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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 surged 2.5% Friday, finishing the week at multi-month highs and easily brushing off bruising earnings reports from GOOGL, META, and AMZN.
With three of the biggest and most important tech stocks deep in the red this week, you’d think the market would have rolled over and be racing toward the 2022 lows. But you’d be wrong.
As much as I don’t always agree with, or even understand, what the market is thinking, the simple truth is the market is far larger than I am and it doesn’t care what I think. Rather than disagree and argue with the market, I tell myself, “Okay, if that’s what it really wants to do, I’m happy to follow along.”
After doing this for decades, one of the most important lessons I’ve learned is to never question the market when it is doing something unexpected. That means the forces acting under the surface are so strong they overpower common sense and conventional wisdom. And if the mysterious phenomenon is that powerful, you better watch out because it will run over anyone that gets in its way.
Two days ago I was preparing to lock in some really nice profits if this rebound stalled and retreated back under 3,800. It’s not that I expected a bigger pullback, just that it’s been a good run and we only make money when we sell our winners. As easy as it is to buy back in, there is no reason to stubbornly hold a position if the rebound was cooling off.
Lucky for me, the market never tested my stops under 3,800, but even if it did, the first thing I do after I get out is to start looking for the next opportunity to get in. And Friday morning’s counterintuitive strength would have been that signal to jump back in.
When something doesn’t make sense, it means there is a lot of power behind the market and we better grab on. At this point, 4k is very much in play. What happens when we get there is still up for debate, but at the very least, we should expect the market to get into the upper 3,900s over the next few days and weeks.
From there, we can judge the market’s price action and figure out its next move. But a nearly 500-point rebound from the October lows and it wouldn’t be a surprise to see a little profit-taking weight on the market after we get near 4k.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday was another wild session for the S&P 500 as an early 35-point loss rallied 60 points from those early lows. As good as that felt, the relief was short-lived and the index gave back all of those gains through the afternoon, ultimately finishing near the intraday lows.
But this shouldn’t surprise anyone. This remains a volatile market and that means oversized moves in both directions.
The waves of second-guessing were brought about by disappointing earnings reports from GOOGL and MSFT. While these results didn’t really change anyone’s outlook, it was enough to remind prospective buyers that our problems are a long way from being resolved.
But this exhale was expected. Everyone knows stocks don’t move in straight lines and even the biggest rallies have red days. And let’s be honest, no one is expecting October’s bounce to turn into one of the biggest rallies.
Stocks go up and stocks go down, that’s what they do. But as long as there is more up than down, then everything is still going according to plan.
All of that said, those of us that bought near the October lows are sitting on a large pile of profits in our leveraged ETFs. As nice as it feels to watch those profits grow, they are not real until we sell. This is the point in a trade where we shift our mindset from offense to defense. With profits this large, making sure we protect what we have is far more important than squeezing a little more profit out of the market.
Now, don’t get me wrong, I’m not saying we should panic-sell everything because stocks had one red day. That would be ridiculous. But it helps if we shift from a binary mindset (in or out) to one that allows us to think in shades of gray. Don’t be bearish or bullish. Don’t move all-in to all-out. Instead, look at the market in terms of risk.
Risk is a function of height, meaning buying October’s lows was far safer than what it felt like. And now that we’re at the October highs, things are definitely riskier than they were two weeks ago.
I don’t know what Thursday or Friday has in store for us, but I will be approaching those sessions with a defensive mindset. With this much profit in hand, it is better to start peeling off some profits a little too early than get greedy and watch all of those profits evaporate by holding too long.
I’m willing to keep holding Thursday if the rally continues, but I will be looking for any excuse to start locking in some profits. As easy as it is to buy back in, there is no reason to hold through the next step back no matter how innocently it starts off.
I still think 4k is in the cards and as soon as I sell, the first thing I do is start looking for the next entry point. But if I sell a partial position and the market goes higher without me, that’s fine too. Only fools try to squeeze every last dime out of the market.
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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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