Jan 13

The obvious reason traders should have been ready for Thursday’s pullback. Plus, is there hope for the meme stocks?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

Thursday started off well enough for the S&P as it opened with a 0.2% gain. Unfortunately, that was as good as it got and it was all downhill from there. By the end of the session, the index shed 1.4% and it closed at the daily lows. Ouch!

As the saying goes, easy come easy go. Luckily this drop didn’t surprise readers of this blog and we were ready for it.

As I reminded readers Tuesday evening:

First bounces have high failure rates. And this bounce is not any different. When everything starts feeling easy is when the market tends to pull the rug out from underneath us.

Now don’t get me wrong, I was not predicting a top Tuesday evening. I learned a long time ago trying to predict the market’s exact turning points is a fool’s game. But just because we are not predicting the market’s next move doesn’t mean we cannot prepare trades based on probabilities.

The market covered a huge amount of ground from Monday’s very nice (and very buyable) bounce. That does two things. First, the higher we go now, the less upside we have remaining in the move. And two, risk is a function of height, so the higher we are, the more room we have to fall.

Less upside and more risk? That is a poor buying environment and tells us we should be shifting away from offense and getting into a defensive mindset.

If I traders came into Thursday with a defensive game plan, they would have been perfectly positioned to protect this week’s nice profits.

Anyone playing defense Thursday is now we’re sitting on a pile of profits. But rather than pat ourselves on the back, it is time to start looking for the next buyable bounce. It could come as early as Friday so we need to be ready.

Maybe the selloff continues Friday and the index crashes through 4,600 support. Or maybe prices bounce off of this support level Friday morning. Either way, cash is the best place to be because we don’t have to worry about how big this selloff will be. Instead, we eagerly await the next trading opportunity. And the lower this goes now, the more money we make buying the next bounce.

If the market bounces Friday, remember, start small, get in early, and keep a nearby stop. And if the index closes at the upper end of the day’s range, add more.

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The meme stocks are getting killed. Sometimes things get so bad they become good. But in the case of GME, AMC, and HOOD, bad is just bad. These are momentum stocks and the momentum is most definitely negative.

Savvy traders abandoned these stocks when they violated support back in November. But if a person is still hanging on to these deadbeats, it isn’t too late to sell. Things will only get worse the longer you wait.

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Jan 12

What to expect when trading feels a little too easy. Plus how savvy traders are handling TSLA’s dips and bounces.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 finished Wednesday nearly 150 points above Monday’s early lows. It is truly amazing how much ground the market can cover when it sets its mind to it.

But now that the crowd is finally breathing a sigh of relief because “the first selloff of 2022 is already over”, is it time for savvy traders to start getting nervous?

As I wrote earlier this week, first bounces have high failure rates. And this bounce is not any different. When everything starts feeling easy is when the market tends to pull the rug out from underneath us.

But just because this week’s bounce could fail doesn’t mean buying it was a mistake. Those of us that got in midday on Monday are sitting on a healthy profit cushion. That gives us a lot of margin to protect ourselves in case this rolls over. In fact, this trade has progressed to the point my trailing stops are already above my entry points. Even if this bounce fails, I could be “wrong” and still turn a profit. (Gotta love it when even your bad trades make money.)

Low risk, high reward. These are the setups we live for. By starting small, getting in early, and keeping a nearby stop, we were able to jump aboard this bounce in a low-risk way.

And if you missed Monday’s bounce, don’t worry, another one will be along soon enough, especially if Monday’s bounce fails. You just have to keep your eyes open and be willing to move when everyone is paralyzed by fear and indecision.

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TSLA’s latest bounce off of $1k support is also progressing nicely. Sell the pullback from $1,200 at our trailing stop and buy the next bounce off of support. What’s not to like about that?

Sure, most owners held through the dip and are just fine. But that’s only because prices bounced off of support. What happens when prices don’t bounce?

There is no reason to hold a pullback if we don’t have to. For independent traders like us, getting in and out is so easy, there is no excuse not to.

Because you know what? One of these dips won’t bounce and that will make all of the extra effort worthwhile. Just ask the long-term holders of GME, PTON, ZM, and DOCU what that feels like.

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Jan 11

Why both bulls and bears were right and how we profited from that. Plus how TSLA is giving us another great entry.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

The S&P 500 recovered 100 points in little more than 24 hours. As I often write, markets bounce hard and fast from oversold levels and the last two sessions of buying frenzy definitely count as hard and fast.

While Powell and the Fed keep talking up near-term rate hikes to combat inflation, aside from this little wobble, the stock market doesn’t seem all that concerned. After five days of selling, supply already dried up and confident dip buyers have cut those losses in half. If this is the best bears can do, we don’t have much to worry about.

As I wrote last week:

While both bulls and bears will tell you they know for certain what is going to happen next….in reality, both sides will probably be right. Prices will fall further, initially proving bears right. But inevitably, every selloff finds a bottom and prices bounce, proving bulls right.

The market fell another 100 points after I wrote that … and it has since reclaimed all 100 of those points.

While this up and down is a wash for most investors, for the nimble traders among us, selling high and buying low is the name of the game. Rather than sit through these dips, hoping and praying they bounce, I get out, wait for the bounce, and get back in at lower prices.

Cutting my risk and getting paid for the protection? Trades don’t get any better than that!

Now, I will be the first to admit there are no guarantees in the market and this bounce could fail. But by buying midday on Monday, our entry points are well underneath current levels and we have a huge profit cushion. My stops are already at or above my entry points, meaning this is already a profitable trade for me even if prices collapse.

And guess what? If I’m wrong and the market noses over later this week, even better. I get out above my entry points, collecting a small profit for my effort and then I get to buy even bigger discounts next week. Go up and I win. Go down and I win. Learn to trade proactively and this could be you too.

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TSLA bounced nicely off of $1k support Monday, giving us an attractive entry for this popular high-flying stock.

For those of us that bought TSLA’s last bounce off of $900 and followed it up to $1,200 with a trailing stop, we locked in some really nice profits. And a few days later, we are already buying back in, ready to do it all over again.

I don’t know if this bounce off of $1k support will stick or not. But by getting in early and keeping a nearby stop, the risks are low and the rewards high. These are the setups we dream of.

If it doesn’t work, no big deal, I get out and buy the next bounce.

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Jan 10

Bears tried to break the market and they were broken instead. Plus, is Bitcoin so bad it’s good?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Monday proved to be a wild ride for the S&P 500 with the index traversing more than 150-points intraday.

While it felt like the world was ending in the first two hours of the session, as is often the case when the crowd gives up hope, stocks found a bottom and it was all uphill from there. In fact, this decisive rebound carried us so far we nearly erased all of those early losses.

Bears tried to break the market and they were broken instead. This price action is as bullish as it gets. Bears threw everything they had at the market and all of it bounced off.

While this won’t end our near-term volatility, it did go a long way toward shaking out most of the weak hands and with them gone, there are a lot fewer people left to sell the next bout of weakness. Every selloff eventually runs out of sellers and that is the exact moment when the gettin’ gets good!

Hopefully most readers honored their trailing stops last week and locked in a pile of profits before this morning’s blood bath took place. At most, we should have carried a small partial position through the weekend, and even that would have been dumped not long after Monday’s poor open.

But like every nimble trader, as soon as we are in cash, the first thing we do is start looking for the next buying opportunity. And wow, was that bounce off of 4,600 was a thing of beauty. Entry points don’t get much better than that!

Now that our early buys have 70-points of profit margin in them and our follow-on purcahses are doing nearly as well, it is simply a matter of holding and seeing where this goes. This has already gotten to the point where we can lift our stops to our entry points, giving us in effect, a nearly free trade.

Huge upside and nearly zero downside, gotta love that risk/reward. These are the kinds of trades we dream about. Hopefully you didn’t miss it.

But as is always the case, the market is anything but predictable and that’s what our stops are for. But as long as this reams above Monday’s lows, this bounce is alive and there is nothing to do but keep holding and adding.

Bitcoin went through a similar whipsaw Monday morning when it undercut $40k support. While this felt horrible for anyone that’s been holding since the $60k’s, for those of us that used trailing stops and locked in really nice profits months ago, this bounce off of $40k support is a great entry point.

Buy the bounce with a stop underneath $40k and see where this goes. I don’t particularly care for bitcoin’s long-term prospects as an investment, but I know a good trade when I see one. While there is a good chance this bounce could fail, this is a clearly defined entry point with a sensible nearby stop. Low risk, high reward. Even with a lower probability of success, that’s still a great trade and very much worth making.

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Jan 06

The smart way to trade this week’s selloff. Plus is GME finally getting its mojo back?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 is traded mostly flat following Wednesday’s 1.9% blood bath, finishing Thursday down a modest 0.1%

Half-full or half-empty? Both sides have good arguments here.

Not extending the selloff is a bullish sign. Collapses are breathtakingly quick. Stop to ask questions and you are already too late. So holding at these levels for a full day is definitely helpful and is the first step in a recovery.

But on the bearish side, there was little dip-buying Thursday. Prices bounce hard and quick from oversold levels, meaning we might not be oversold yet.

So which is it? While both bulls and bears will tell you they know for certain what is going to happen next, the simple truth is no one knows and only time will tell.

In reality, both sides will probably be right. Prices will fall further, initially proving bears right. But inevitably, every selloff finds a bottom and prices bounce, proving bulls right.

What should traders do during turbulent times like these? Leave our biases at the door, stay nimble, and only trade what is happening right in front of us.

Ideally, most of my readers were using sensible stops and bailed out Wednesday afternoon when the index undercut our stops. Now that we’re safely in cash, the first thing we start doing is looking for the next entry point.

Thursday morning gave us an interesting buying opportunity. Unfortunately, the opening bounce failed not long after it got started. But if we were disciplined and started small, got in early, and kept a nearby stop, any slippage from buying that early would have been trivially small.

Small risk, large potential reward, those are the trades we wait months for. Just because it didn’t work this time doesn’t mean it was a mistake. Give me a low-risk/high-reward trade like that and I will take it every time!

The market bounced again off of those mid-morning lows. Again, giving us another invitation to buy a partial position when it got above the opening levels. Again, start small, place a stop under the intraday lows, and wait to see what happens next.

While it would have been nice to see prices rally strongly into Thursday’s close, the market gave us an ambiguous close, deferring its next move to Friday. No big deal. These things happen.

Should we have held that small position overnight or pulled the plug?  That’s entirely up to you. If you like this bounce and are willing to let a small position ride. Go for it. A little uneasy, no problem, pull the plug and try again Friday. There are no wrong answers here.

And if a person feels like they missed a bounce, don’t sweat a few points here or there. Getting in 20 points late won’t matter much when the real bounce rallies another 200. More important is we get in even if that means missing the lows by a few hours. The timing isn’t nearly as important as most people make it out to be.

And if this isn’t the real bounce and we get dumped out again? No big deal. Trading small positions limits our losses and we simply wait for the next bounce.

Remember, periods like this is when we make our money. If this was easy, everyone would do it. But the payoff will be there as long as we stick with it and don’t give up.

GME popped as much as 30% in after-hours trade following reports it was getting into NFTs. If you don’t know what NFTs are, don’t worry, no one else does either. All you need to know is NFTs are the newest buzz term and companies embracing it is the equivalent of adding “.com” to a business’s name back in the 2000s. It’s good for some temporary hype, but real investors want to see the money and so far NFTs have been more hype than substance.

Even with this big pop, GME only reclaimed a few weeks’ worth of losses. This stock is in a strong downtrend and unfortunately a no TLA*, no matter how buzzy, is going to bring its momentum back. (*three-letter acronym)

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Jan 05

Why smart money was holding Wednesday morning and selling Wednesday afternoon. Plus what’s driving bitcoin’s selloff

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis:

A modest midday slump in the S&P 500 devolved into a late blood-bath after the Fed’s meeting minutes suggested interest rate hikes could be coming a whole lot sooner than many investors expected. That’s all it took to rain on the bull’s parade and send previously confident owners scrambling for the exits.

As I wrote yesterday evening, I was comfortable with the market’s recent price action. That even carried over to this morning’s modest slump. Everyone knows we cannot go up every single day and red days are a normal and healthy part of every move higher.

But that changed Wednesday afternoon when normal and healthy took a sharp turn into panic. While I was comfortable a few hours earlier, when conditions change, my outlook changes along with it. Only stubborn traders dig in and ignore the evidence in smacking them in the face. And luckily, I’m not one of them.

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.

Does Wednesday’s dip stand any better chance of succeeding than all of the other aborted selloffs the market shrugged off last year? Probably not. But as nimble traders, why do we need to pick sides? As easy as it is to jump out and get back in, why would anyone want to ride through a near-term dip if they didn’t have to?

Sell and see what happens from the safety of the sidelines is how I’m approaching this. If prices bounce Thursday, great, I’m getting back in. No harm, no foul. But if the selloff continues, even better, I wait for the next bounce and buy at even lower prices. That’s a win-win in my book.

Wednesday’s bloodletting extended to Bitcoin as cryptocurrency proves to be a follower and is nothing close to the alternative asset class proponents claimed it would be. If equities continue selling off Thursday and Friday, expect the carnage to take Bitcoin down with it.

But none of this should surprise readers. As I’ve been saying for a while, Bitcoin isn’t buyable until either it bounces off of $40k support or gets above $50k resistance. Until then, it is a no-touch.

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