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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
If a person only saw Tuesday’s S&P 500 closing print showing a 0.16% gain, it would be easy to assume it was just another boring, meaningless session. Oh, how wrong they would be.
Tuesday was another rollercoaster ride, with the index plunging more than 2% in early trade before a late morning rebound erased all of those losses and then some.
As I wrote last week, the bear market is transitioning from large, multi-day moves to more sideways chop. One day’s down is followed by the next day’s up. But this is pretty standard behavior as a correction matures and people adjust their expectations to our new reality.
There is still a lot of uncertainty causing this back-and-forth, but as emotion leaks out of the market, every violation of support no longer triggers waves of panicked owners selling stocks. In fact, we start getting days like Tuesday where an ugly open is met with buying, not follow-on selling.
What comes next? Well, Tuesday’s close leaves us pretty much in the middle of the 3,600(ish) to 4k(ish) trading range. That means the scales are not skewed more in one direction than another and this could easily go in either way. And in fact, that’s exactly what it’s been doing as it keeps dropping and bouncing from day to day.
As for how to trade this, Tuesday’s strong performance was a clear sign to close any shorts we might have been holding over the weekend. As easy as it is to re-short the market, there is no reason to stubbornly stick to a potion and hope it turns around and starts going our way. Instead, close, move to safety, and reassess. As the saying goes, it is better to be out of the market wishing you were in than in the market wishing you were out.
And an aggressive trader could have even bought Tuesday’s afternoon bounce. But because the market is getting choppy, factor that into your trading decisions by trading smaller and waiting for a trade to start working before adding more.
If prices retreat Wednesday, no big deal, we get out near our entry points and wait for the next trade. Maybe that’s buying the next bounce or shorting the next breakdown. But if Tuesday’s rebound keeps going, add more and see where it goes.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday was a quiet session for the S&P 500 as the index finished almost exactly where it started. That was a welcome relief following Tuesday’s massive bearish reversal.
Does Wednesday’s stability suggest the worst is already behind us? I wish the market was that easy. Unfortunately, these things are rarely one-day events and that means the ugliness will likely continue Thursday and/or Friday.
While last week’s 6.5% rebound was impressive and 4k seemed within reach, the further along we get into a selloff, the less energy these moves have.
Early in the correction, selloffs and rebounds crashed through support and resistance. But after a while, investors start getting used to our new reality and emotion starts coming out of the market. That’s when these swings start stalling and reversing before reaching key support and resistance levels.
Nearly six months into the 2022 bear market and it makes sense last week’s rebound stalled before reaching 4k resistance.
But if the rebound stalled under 4k, then that means we are already riding the next wave lower. Maybe prices slip to 3,700 and find support. Or maybe we need to retest the lows near 3,600. Either way, both of those down legs involve further declines from here.
Or maybe Tuesday really was a rare one-day event, we bounce off of 3,800 support, and finally get up to 4k resistance. While not the most likely outcome, it is still very much a possibility.
Lucky for us, we are nimble traders and don’t need to commit to anything. Buy the bounce off of 3,800 and short the breakdown under 3,800. No matter what the market does next, we will be ready for it.
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