
Hold shorts Tuesday and see what happens. If this bounces decisively, we cover and go long.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 crashed 2.8% Friday after the monthly employment report showed robust hiring.
Solid employment and a strongly negative reaction means we are back in the bizarro world of “good news is bad”. Obviously, investors are far more concerned about interest rates than unemployment, so anything that hints at the Fed continuing to raise rates sends traders scrambling for cover.
I will be the first to admit that I came into this week bullish. As I wrote last Friday:
At the very least, we should be lightening up our short positions because greed never pays. But more than that, this thing is a tightly compressed spring poised to rip. Wait for that bounce to start and then jump aboard. As I often remind readers, the biggest and fastest rallies occur during bear markets. And the last time I checked, we are still in a bear market.
Two sessions later and the S&P 500 added 5%. But a few days after that and almost all of those gains had been wiped out. (Sign up for my FREE email alerts so you don’t miss the market’s next big move)
Does that mean buying Monday’s rebound was a mistake? Absolutely not. As independent traders, our greatest strength is the nimbleness of our size. That means we can buy one day’s bounce, collect those profits a few days later, and even switch direction and short the next drop.
While this week’s 5% rebound proved fleeting, it was still a very profitable trade for those of us that had the courage to jump aboard. As I wrote Thursday evening:
Thursday’s weak close convinced me to peel off some of those profits to reduce my risk headed into the employment report. As much as I think the next move will be higher, there are no guarantees in the market and we only make money when we sell our winners. As easy as it is to buy back in, it felt foolish to wager all of my recent profits on the outcome of Friday’s employment report.
As soon as stocks pop Friday morning, I’m more than happy to jump back in. And if the market goes in the other direction, that’s fine too, I lock in my remaining profits and go short.
As luck would have it, the bears won the day. I dumped my remaining longs for a still respectable profit and went short Friday morning. (Sign up for my FREE email alerts so you don’t miss the market’s next big move)
Sure, it would have been nicer to lock in all of my profits Thursday, but what I missed selling Friday morning, I more than made up shorting Friday’s tumble lower.
While Bulls and Bears are busy arguing about who is right, I’m over here following the market’s lead and making money no matter which way we go.
As for next week, expect the selloff to continue and even exceed the 2022 lows. But as is always the case, as soon as I get out, the first thing I’m doing is looking for the next buyable bounce. Just because this week’s bounce didn’t work doesn’t mean the next one won’t.
A bounce off of 3,500 would be a great entry point. And if that one doesn’t work, no big deal, I collect some quick profits and get to try again next time.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slipped 1% Thursday in a mirror image of Wednesday’s resilient price action.
Instead of opening weak and climbing all day, the index started Thursday strong and spent the rest of the session skidding lower. Wednesday was half-full and Thursday half-empty. And so continues the swinging pendulum of sentiment.
Friday morning we get the monthly employment report. While normally a big deal, this one is building up to be especially important as it decides what comes next, either extending this week’s rebound or resuming the September selloff.
As volatile as the market has been, whatever happens Friday morning, the resulting move will almost certainly be large and enduring.
Odds favor a rally since we’ve gotten a whole lot of down since the August highs and bearishness remains near all-time highs. That skew gives us a truckload of fuel to propel a rally higher. But as is always the case, selling begets selling and few things shatter confidence like screens filled with red, so another waterfall of selling is always possible.
While I have a natural bullish bias and think the latest wave of selling has taken us a little too low, I’m happy to ride the next wave in whichever direction it takes us.
I don’t trade the initial knee-jerk reaction to a big headline event, but 30 minutes later and the market cannot help but reveal its hand and there is nothing for us to do except jump aboard and hang on. Up or down, I’m game either way.
I’m still hanging on to a portion of my long positions from Monday’s rebound, but Thursday’s weak close convinced me to peel off some of those profits to reduce my risk headed into the employment report.
As much as I think the next move will be higher, there are no guarantees in the market and we only make money when we sell our winners. As easy as it is to buy back in, it felt foolish to wager all of my recent profits on the outcome of Friday’s employment report.
But as soon as stocks pop Friday morning, I’m more than happy to jump back in. And if the market goes in the other direction, that’s fine too, I lock in my remaining profits and go short.
Buying this week’s rebound early and sitting on a pile of profits makes this a win-win situation for me.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
While Wednesday’s session ended down a seemingly trivial -0.2%, that modest decline disguised a massively volatile session with the index gapping -1% lower at the open and early selling pushing the index all the way down to -1.8%. But just before all hope was lost, a one-way wave of buying erased nearly all of those losses by the close.
Following the biggest two-day gain in years, it wasn’t a surprise to see some profit-taking and bears reentering their short positions Wednesday morning. More important than the fairly vanilla step back from Tuesday’s close was how the market reacted to those early losses. Was this week’s rebound built on bedrock, or a foundation of sand? Well, it didn’t take long to find out.
Nearly as quickly as that wave of selling arrived, it vanished and the index spent the rest of the session rallying back to breakeven. That’s not the behavior you expect from a fragile and vulnerable rebound. If this really was a foundation built on sand, Wednesday morning’s selloff was more than enough to send us tumbling back to the lows.
As difficult as it is to keep holding after a 5% surge in two days, especially given the complete lack of improvement in economic headlines, the market is clearly telling us it wants to go higher, not lower. If we were going to crash, Wednesday morning’s bloodbath was the perfect invitation. The fact we escaped with hardly a scratch is all the proof I need to keep holding my long positions for higher prices.
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