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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Monday at the highest levels in over a month. Not bad for a market the crowd fully expected to be crashing to fresh lows.
As I wrote two weeks ago, before the September inflation report:
The market likes to throw in a few head fakes immediately after the [inflation report] 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.
Well, here we are, nearly two weeks later and the index is up 300-points from those October lows. That’s an 8.6% gain in straight money and 25.7% in the 3x ETF I like trading. Not bad for a couple of weeks’ worth of “work”.
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Now that the index is running up against 3,800 resistance, readers want to know what comes next. Easy, higher prices.
Sure, we might have a minor step back over the next day or two, but markets almost never turn around exactly at support. Since we just kissed overhead resistance on Monday, that means we still have a little more room to run even if this rebound is on the verge of stalling out.
But this isn’t about to stall out. As I often write, the market loves symmetry and that huge selloff from the September highs will result in an equal impressive rebound. Sure, maybe lower prices are ahead of us over the longer term, but never forget the biggest and fastest rallies occur during bear markets, and the last time I checked, this was still a bear market.
The next noteworthy hurdle is the 50dma and 4k is after that. We won’t know what happens at those levels until we get there and can evaluate the price action. But at this point, the rebound looks solid. If prices were fragile and vulnerable to a collapse, the September inflation report was more than enough to send us tumbling lower. Instead, prices bounced hard and that’s all we needed to know what direction this market wants to go.
Don’t fight a trade that’s working. There is nothing to do here except keep holding and lifting our trailing stops. Don’t overthink this.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Tuesday +1% higher, making this the third gain out of the last four sessions. And equally encouraging, the index is challenging the October highs, not bad for a market that was making multi-year lows only a few days ago.
Nothing much improved since last Thursday when September’s inflation report remained stubbornly high. But when bearishness is near historic levels, we don’t need good news to fuel a relief rally, simply being less bad than feared can be the spark that ignites a rebound from oversold levels. And let me tell you, Thursday’s bullish +5% intraday reversal was one hell of a spark.
Lucky for readers of this blog, we knew something big was coming even if we couldn’t be confident in the direction. As I wrote last Tuesday:
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.
Everyone knows markets move in waves and it’s been a long and mostly one-way fall from the September highs, so even bears should have been prepared for a fast and hard bounce. Too bad greed and hubris cloud a person’s judgment.
Anyone can point out what’s obvious after it happened, but what readers really want to know is what comes next. Easy, there is no reason to assume the buying is anywhere near close to being done. The market loves symmetry and it’s been a dramatic and oversized fall from the September highs, so it is only reasonable to expect a similarly dramatic and meaningful rebound.
Now, don’t get me wrong, I’m not claiming symmetry means are headed back to the September highs, just that we should expect an equally dramatic and meaningful rebound to recover from these oversold levels. And it will take a lot more than three days of buying to balance out two months of nearly non-stop selling.
And this should go without saying, but markets don’t move in straight lines and this remains a volatile market, meaning we should expect lots of back and forth. But over the next few weeks, expect more up than down. In fact, a good bit more up than down. But don’t get complacent because those down days will be enough to make us doubt ourselves. We don’t need to look any further than Friday to see how strong the second-guessing can be. But as I said earlier, we are still in the early days of this rebound.
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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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