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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 popped Tuesday morning after inflation hit a new 40 year high.
While record-high inflation and rising stock prices don’t go together intuitively, that didn’t stop people from chasing that early wave higher. Apparently, a fair number of traders were relieved inflation was not even worse.
Unfortunately, that relief proved short-lived and stocks ultimately slumped under 4,400 support in late afternoon trade.
But as wild as the intraday ride felt, it was actually a fairly benign session with the index finishing down a modest 0.3% and just a hair under 4,400 support. Not exactly panic material.
As I wrote yesterday, I was out of the market and looking to buy the next bounce. Which I did Tuesday morning. But as always, I started small, got in early, and kept a nearby stop.
While that initial buy started working right out of the gate, by midday, it was pretty obvious the bounce was faltering and it was time to pull the plug on my small position.
The thing about bounces from oversold levels is they take off and don’t look back. Any kind of second-guessing like we saw Tuesday afternoon tells us stocks are not yet oversold and further weakness is likely.
While my initial stops were back at Monday’s close, there is no reason we need to wait until our stops are hit before we sell. When a trade isn’t working the way it is supposed to, don’t wait for the losses to pile up, get out and start looking for the next trade.
If Tuesday afternoon’s fizzle turned out to be a false alarm, no big deal, there is no reason I can’t jump back in. But most of the time when these things don’t stick, things are only going to get worse the longer we wait.
The greatest strength we have as independent traders is the nimbleness of our size. If we give that up because we are too scared to jump aboard an early bounce or we are too hesitant to pull the plug on a trade going wrong, then we have no chance at surviving this game against bigger, stronger, and more sophisticated opponents.
Big money has its strengths and we have ours. And we can both make money if we stick to our trading plan.
As for what comes next, I’m out and looking to get back in. If prices bounce Wednesday morning, then I get to do this all over again. The best thing about a failed bounce is it means we are that much closer to the real one.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Monday was another bad session for the S&P 500 as the latest step back continues and the index now finds itself just a few points above 4,400 support.
But this isn’t a surprise for readers of this blog. I warned readers to be careful back on March 29th when the index hit 4,631 following a stupifying 450 point rally from March’s lows in little more than two weeks:
Now that we’re at the highest point since the 2022 correction started and within 200 points of all-time highs, we should expect the rate of gains to stall, if not outright retrench in a very normal and healthy step-back. Retesting 4,400 wouldn’t be a surprise.
Well, wouldn’t you know it, here we are back at 4,400 support. Funny how that works.
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Now, I’m not claiming I predicted this. The rally’s momentum just as easily could have continued up to 4,800. But that wasn’t the most likely outcome and the risk/reward following a 450 point surge flipped against us. Rather than get greedy, that was the time to move to defense and make sure our trailing stops were snug up against current prices, ensuring our big pile of profits was well protected. (We only make money when we sell our favorite positions.)
March was a good month and it felt good to lock in all of those profits. (I rode that wave in a 3x ETF.) But as soon as I’m out, the first thing I start doing is looking for the next entry point.
While 4,400 support was the most obvious target, sometimes these things bounce above support and I didn’t want to be left behind if that happened this time. So I bought the bounce off of 4,450 last week and rode that for a little bit. (Start small, get in early, keep a nearby stop, and only add to a position that is working.) I was even fortunate enough to be able to move my stops up to my entry points as the bounce progressed a little.
While last week’s bounce didn’t work, it was a small position and I pulled the plug near my entry points, giving me a virtually free trade. Critics will make fun of last week’s buy because it obviously didn’t work, but by being nimble and getting in early, I had a free trade! If it made money, great. If it didn’t, I got out and it didn’t cost me anything. By that measure, it would be stupid to not jump on that ridiculously generous risk/reward. (If that’s considered one of our “bad trades”, then we are definitely doing something right!)
But now that I’m out, guess what, I’m already looking for that next entry point. And chances are good we will see a nice bounce off of 4,400 support Tuesday. Maybe it sticks. Maybe it doesn’t. But either way, I’m starting small and getting in early. If it works, great. If not, no big deal, I sell and try again next time.
TWTR popped 27% last week after Elon revealed he bought nearly 10% of the company. Unfortunately, the stock has retreated from those initial highs.
While we don’t need to give up on this trade, a savvy and nimble trader would cut bait when this undercut the pop’s lows. It’s not that we don’t believe in this trade, but every good trading plan always starts with defense. If we know ahead of time when we will get out, then a lot fewer bad things will happen to us. (Making money in the market is easy, the hard part is keeping it!)
In this case, TWTR is definitely buyable if it gets back above $50. But we need to be careful under $50 because these things have a nasty habit of closing the gap and there is no reason to ride this all the way back down to the lower $40s.
As I always remind my readers, buying back in is a lot easier than wishing prices would go back to the levels we wish we sold at.
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By Jani Ziedins | End of Day Analysis , Free CMU
Free After-Hours Analysis:
The S&P 500 bounced off of 4,450 Thursday, making this the second day in a row 4,450 support held.
Headlines are a mess, which is to say, not much has changed.
Investors are slowly coming to terms with our new reality and most owners who are afraid of these things bailed out a long time ago. Running out of fearful sellers is keeping supply tight and putting a floor under stocks.
Two steps forward, one step back.
The index exploded 450 points higher from March’s oversold lows. But as expected, we have fallen into a very normal and healthy step back from those highs.
Is a 180 point pullback enough? Maybe. Maybe not. We won’t know until after it happens, which means as traders, we have to make decisions based on incomplete information.
While most people try to guess which bottom is the real bottom, I’ve been doing this for far too long to fall for such foolishness.
I realized a long time ago I can’t pick bottoms. But just because I can’t pick a bottom doesn’t mean I cannot trade bottoms. In fact, buying dips is one of my favorite ways to make money. But rather than guessing which bounce will be the real bounce, I hedge my bets by buying ALL of them.
Start small, get in early, keep a nearby stop, and only add to a position that is working.
Following those simple rules, I buy all of the bounces. Some of them work. Most of them don’t. But by starting small, getting in early, keeping a nearby stop, and only adding to a position that is working, the cost of being wrong is small.
In fact, many times I actually get in early enough to make a few bucks buying the wrong bounce. That’s because I quickly lift my stops to my entry points and then even a little higher as the bounce progresses. And when the bounce fizzles, I pull the plug at my raised stops, collect a few bucks, and wait for the next bounce.
The key is starting small and getting in early. And of course, keeping a nearby stop and only adding to a position that is working. Have I mentioned that yet?
But seriously, as nimble traders, there is no reason we have to pick and choose bottoms when we can simply buy all of them with very little risk.
I’ll let other people guess, for me, I’m sticking with the sure thing.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 continued struggling with 4,600 resistance Tuesday, but this isn’t a surprise. Last week I wrote the post: “Now that we have a mountain of profits, how to protect them“. In it I said:
Now that we’re at the highest point since the 2022 correction started and within 200 points of all-time highs, we should expect the rate of gains to stall, if not outright retrench in a very normal and healthy step-back. Retesting 4,400 wouldn’t be a surprise. In fact, that step back is far more likely than continuing to record highs above 4,800.
Well, here we are, a few days later and the market is nearly halfway back to 4,400 support. Funny how that works.
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As I’ve been saying all year, markets move in waves. That was just as applicable at the bottom of the wave, as it was back in early March, as it is following a huge, 450 rebound from those very same lows.
Stocks go up and stocks go down, that’s what they do. Yet every time it happens, people get caught off guard.
Anyway, back to Tuesday’s price action, it was awful. An early test of 4,600 resistance failed and the index closed at the intraday lows. That’s not a good sign.
While headlines remain dreadful, they are not getting worse. “Less bad than feared” was good enough to rebound from last month’s oversold levels. But now that huge wave of buying is behind us and it is getting a lot harder to convince new buyers to pay these premium prices.
Tight supply got us here, but we need new demand to keep going. And unfortunately, it’s nowhere to be found.
Maybe after the index retest 4,400 support and bounces, buyers will finally start feeling more comfortable at these levels. But until then, we continue sitting on the pile of profits we locked in last week and wait for the next bounce.
Be ready because it could come as soon as Wednesday. (Start small, get in early, keep a nearby stop, and only add to a position that’s working)
TSLA is blowing the doors off the competition, this time by announcing a huge stock split. While I don’t buy into the hype around stock splits, I love anything that is going up and TSLA definitely fits in that category. Good thing we’ve been in TSLA since it bounced off of $800 last month. Now there is nothing to do but lift our stops up near $1,050 and see where this goes.
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