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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Thursday turned into the ugliest session for the S&P 500 since early March as the index shed 1.6%. This quarter-ending blood bath was a fitting finish since it capped off the first losing quarter in two years.
As dire as that sounds, the index is only down 5% from all-time highs, so stocks are actually doing fairly well, all things considered.
There are two ways to interpret the index’s stubborn resilience. Either stocks are defiantly strong and no amount of bad news can weigh them down. Or stocks are standing on a ledge and there is a whole lot of open air underneath us.
And as usual, every bullish or bearish interpretation largely comes down to a person’s biases and outlook.
That’s why avoid all the noise and simply follow the market’s lead. If it wants to go higher, great, I jump aboard the rally. If stocks want to retreat back to 4,400 support, no big deal, I step aside and wait for the next bounce.
As for what comes next. Stocks go up and stocks go down. That’s what they do. And Thursday happened to be one of those down days.
If a person has been following this blog, they were sitting on a nice pile of profits after buying March’s spectacular rebound. But rather than get complacent by our good fortune, we were getting nervous at these towering highs and played defense by snugging our trailing stops up near 4,600.
Now that those stops have been violated and dumped us out, it is time to start looking for our next entry point. From here, I see two. Bouncing back above 4,600 resistance and resuming this week’s breakout. Or dropping back to 4,400 and bouncing off of support.
Either of those will be our buy signal. Start small, get in early, keep a nearby stop, and only add to a position that is working. Until then, I’m watching this one from the safety of the sidelines.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slipped 29 points Wednesday in a rare giveback since the March lows.
This was only the third down day in a powerful, 450 point rally. While that shows just how huge this rebound has been, we need to be prepared for a reversion to the mean. In non-math lingo, that simply means every bit of up is followed by a bit of down.
It’s been a nice run and it’s given us a mountain of profits. But now it’s time to shift to a defensive mindset so we don’t let these profits escape.
As much fun as this has been, we only make money when we sell our biggest winners. And that time is getting close for this trade.
No one can consistently sell tops, so that means every time we sell, we are either getting out too early or holding too long.
There are advantages and disadvantages to both approaches. But rather than pick one over the other, why can’t we do both? And that’s my favorite way to play these setups.
Take a little money off the table and let the rest ride. That’s the best of both worlds. No matter what happens next, I have a pile of profits if prices fall and I’m still in the game if the rally continues a little further.
That’s a win-win in my book.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Tuesday was another great session for the S&P 500 as the index finds itself comfortably above 4,600 resistance.
This rebound amassed more than 450 points in two weeks. Nearly 10% if you like counting that way. And it added up to a huge pile of profits if you traded this rebound in a 3x ETF, as I do.
Not bad for a few weeks of “work”. The only thing we had to do was hold and keep lifting our trailing stops.
But now that we have a big pile of profits, what should we do next?
Protect them, of course!!!
Rarely does the market give us such a fast and easy trade, but as they say, don’t look a gift horse in the mouth. Only a fool is expecting this easy ride to continue.
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.
But rather than try and predict what’s coming next, savvy traders are making sure their trading plan is ready for both 4,400 and 4,800.
The best way to straddle this fence is holding for higher prices while snugging up our trailing stops to mid to upper 4,500s.
If the market goes up, great, I make even more money. If the market retreats, I lock in a pile of profits and get ready for the next trade. That’s a win-win in my book.
As I wrote in early March, markets move in waves. This is just as valid at the bottom of the wave as it is at the top of the wave. It’s been a very profitable ride. Just make sure we don’t screw it up by letting those huge profits escape.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
Monday was another good session for the S&P 500 and the index is quickly approaching multi-month highs.
Headlines remain the same, which is to say, dreadful. But if these things haven’t killed our economy yet, we will get through this. At least that’s what most investors are currently thinking.
While bears don’t agree with this latest runup, it makes a lot of sense when you look at the underlying supply and demand.
The 2022 correction started nearly three months ago and it’s been dragging on ever since. Three months is an eternity in the stock market. If nervous owners haven’t bailed out by now, chances are good nothing will convince them to sell.
If people want to know why stocks have already recovered 2/3 of 2022’s correction, it’s because we ran out of fearful sellers. And more than that, those fearful sellers were replaced by confident dip buyers. Out with the weak and in with the strong, that’s an obvious recipe for a market rebound.
While these things seem obvious now, for those of us that have been paying attention, it was just as obvious two weeks ago when stocks were probing the lows.
Back on March 9th, I wrote a post titled “Did you buy the bounce? If not, why not?“:
I follow the market’s lead and Wednesday [March 9th] the market was telling me to buy the bounce.
If prices continue higher Thursday [March 10th], great, I add more. If the bounce stalls and retreats, no big deal, I get out near my entry point and try again next time.
Maybe this is the real bounce. Maybe it is another false bottom on our way lower. Either way, my trading plan has me covered. Buy the bounce, sell the breakdown, and repeat as many times as necessary.
The next big bounce is coming and it will leave a lot of people behind. Luckily, I won’t be one of them.
If you were left behind, learn from that mistake. Sign up for my free email alerts so you don’t miss the next big trading opportunity.
400 points later and this is the time to be taking profits, not adding new money. If you missed this trade, wait for the next opportunity because the risk/reward is not in our favor.
As the saying goes, it is better to miss the bus than get hit by the bus. Don’t worry, another one will be along soon enough.
What’s good for the goose is good for the gander. The indexes are bouncing hard and they are taking most of the high-flying stocks with them. Not to be left behind, TSLA is up more than 40% from the lows of two weeks ago!
Without hesitation, we sell stocks when they violate our stops, but just because we got out doesn’t mean we give up on a trade. Stick with it and buy the next bounce and you can be pocketing 40% profits like this move in TSLA too.
Sell the breakdown, buy the bounce, and repeat as many times as necessary.
Move stops up to $1k and see where this goes.
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By Jani Ziedins | End of Day Analysis , Free CMU
Free After-Hours Analysis:
Tuesday was another good session for the S&P 500 as the index closed at the highest levels in over a month.
But paradoxically, headlines are not improving. Oil remains at the highest levels in eight years, inflation is at 40-year highs, the Fed is cooling the economy with a long string of rate hikes, and the war in Ukraine gets uglier by the day.
But as is always the case in the market, anyone waiting for headlines to get better before buying is going to be waaaaaay too late.
To get the best prices (and make the most money!), we have to buy before everyone else feels comfortable. And this crazy environment definitely counts as one of those times when most people don’t feel comfortable.
The market is forward-looking by nature and that means it trades based on what it thinks is going to happen in the future, not what is going on today. While all of the above situations are dreadful, they are not getting materially worse. And as is often the case, “less bad than feared” is an excellent reason to buy stocks.
As I’ve been saying all year, markets hate uncertainty more than they hate bad news. The market’s correction started on the double gut punches of rate hikes and a full-on war in Ukraine.
While it is obvious stocks will fall in an environment like that (and is why I recommended readers bailout back in early January), but two months later and there is far less uncertainty. Now the market can finally put a dollar amount on inflation, rising interest rates, the war, sanctions, and oil prices.
We are no longer worried about what could happen but are finally able to price in what is happening. And as is almost always the case, reality is turning out less bad than feared. (Our reality is most definitely ugly, but not nearly as ugly as the market’s runaway imagination.)
As wrong as this rally feels, this is the way it always goes. Savvy traders buy when everyone else is too afraid to buy because that’s the point when everyone who is going to sell has already sold and supply dries up. That capitulation point always occurs when headlines are their worst.
While there is always room for things to get worse (Inflation breaching 10%, oil breaking $150/bbl, Russia bombing Polish airfields, or Russia nuking Ukrainian civilians), it will take a significant escalation for stocks to crash under recent lows.
Trading always involves risk, but savvy traders trade what is happening, not what could happen. The greatest strength we have as independent traders is the nimbleness of our size. While I like the way the market is trading right now, if something changes tomorrow, no big deal, I lock in some really nice profits in the mid 4,500s and wait for the next bounce.
As for anyone sitting out of this market and looking to get in, I’m sorry to say, but this is most definitely the wrong time to be buying. These big two steps forward are poised for a very normal and healthy step back. Wait for that step back before jumping in.
If you find these posts useful, please return the favor by liking and sharing them!
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What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, receive actionable analysis and a trading plan every day during market hours
Follow Jani on Twitter @crackedmarket
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