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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 started the week off well enough, notching a 1.9% gain following the longest weekly losing streak in 70 years.
As bad as every stock chart looks right now, that is exactly why we should be prepared for a near-term bounce. Everyone knows markets move in waves, yet most people forget this simple fact in the heat of battle. While a 70-year losing streak is impressive, savvy traders are anticipating a vicious snapback, not another seven weeks of selling.
As I’ve been warning readers, the market likes to go where people are looking and 3,840 was a widely followed level simply because that represents a 20% pullback from January’s highs. Well, as luck would have it, Friday’s session touched the magical -20%. But rather than trigger a follow-on wave of reactionary selling, supply dried up and prices bounced nicely into the close. Funny how that works.
As much as I expect lower prices over the medium-term, Friday’s late rebound was the perfect invitation to jump aboard a near-term bounce that could travel as high as 4,300 resistance. 400 points of upside is nothing to sneeze at!
This is the trade we’ve been waiting for and hopefully, most readers were able to take advantage of it. Buy Friday’s late bounce, add more Monday morning, and move stops up to our entry points. It doesn’t get much more straightforward than that.
Hundreds of points of potential upside and by getting in early, we already have a nice profit cushion and next to no downside. Trades don’t get any better than this.
If the bounce fizzles, we get out near our entry points, no harm no foul. If the rebound continues to 4,300, we make a pile of money. Gotta love that risk/reward!
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 crashed 4% Wednesday in the biggest loss since 2020.
The weekly losses were partially offset by Tuesday’s nice 2% pop, but no matter how we try to rationalize it, -4% is a horrific day any way you cut it.
As most readers know, I bought last Thursday’s late bounce and that trade was working well enough that I was able to lift my stops above my entry points this week. And good thing I did because that allowed me to lock in a modest profit Wednesday morning before the selling really got carried away.
While no one is getting rich arbitraging these small swings, the good news is I could be wrong about the bounce but still make money on the trade. It is hard to beat that risk/reward! If I’m right, I make a big pile of money. If I’m wrong, I make a small pile of money. I will take those trades every day of the week!
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Now, it doesn’t always work out this way, but for people that are willing to jump aboard these bounces early, it happens more often than you think.
Now, compare my modestly profitable trade to the more conventional approach of waiting for confirmation before buying. Those people bought Tuesday’s 2% bounce, and unfortunately, almost every single one of them got dumped out for a loss Wednesday.
Getting in early is scary, but it is usually the safest time to be buying.
As for what comes next, there is no silver lining to a 4% loss. Dip buyers had the opportunity to jump aboard this latest bounce, instead, they sold it with everything they had. If this market was oversold, it would have bounced and not looked back. Instead, we were left with this bloodbath.
At this point, I can’t see any way around crashing through last week’s lows near 3,850 and making the bear market official. And from there, only one bear market over the last 70 years bottomed at -20%, meaning odds are good once we hit -20%, the selling keeps going.
I’m still waiting for that next bounce, and it is coming, but lower prices are ahead of us first. Lucky, I’m watching this carnage from the safety of the sidelines. (Aggressive traders can short this weakness but be ready to take profits quickly because these things bounce hard and fast.)
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By Jani Ziedins | End of Day Analysis , Free CMU
Free After-Hours Analysis:
The S&P 500 added 2% Tuesday and finds itself more than 200 points above Thursday’s intraday lows. Not bad, not bad at all.
Blink and you missed a great trade. But that was always going to be the case. Stocks snap back from oversold levels quickly. Wait a day or two for confirmation and you missed a whole lot of gains. And more than just lost profits, buying this late leaves a person vulnerable to a routine intraday step back, like the 40-point retreat we saw Tuesday morning.
As risky as it feels, buying the bounce early is the safest place to jump aboard. Distilled to its core, risk is nothing more than a function of height. The higher we are, the more room we have to fall. And on the other end, the further we fall, the less room we have left to fall.
It never feels this way in the heat of the moment. Most people are most confident at the top and scared at the bottom. But savvy traders know real risk is the exact opposite of perceived risk.
Everything felt great in January, but with 20/20 hindsight, obviously, January was a terrible time to be buying and holding stocks.
Now that the index is nearly 900 points lower, everyone is terrified of stocks, but common sense tells us it is far safer to be buying stocks down here than it was back in January.
It never feels good buying stocks after big pullbacks and buying Thursday’s late bounce was anything but easy. But three sessions later and the index is dramatically higher. It’s gotten to the point where my stops are already comfortably above my entry points, making this mostly a free trade for myself.
Keep going and I make a pile of money. Retreat and I get out at my stops and collect a few bucks for my time. Not a bad way to be wrong. But the only reason this trade is working so well for me is because I had the courage to get in early.
But none of this will surprise readers of this blog. As I wrote last Thursday:
While I feel a little silly buying [Thursday’s] bounce given how many false bottoms we’ve had over the last several weeks, I did it anyway because that’s what my trading plan told me to do. I started with a small position and a stop under intraday lows.
Will Thursday’s late rebound stick? Probably not. But I buy all of the bounces because I’m not psychic and I don’t know which one will work. The only way to make sure I don’t get left behind is to buy all of them. And by starting small, getting in early, keeping a nearby stop, and only adding to a trade that is working, I can buy these bounces with very little risk.
Well, here we are a few days later and I’m sitting on a nice pile of profits.
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As for what comes next, most of the market’s failed bounces turned tail within days, so four days into this bounce and it already looks different than the ones that let us down.
There are no guarantees in the market and this one can fail at any moment too, but it looks good so far and that means I will continue giving it the benefit of doubt. Anything above 4k and we are doing well.
I’m lifting my stops and watching to see how far this rebound goes. Hopefully, you are right there with me.
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What’s a good trade worth to you?
How about avoiding a loss?
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