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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
The S&P 500 finished Friday up 2.4%, the first meaningful gain in nearly two weeks and the first strong Friday close since March’s big rebound.
There were not any meaningful headlines driving Friday’s strength and instead, this is simply a routine bounce from oversold levels. Without any real meat behind this move, it could fizzle like all of the other failed bounces over the last several weeks. But as we know, markets move in waves and a bigger bounce is inevitable even if lower prices are still ahead of us. After falling 700 points over the last few weeks, even bears should be willing to admit a near-term bounce is imminent (at least the sensible bears).
Is this the start of a bigger bounce? It definitely feels like something changed, most notably the willingness to buy stocks ahead of the weekend. Rather than fear the weekend and get defensive, investors were finally willing to buy ahead of it.
But as is always the case, only time will tell and Monday’s price action will give us big clues about the market’s mood. Unfortunately, anyone waiting for Monday’s confirmation will be a couple of hundred points late to the party.
This remains a volatile market. While the risk of large swings feels scary, in reality, it actually makes this easier (and safer) to trade. That’s because once these things get going, they tend keep going. As we’ve seen over the last few weeks, violate support and the selling accelerates. But the same also applies in the other direction, once a rebound gets going, expect it to keep going as a wave of dip-buyers start chasing prices higher.
As long as we are decisive and make our moves early, it is easy to stay on the right side of a volatile market. Especially one like this that makes most of its big moves during trading hours (as opposed to large opening gaps).
I have no idea if Friday’s bounce will stick around next week, but it is acting well enough to give it the benefit of doubt. I bought Thursday afternoon’s bounce, added more Friday, and lifted all of my stops up to my entry points. Sitting on a nice profit cushion, even if this fizzles next week, I will get out near my entry points, no harm no foul.
One of these bounces is going to work, the problem is it will only happen after most people have given up. That simply means we need to be more persistent than most.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Thursday mostly where it started. While the final result sounds fairly innocuous, getting there was anything but a smooth ride. In mid-afternoon trade, the index was down as much as 2% before a late rebound came to our rescue and erased nearly all of those losses.
As has been the case for a while, not much new is going on in the headlines, ie everything that is broken has been broken for a while. Instead, traders are mostly arguing over how bad the looming US recession is going to be. And right now bears are winning.
As I wrote on Monday, if 4k failed, 3,840 was up next. Why 3,840? Because that represents a 20% pullback from recent highs and makes this officially a bear market.
Thursday’s pullback stalled at 3,858 before bouncing, but when it comes to the market, this isn’t hard science, and getting within a handful of points is close enough. At least that’s what Thursday afternoon’s dip buyers thought.
While I feel a little silly buying this 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.
In fact, I’ve made more money over the last three weeks buying these quick bounces than I’ve lost. When the market gives us free trades, only a fool passes those up.
If this trade blows up Friday, I’m only on the hook for partial position and at worst, I take a small loss. But on the other hand, if this rebound takes us back to 4,300, that’s a whole lot of profits. Small losses versus large profits? Yeah, I’m taking that trade every time.
Buy Thursday’s bounce. If the index retreats in early trade Friday, I get out and wait for the next bounce. If the Thursday’s late bounce keeps going, then move my stops up and buy more.
Everyone knows markets move in waves and we’ve been going down for a while. Even bears should be willing to acknowledge we are setting up for a near-term bounce.
Did the cryptocurrency market just go pop? I don’t know. But 50% off the highs for Bitcoin is definitely not good. And unfortunately, most alt-coins wish they were only down 50%.
While I’m not a bitcoin fan, I do love bounces, and Bitcoin’s bounce back above $30k Thursday evening is interesting, especially if the equity indexes find a bottom Friday.
Start with a small position, a stop under $30k, and see where this goes. If the trade works, add more. If it doesn’t, pull the plug for a small loss.
Low-risk/high-reward? These are the trades we dream of.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AAPL $AMZN
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 crashed 3.2% Monday, closing under 4k for the first time in over a year. But this isn’t a surprise, as I wrote last week:
Failing to do anything with the biggest up-day in two years is not good. Not good at all. While I’m an optimist by nature, at this point, recent intraday lows near 4,130 are all but toast. And I doubt it will get any better once we get there. 4,400 didn’t hold. Neither did 4,200. And 4,000 is going to be the next victim.
Well, here we are a few days later and now we can cross 4k off the list.
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Now that 4k is a victim of 2022’s correction, the next big bogie is 3,840. While that number seems somewhat arbitrary, it is significant because that represents a 20% correction from recent highs and would turn this correction into a full-on bear market.
Markets tend to go where the crowd is looking and if we came this far, it wouldn’t be anything to see it take those last few steps to make this official.
The good news is once this becomes a bear market, we can finally stop talking about it. And once we stop talking about it, odds are good people will stop selling it too.
The silver lining is Monday’s 3% plunge was one of the largest down days of the year. As far as capitulation goes, the selling typically accelerates moments before the bounce. So a big tumble means we are getting really close.
The problem is we won’t know what is too far until after it happens. Maybe Monday was capitulation. Or maybe we have another 4% or 5% tumble coming Tuesday or Wednesday. As I said, we won’t know until after it happens.
But lucky for us, these things are super easy to trade because the resulting moves are large and in one direction. Once this thing gets moving on Tuesday or Wednesday (either up or down), expect it to keep going.
If that’s down, get out of the way and wait to pick up the pieces. If that’s up, grab ahold, keep adding, and moving our stops up.
If we can get past our fear, riding these swings is a fast and easy way to make money.
While we are setting up for a nice bounce in the indexes, be careful with NFLX and AMZN. These stocks will bounce alongside everything else, but don’t be fooled. These growth stocks broke their sacred contract with the market and stopped growing. (How dare they!) Any bounces in these stocks are nothing more than a quick trade. It will be six or twelve months before these are investment-grade again.
While TSLA isn’t in this boat just yet, nearly 40% off the highs and it will be a while before people trust this stock again. Maybe Musk is selling as aggressively as he is because he knows something we don’t know yet.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
I often say the market loves symmetry, but holy cow, I did not expect Thursday to turn into a mirror image of Wednesday’s huge pop. But that’s exactly what we got, 3% up followed by 3.6% down.
Add those together and we ended up with a fairly tame -0.6%, but wow did the market take the long way getting there.
The market popped Wednesday when the Fed did exactly what they said they were going to do, which was raise rates by 0.5%. Nothing surprising there and Wednesday’s pop was more sentiment-driven than anything. While we didn’t get any meaningful headlines Thursday, if we poped on sentiment, we can just as easily collapse on sentiment. And that’s exactly what happened.
All of this leaves us mostly back where we started. But failing to do anything with the biggest up-day in two years is not good. Not good at all. While I’m an optimist by nature, at this point, Monday’s intraday lows are all but toast. And I doubt it will get any better once we get there. 4,400 didn’t hold. Neither did 4,200. And 4,000 is going to be the next victim.
While Thursday turned into a dreadful reversal, buying Monday’s bounce actually worked really well for me. As always, I started small, got in early, kept a nearby stop, and added to a trade that was working. Following those simple rules and I was sitting on a pile of profits Thursday morning.
While Thursday’s progressive selloff wasn’t what I had in mind, I got out at my nearby stops and watched the trainwreck from the safety of cash. Ultimately, Monday’s bounce didn’t work and I was “wrong”, but if I can make a pile of money being wrong, then I don’t mind being wrong. (And if this is what being wrong looks like, I can’t wait to be right.)
All of this said, I’m still far more interested in buying 52-week lows than shorting them simply because that’s the way the market works. The time to sell was back in January when this first started. Not now that we’ve fallen 700-points.
Remember, markets move in waves and even if this is a bear market, expect some big bounces along the way. While it didn’t happen this week, the next big bounce is coming. Chances are good it will follow next week’s test of 4,000 support.
If the indexes look bad, the FAANG stocks are appalling. AAPL is the best of the bunch because it is “only” down 14%. On the other end of the spectrum, NFLX was murdered, dropping a whopping 73% from recent highs. Of the group, FB looks the most interesting and is buyable once the index finds its footing.
Don’t touch AMZN or NFLX with a 10ft pole because few things are worse than growth stocks that stop growing. It will be a while before these stocks get their mojo back.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Monday evening I wrote the aptly titled post, “Why I’m not giving up and neither should you.” In it I said:
Everyone knows markets move in waves, yet people always forget this very simple fact in the heat of battle. Sell at the top, not at the bottom. Buy at the bottom, not at the top. While everyone understands that, so few people actually do it.
I bought last Thursday’s bounce. It looked great. But as is often the case, it didn’t work. I got dumped out near my entry points for a very inconsequential breakeven trade, and now I’m buying Monday’s late bounce. See how that works?
Will I make money Tuesday? Maybe, maybe not. But with my stops already near my entry points, I don’t have much to lose if I’m wrong and everything to gain if this finally takes off.
Well, here we are two days later and man did this thing take off. (Trade this in a 3x ETF like I do and that adds up to real money!)
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The Fed jacked up interest rates in the biggest one-day jump in two decades. How did the market respond? By rallying 3% on Wednesday. Funny how that works.
But this doesn’t surprise long-time market watchers. “Sell the rumor, buy the news” is as old as the market itself. Stocks tumbled weeks ago when Powell told us he was going to raise rates by 0.5%.
And guess what? The Fed did exactly what Powell told us he was going to do. But stocks rallied 3% anyway. That’s because as is usually the case, the market overreacts to bad news and then it pops back when reality turns out less bad than feared. In this case, the market cheered when Powell said the Fed wasn’t considering 0.75% rate increases anytime soon.
Anyway, as I wrote in Monday’s post, markets move in waves and it shouldn’t surprise anyone when a month-long skid ends in a big bounce.
While catching this bounce wasn’t easy and there were several false bottoms along the way. By starting small, getting in early, keeping a nearby stop, and only adding to a trade that’s working, I got out of my “mistakes” for breakeven.
More important than the result of those little tests is that I was making sure I was always going to be standing in the right place at the right time. While those previous bounces fizzled and dumped me out near my entry points, I knew the big pop was coming. And as it turned out, Wednesday was that day.
As for what comes next, Monday very well could be a near-term capitulation bottom and that means higher prices are still ahead. For those of us that got in early, move stops up to protect profits and keep holding to see where this goes.
For those that missed the bounce, the bounce will probably continue higher over the next few days and weeks, but buying late means taking a lot more risk. This shows why smart money is buying when everyone else thinks they are acting foolish. The real bounce doesn’t happen until after most people have given up, and that’s why savvy traders are more persistent than most people.
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What’s a good trade worth to you?
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