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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 added nearly 1% Wednesday, making this the fourth up day in a row. These gains left the index just shy of 4,600 and miles above last week’s panicked test of 4,200 support.
But everything changed after the close when Meta (aka FB) announced mediocre earnings. While mediocre works for banks and utility stocks, when it comes to highflyers, mediocre is a cardinal sin. And as such, the stock got murdered in after-hours trade, falling more than 20%. Yikes!
And when one of the pillars of tech goes boom, the reverberations are felt throughout the market and the S&P 500 has already given up all of Wednesday’s gains in extended trading.
The market giveth and the market taketh away.
But we knew something like this was bound to happen. If not this, it would have been something else. As I reminded readers last week near the lows, markets move in waves. It also bears remembering this same principle applies following a sharp run-up. Stocks move in waves at both the lows and the highs.
Now, I have no idea what Thursday holds for the market. Maybe FB’s after-hours crash is a severe overreaction and the selling won’t be nearly this bad Thursday during regular hours. Or maybe FB is the spark that launches the next big wave of panicked selling. At this point, either outcome is likely and our trading plan needs to be prepared for both.
Hopefully, most of my readers bought this bounce at much lower levels and are sitting on a big profit cushion. That gives us a lot of flexibility when it comes to responding to a big opening gap Thursday morning.
As for trading large opening gaps, I like to give the market 15-ish minutes to find its footing. Even if the market jumps my stops, this is the one and only exception to selling at my stops “no matter what”. Since I already took most of the hit during the overnight gap, waiting a few extra minutes doesn’t add a lot of additional risk to see if we get a quick bounce. If we bounce, great, I keep holding and move my stops to the early lows. If the selling continues, no big deal, I get out and wait for the next bounce.
But even with the index’s after-hours slump, given the size of my profit cushion from buying Monday’s bounce early, I’m not worried and will be sleeping like a baby tonight. If things get ugly Thursday, no big deal, I get out and start looking for the next trading opportunity. In fact, the bigger the selloff, the more money I make buying the bounce, so bring it on!
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Ummm yeah, in case you hadn’t heard, FB was murdered after the close. And that’s unfortunate. The stock was bouncing nicely off of $300 support this week and was very much buyable. But this 20% haircut reminds us that even good trades can fail spectacularly.
Now, even with this week’s modest profit margin, Thursday morning is going to be very, very painful for FB owners. But as I explained above, it is worth holding the stock for a few minutes after the open to see if prices bounce. Which they almost certainly will.
From there, it becomes a game of damage limitation. Don’t delude yourself into thinking there are rainbows and unicorns hiding behind these storm clouds. There will be a nice bounce over the next few hours and days. But rather than temp us into complacency, that is our opportunity to get out and limit our losses.
Without a doubt, this stock will be buyable again, but it has to go through some healing first. And I’d rather watch that from the sidelines.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Tuesday was another good session for the S&P 500 as it gained 0.7%, making this third up-day in a row.
Not bad given how much fear and uncertainty dominated the market only a handful of sessions ago. But that’s the way this usually goes. Stocks always bottom and bounce when pessimism is off the charts.
As obvious as this is after the fact, it always catches traders off guard in real-time. Humans love to draw trendlines from here to forever and are quick to assume that’s where we’re headed. But that’s not how this works … ever. Cognitively everyone understands markets move in waves, but they always forget this very basic fact in the heat of the moment.
Luckily for readers, I reminded them of this very thing last Thursday evening, hours before this big bounce started:
The thing to remember about dips is they don’t bounce until the crowd becomes convinced prices are headed lower. And right now, the AAII sentiment survey shows 52% bearishness, putting this stat at the highest levels in five years.
While we’ve hit 50% bearishness a couple of times over the last five years, each time that level turned out to be the capitulation point. Can bearishness get even higher? Sure. But is it the most likely outcome? Definitely not.
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Even a bear predicting a much bigger collapse should have been expecting a sharp, near-term bounce. That’s just how this game works.
Now that savvy bounce buyers are sitting on a pile of profits, (you are a savvy bounce buyer right?), it’s time to figure out what comes next.
Well, if the market moves in waves and we just experienced three big up-days, should we be planning on another three big up days? Of course not.
The time for buying has long since passed and now it is time to protect our profits. That doesn’t mean we need to pull the plug. But at the very least, we should be moving our trailng stops up to the lower to mid 4,400s.
Maybe January’s selloff is dead. Maybe it is only just getting started. Either way, my trading plan is ready for what comes next. I’m holding the bounce and will keep riding this wave higher if that’s the way it wants to go. But if this bounce fizzles and retreats, I’m happy to lock in my profits and wait for the next bounce.
While bulls and bears are busy arguing over where the market is headed next, I will be over here, quietly making money no matter which way it goes.
TSLA violated the $850 lows last week, triggering our stops. And hours later it bounced nicely off of $800 support.
While selling the $850 dip and buying the $800 bounce feels like an unnecessary exercise, we do what we gotta do because there was no guarantee $800 support was going to hold.
Just ask all of the people that held the momentary dip under $1,200, $1,100, $1k, and $900. Those poor owners are still waiting for their “imminent” bounce.
As an independent trader, my greatest strength is the nimbleness of my size. I would much rather get out too early than hold too long. Buying back in is easy and painless. But hoping and praying for prices to go back to the old highs? Yeah, that’s not so easy or quick.
But now that TSLA is back above $850, move our stops up and see where this goes.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The stock market loves symmetry and following a brutal few weeks, the S&P 500 was finally ready to bounce back with a vengeance.
The index climbed 1.9% on Monday, adding to Friday’s 2.4% pop, and now finds itself 7% above last Monday’s intraday lows. Blink and you missed the index reclaiming HALF of the January correction over just a few sessions!
But this was always going to be the case. Emotional markets make oversized moves … in both directions. +4% pop one day, followed a few days later by +2.5% and +1.9%.
While it is hard to call a -12% tumble from fun, rarely is it this easy to make a quick buck in the market.
As I explained to readers last week, the key to profiting from these opportunities is ensuring we are always standing in the right place at the right time. (That means both knowing when to get it and when to get out!)
While some people try to guess which bounce will be the real bounce, I’m too nimble of a trader to put up with such foolishness. Instead, I treat EVERY bounce as it if is the real bounce until it proves otherwise. Start small, get in early, keep a nearby stop, and only add to a position that is working.
Following those simple rules, I avoid the dips and am always there to capitalize on the bounces.
Sometimes I chase my tail during a false start, but you can bet I don’t mind a little extra effort when it eventually pays off like this.
Now, don’t get me wrong. January’s correction is far from over and we won’t be heading back to the highs anytime soon. But I’m sitting on a large cushion of profits while the “day-late and dollar-short” crowd is second-guessing this bounce. Which group would you rather be a part of?
Maybe this bounce fizzles and retreats, but that won’t be a problem because my trailing stops are already well above my entry points. And if I get dumped out, no big deal, I collect my profits and get to do this all over again the next time the market bounces.
Bring it on!
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AAPL turned strength into strength as it added 2.6% to Friday’s 7% pop.
But this is the way it usually works out with the best-of-the-best stocks and companies.
Always use a trailing stop to protect our profits, but never be afraid of getting back in just because our stops got us out. AAPL has been one of the best stocks of the last decade and odds are minuscule that it was going to suddenly forget how to make money.
Sell dips, buy bounces, and repeat.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Give the stock market lemons and sometimes it makes lemonade. A strong rally Friday afternoon turned what would have been the fourth consecutive losing week for the S&P 500 into a winner. And boy, did we need this winner.
Headlines haven’t changed in a meaningful way and the Fed’s Taper and Rate Hikes are just around the corner. While those headlines triggered the first stock market correction since the original Covid selloff, the market seemed to find its footing this week.
The resilience started Monday afternoon when a midday 4% bloodbath reversed and surprisingly enough, turned into a 0.3% gain by the close. As shocking as that rebound was, most investors remained skeptical and the index continued probing 4,300 support all week. But much to the chagrin of bears, 4,300 withstood 4 different assaults before the market eventually closed Friday above 4,400.
Not bad. Not bad at all. Especially given where this could have gone.
As I’ve been writing all week, these things always look the worst moments before they turn around. By rule, they have to. If it didn’t look bad, people wouldn’t sell and prices wouldn’t fall. And the thing to keep in mind is these things don’t bounce until the crowd has been demoralized and given up.
While a few days holding 4,300 support doesn’t mean this correction is over, it does look good and that means nimble traders are riding along.
No one knows which bounce will be the real bounce. But as nimble traders, that isn’t a problem. Rather than pick sides and guess, we treat every bounce as it were the real deal until proven otherwise.
Buy the bounce, start small, get in early, keep a nearby stop, and only add to a trade that is working. Follow those simple rules and this is actually a really low-risk way of trading this volatility. Get in near the bottoms of these bounces and a few hours later we have a nice profit cushion protecting our backside.
Move our stops up to our entry points and if the selling resumes, we get out for what we paid. Big rewards for catching the rebound and small risks if we get it wrong? What’s not to like about that?
Now, don’t get me wrong. Nothing in the market is easy. And plenty of bounces fail. But if we are okay with chasing our tail a few times, by keeping at it, we ensure we will be standing in the right place at the right time. And catching the next big wave higher will make it all worthwhile.
If most people lose money buying the tops and selling the bottoms, shouldn’t we do the opposite?
I bought a partial position Friday morning and added more Friday afternoon. If prices retreat on Monday, no big deal, I get out and try again next time. But if the bounce keeps going, I will be sitting on a pile while everyone else is wondering if they should get in.
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It’s been a rough few weeks for AAPL as this market darling was weighed down by external market pressures. But a shift in investor sentiment didn’t change AAPL’s fundamental business model and the company shattered earnings expectations Thursday evening. And the most valuable company in the world got 7% more valuable Friday.
Not bad for those that still believed in this company. While smart investors use trailing stops to protect their profits, just because we get out doesn’t mean we cannot get back in. In fact, the first thing we should do as soon as our stops get us out is start looking for that next opportunity to get back in.
Monday’s crash and bounce was remarkable for all the reasons I mentioned previously. This stock was bound to bounce and it was only a matter of time. So when it finally bounced, savvy traders were ready. Buy the bounce and put a stop under the lows. It really isn’t that hard.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Thursday was another back-and-forth session for the S&P 500 as early gains gave way to midday selling.
As I often remind readers, it’s not how we start but how we finish that matters most. Opening gaps are easily manipulated in the thin, overnight futures market. But the end of the day? That’s when the heavy hitters come out and there is no manipulating the close.
How we finish tells us what big money is thinking. And since big money drives the market, savvy traders always listen to what big money has to say.
At this point, we’ve had three weak closes in a row where the index retreated from intraday highs. While these late slumps haven’t sent us spiraling out of control yet, it does reveal big money is cautious at these levels and they are not chasing the bounces.
Without follow-on buying, every bounce stalls and retreats. But this isn’t unusual following such a demoralizing correction. Most investors are more worried about keeping what they have in this environment than making a quick buck buying the next bounce.
But the thing to remember about dips is they don’t bounce until the crowd becomes convinced prices are headed lower. And right now, the AAII sentiment survey shows 52% bearishness, putting this stat at the highest levels in five years.
While we’ve hit 50% bearishness a couple of times over the last five years, each time that level turned out to be the capitulation point. Can bearishness get even higher? Sure. But is it the most likely outcome? Definitely not.
So what do we do with all of this data? Big money’s reluctance to buy the dip means prices could retest Monday’s lows, but we are getting close to a near-term capitulation point where we run out of sellers.
Without a doubt, bear markets fall more than the 10%. But larger bear markets take time to develop. The pre-Financial Crisis top occurred in late 2007 and that bear market didn’t bottom until early 2009. Even short bear markets take three months to fully play out.
What I’m getting at is that while stocks could fall further from these levels, we’re not going there in one big jump. And that means we should expect some stability and bounces along the way.
Call them false bottoms, but to a nimble trader, those are buyable bounces. And that’s how I will be trading them.
To be perfectly honest, I don’t know which bounce will be the real bounce. (No one does.) The best way I’ve found to deal with this uncertainty is to assume everything is real until the price action proves otherwise.
That means I will keep buying bounces and selling them when they break down. (Start small, get in early, keep a nearby stop, and only add to a trade that is working.)
Sure, I’ll take it on the chops a few times, but losing a dozen points on a 1/3 position isn’t that big of a deal. Especially when bounces like Monday rack up 200 points of profit within hours.
While it is increasingly looking like Monday’s bounce is a bust, it was still a profitable trade for those of us willing to jump aboard it early and lock in profits when prices started slumping.
If the market wants to undercut Monday’s lows and bounce another 200 points, I’m perfectly willing to do it all over again. Buy the bounces, sell the dips, and keep at it until something better comes along.
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While this market correction has been destroying the FAANG stocks and even mega-caps like AAPL are not immune to the market’s forces, these highfliers did give us an entry point this week after bouncing off of Monday’s lows.
(Important note: we buy bounces not dips!)
While this was a slow trade to get started, AAPL is finally proving its worth, smashing earnings expectations and popping 5% in after-hours trade.
As I wrote earlier this week, people pray for market pullbacks so they can buy more of their favorite stocks, but every time the market answers their prayers, most of them are too chicken act. But for those willing to buy AAPL’s bounce, this is turning into a nice trade. Move stops up and see where this goes.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 took us on another wild ride Wednesday.
The session started off well enough with the index spending most of the day up a healthy 2%. Unfortunately, the Fed rained on the market’s parade when they hinted at the possibility of a more aggressive rate-hike schedule than many investors expected.
As much as bulls and bears want to argue over what this means for stocks, for savvy traders, the process is fairly simple. Either this is a non-event and prices make their way back to the highs over the next few weeks and months. Or the market is about to implode in a death spiral of panicked selling.
Option A we go up. Option B we go down. Why bother picking sides when it will be easy enough to simply follow the market’s lead? That’s what I will be doing.
The only thing that matters to me is the market does something. If I’m fully honest, it would be nice to see stocks fall a little further because cheaper is always better. But if it wants to go higher, I’m fine with that too.
Buy the bounce, sell the breakdown, and collect my profits. It doesn’t really get any more straightforward than that.
As for how I’m trading this. As I explained in my previous posts this week, I bought Monday’s bounce and was adding to that position with stops at or above my entry points. Things were looking really good Wednesday when the rebound was hitting new highs. But the Fed came along and changed all of that.
This remains an emotional and volatile market and there are no half-steps. When the market started falling Wednesday afternoon, that was our sign to get out. Holding and hoping for a quick bounce wasn’t an option. This market moves too fast to think like that. Pull the plug quickly and start looking for the next entry point.
If a person acted decisively enough, they pocketed some nice profits locking in this week’s swift bounce from Monday’s lows.
While it’s nice to pocket a few bucks, we are always looking toward what’s coming next.
Maybe the index bounces Thursday, giving us another nice entry. Or maybe the panic selling sends us crashing under Monday’s lows. Either way, I’m perfectly content being a little late than a lot early. I’ll let other people argue about what stocks “should” be doing. Instead, I’ll stick with trading what it “is” doing.
Buy the bounce and sell the breakdown. Start small, get in early, keep a nearby stop, and only add to a position that is working. And if I get dumped out, no big deal, I wait for the next bounce and try again.
Follow a simple trading plan and this isn’t nearly as difficult as most people make it out to be.
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TSLA reported historic profits after the close but the stock barely moved in after-hours trade. While flat isn’t as exciting as up, it sure beats going down. That tells us most investors were expecting this result and are comfortable with these valuations.
More important is this week’s bounce off of $850 is still intact. Stick with this bounce as long as it remains above support and see where this trade goes.
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By Jani Ziedins | End of Day Analysis , Free CMU
Free After-Hours Analysis:
Tuesday was another wild session for the S&P 500 as it swung between 3% losses and breakeven before eventually finishing down an intermediate 1.2%.
When is a 1.2% haircut actually considered constructive price action? When it follows a 4% intraday reversal the day before. In this case, two steps forward, half a step back. It is hard to call Tuesday a bad day given what could have happened.
If Monday’s sharp rebound was a house of cards, it would have collapsed Tuesday during that early 3% retreat. But instead of spiraling out of control, supply dried up and prices spent most of the day comfortably above those early lows.
Everyone laments how they wish their favorite stocks would pull back so they could buy more. But every time the market gods answer our prayers, most people lose their nerve. Instead of loading up on all of those wished-for discounts, most people join the panicked herd dumping stocks. Pretty ironic, eh?
While it feels like these selloffs and bounces come out of nowhere, that is almost never the case. Like a lobster resting in a cool pot of water, the heat comes on gradually.
Back in early January, we got that first interest rate fueled 2% tumble. But the market actually gave us plenty of time to get out near 4,750 when prices undercut recent lows. (You use trailing stops right???) That was our first and best signal to start peeling off profits. A few days later, the index bounced off 4,600. People who missed the first 4,750 selling opportunities were given another chance to get out.
And here we are, two weeks later, testing 4,200.
As I told readers back on January 5th when all of this started:
I came into Wednesday with sensible trailing stops spread across the lower to mid 4,700s to protect my profits “just in case”, but I was already pulling the plug on some of those positions long before those stops got hit. As easy as it is to buy back in, there is no reason to stick around when the tide so obviously starts turning against us. When the panic selling hits, I want to be one of the first to get out, not one of the last. And that means acting early and decisively.
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That was then, but what about now?
While Monday’s 4% rebound left a lot of people flat-footed, Tuesday’s retrench gave everyone another shot at buying those big discounts. Did you have the nerve to take advantage of it?
Remember, start small, get in early, keep a nearby stop, and only add to a position that is working. Follow those simple guidelines and you can profit from these great trading opportunities too.
If prices retreat later this week, no big deal. We get out at our stops and then buy the next bounce. It really isn’t that hard.
If a person is paying attention, the market isn’t nearly as cruel as its reputation. Look for the clues and you can avoid most of the carnage and be there to profit from everyone else’s misfortune.
Keep your cool during times like this and making money is pretty easy.
Much like the indexes, TSLA gave us a nice buyable bounce Monday.
If we sold the violation of $1k support last week, we were sitting on a pile of cash looking for the next trading opportunity. And as luck would have it, it only took two trading sessions for TSLA to give us the next entry point. Buy the bounce with a stop under Monday’s lows.
Maybe this bounce holds or maybe it doesn’t. But someone that bought the $850 bounce is already well ahead of the TSLA owner that held this retreat from $1,200.
Profit comes to those willing to act. Everyone else gets left holding the bag. Don’t be everyone else.
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