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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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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 exploded 3% higher Tuesday, adding to Monday’s huge 2.6% gains.
Economic headlines remain the same, which is to say awful. But after seven weeks of non-stop selling, a near-term bounce was inevitable.
As I often remind readers, the market loves symmetry and that means this rebound will be nearly as impressive as the preceding selloff. And boy has it gotten off to a banger of a start!
Unfortunately for bears, the rebound’s foundation is built on their corpses, with a short squeeze providing a majority of the lift over the last two days. But bears only have themselves to blame for their lost profits. As I wrote last week:
As always, no matter how overdone the selling has gotten, the market can always get even more oversold. But it is getting harder and harder to scratch out those last few points to the downside and when this pops, boy is it going to pop.
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.
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Bears ignored all of the warnings and they are paying the price today. And things will probably get worse for them before they get better because this rebound isn’t showing any signs of letting up.
As for those of us that are on the profitable side of the rebound, there is nothing for us to do except keep holding and lifting our stops, now spread around Tuesday’s opening levels.
This really isn’t that hard when we know what to pay attention to.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 bounced back violently Monday, adding 2.7% and easily erasing all of Friday’s losses. The index even got close to reclaiming Thursday’s losses as well.
Not bad for a market many had left for dead a few days ago. But that’s the way this usually goes. The S&P 500 only had a single up day out of the previous nine sessions. The crowd largely came to the conclusion the U.S. economy is doomed and they were selling stocks ahead of the inevitable collapse.
But as is usually the case when too many investors find themselves on one side of a boat, it capsizes. No matter what someone believes is coming next, everyone knows the market moves in waves, and after six weeks of brutal selling, even bears should have been expecting a bounce.
And this is exactly what I wrote in Friday evening’s post titled, “The worse this looks, the more I like it!“:
Sure, anything is possible and we could fall again next week, but the next bounce is a lot closer than most people think. The AAII sentiment survey is over 60% bearish and at a 12-month high, while the historical average is all the way back at 30%. If a person believes in trading against the crowd, sentiments has rarely been this skewed in the bearish direction.
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While Monday’s bounce was a great start, the other important factor to keep in mind is the market loves symmetry, meaning as dramatic as the autumn selloff has been, we should expect a similarly impressive bounce off of the lows.
I’m not here to say the bear market is over, and in fact, we could see lower prices over the coming months. But as far as the near-term prognosis goes, remember, the biggest and sharpest rallies occur during bear markets. So even if bears are right, we should still be bracing for further waves of buying and short covering.
I really liked Monday’s rebound, and this bounce has the best odds of succeeding yet. But there are no guarantees in the market and this bounce could fail like the others that came before it. But rather than give up, we pull the plug at our stops and as soon as we are out, we start looking for the next buyable bounce. Sometimes they arrive as soon as a few hours later.
I was looking for the bounce and loaded up early Monday. By getting in early, I’m already sitting on a pile of profits, allowing me to move my stops above my entry points, making this a low-risk trade. If it works, great! If it doesn’t, no big deal, I pull the plug, collect some profits, and try this again next time.
But at this point, this feels like the real deal.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 attempted another bounce Friday morning. Unfortunately, that late morning buying proved fleeting and the index slipped into the red by the close, setting yet another fresh 52-week low.
Friday’s loss makes it -2.9% for the week and the sixth weekly decline out of the last seven. That hurts, but it definitely feels like the selling is losing momentum near the old lows.
Monday’s close was the first fresh 52-week low since this summer. Following Monday, we set a further three 52-week lows. But as dire as four 52-week lows in a week sound, the market dropped less than half a percent on average since Monday’s close. While not good, this is far from panic territory.
There are two ways to interpret this. Either the market is finally running out of sellers after six weeks of exhaustive selling. Or this week’s reasonably stable trade was nothing more than the calm before the next storm.
If stocks were a lot higher, I would be far more worried about further selling. But after the market shed more than 700 points in seven weeks, we have a lot less to worry about because it can’t give back those 700 points again.
Sure, anything is possible and we could fall again next week, but the next bounce is a lot closer than most people think. The AAII sentiment survey is over 60% bearish and at a 12-month high, while the historical average is all the way back at 30%. If a person believes in trading against the crowd, sentiments has rarely been this skewed in the bearish direction.
As always, no matter how overdone the selling has gotten, the market can always get even more oversold. But it is getting harder and harder to scratch out those last few points to the downside and when this pops, boy is it going to pop.
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.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 tumbled 2% Thursday, giving back all of Wednesday’s gains.
As they say, easy come, easy go. This remains a volatile market and that means oversized moves in both directions.
The nice thing about Thursday’s selling is it didn’t crash through recent lows. The bad thing about Thursday’s selling is…it didn’t crash through recent lows.
As disappointing as Thursday’s implosion felt following Wednesday’s super encouraging bounce, this still doesn’t count as real capitulatory selling because we didn’t crash through support and fall in one of the biggest losing sessions of the entire pullback.
Now, that doesn’t mean we don’t need capitulation to bounce, but it sure helps.
As for my latest trade, as I wrote Wednesday evening, I liked that bounce and bought it. While that sounds like a huge mistake given how Thursday turned out, it really wasn’t all that bad.
A big part of my trading strategy is buying bounces early and that meant jumping aboard Wednesday’s bounce not long after the open. And it’s a good thing I got in early because Thursday’s poor open was still above my initial entry points, meaning those positions hadn’t even turned red yet.
And just because I bought Wednesday’s bounce doesn’t mean I was naive to the possibility it could fail. In fact, I was fully prepared for Thursday’s retreat. As I wrote Wednesday evening:
Odds are good this bounce will fizzle and we will get to do this all over again in a few days, but since I have no way of knowing if the first, second, or third bounce attempt will turn into the real one, the only thing I can do is buy all of them. Start small, get in early, keep a nearby stop, and only add to a trade that is working and our risks are actually quite low. If this doesn’t work, no big deal, I pull the plug and try again next time, but so far so good.
Hope for the best, prepare for the worst. There is no better way to navigate markets.
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As for what comes next, well, as I alluded to above, I would love to see one last dramatic wave of capitulation selling before bouncing. That will confirm the bottom is in and set up a fantastic buying opportunity.
Barring that capitulation, the only thing we can do is simply wait for the next bounce and try again. (Start small, get in early, keep a nearby stop, and only add to a position that’s working.)
As much as it seems like Thursday’s decline was bad for me, I actually don’t mind. In fact, I revel in the opportunity to buy stocks at even lower prices. Only amateurs get discouraged and give up. Savvy traders pull the plug and get right back after it.
If we don’t bounce Friday, then look for one on Monday. And if not Monday, then Tuesday or Wednesday. As dramatic as the selling has been, the market loves symmetry and the inevitable rebound will be equally impressive.
Make sure you don’t miss out because it will be some of the easiest and fastest money you make all year.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 popped 2% Wednesday, snapping a six-day losing streak.
Even in this overwhelmingly bearish environment, seven down days was a little too much and a bounce was inevitable. But this isn’t a surprise for readers of this blog. As I wrote Tuesday:
When the market doesn’t do what it is supposed to do, in this case, devolving into a panicked dash for the exits, we have to sit up and take notice. As bad as things feel near the lows, maybe we really are finally running out of fearful sellers and are on the verge of bouncing on the resulting lack of supply.
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Markets go up and markets go down, that’s what they do. After a month and a half of falling, we are due for some up. How much up is anyone’s guess and we won’t know until after it is all over, but in the meantime, Wednesday was the start of the buyable bounce we’ve been waiting for and the earlier we jump aboard these bounces, the less risky they become.
Economic data has been mostly stable even if coming on the disappointing side of what some investors were hoping for. The lack of meaningful fundamental changes means this remains a sentiment-driven trade and as quickly as sentiment sours, it can bounce back once stocks stop falling.
While Wednesday might not be the real bounce, by starting small and getting in early, we quickly build up a profit cushion to protect our backside. By Wednesday afternoon, we savvy traders were already adding more and nudging their trailing stops closer to their entry points. While not a free trade yet, it is looking pretty good.
Odds are good this bounce will fizzle and we will get to do this all over again in a few days, but since I have no way of knowing if the first, second, or third bounce attempt will turn into the real one, the only thing I can do is buy all of them.
Start small, get in early, keep a nearby stop, and only add to a trade that is working and our risks are actually quite low. If this doesn’t work, no big deal, I pull the plug and try again next time., but so far so good.
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What’s a good trade worth to you?
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