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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
On Friday the S&P 500 tested and bounced off of 4,600 support for the second time this week.
Between the exploding number of breakthrough Omicron cases and the Fed accelerating taper and rate hikes plans, it was a busy week for financial newsrooms. But for as dire as the headlines seem, the market was surprisingly resilient and remains steady near all-time highs.
Sure, the index finished the week down nearly 2%. But last Friday was an all-time closing high and having traded through 2013’s Taper Tantrum, the market “only” falling 2% after the Fed penciled in three rate hikes next year is actually quite impressive.
If this market was truly overbought and fragile, these headlines could have knocked us down 5% or more in the blink of an eye. The fact it took five whole days to shed a measly two percent is fairly impressive.
The counter point to the above half-full argument is the index is hovering just above recent lows. Fall a little further and that violation of support could unleash a big wave of stop-loss driven selling.
So, the question is if we should be focused on the half-full side of the market or the half-empty?
Well, surprisingly enough, the answer is pretty easy. Above 4,600 is half-full territory and anything under 4,600 puts us in the half-empty side of the glass. Trade accordingly.
While I’m giving the S&P 500 the benefit of the doubt, TSLA’s violation of $1k support this week puts the stock on my naughty list.
I still like this company and stock, but I’m a trader and that means I sell things that are going down. I’m happy to buy this when it bounces, but until it gets back above $1k, I don’t have any interest. And in fact, I actually hope it falls back to $800 support because that gives me even more opportunity to profit from the rebound.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
It’s been a volatile few sessions for the S&P 500 as the index keeps jumping between dramatic up and down moves.
While we’ve been living with elevated volatility since late November, every bit of down has been matched by an equal amount of up. While these fear-mongering headlines and choppy price action are good for Tum’s sales, equities seem to be taking everything in stride.
If there is one thing we know about stock market crashes, they are breathtakingly quick. Stop to ask questions and you get left holding the bag. But here we stand, three weeks from the initial Omicron outbreak and the index is still within 1% of all-time highs. If these headlines were going to break us, it would have happened by now.
To further compound bears’ confusion, Wednesday the Fed told us to expect three interest rate hikes next year. Conventional wisdom warns us that rate hikes are bad for stocks, yet prices surged 1.6% on the news.
As I’ve been saying for a while, a market that refuses to go down will eventually go up. Bears have thrown everything they can at this bull and it keeps shrugging it off. If this was going to crash, it would have happened by now. Argue with this market at your peril.
No doubt this bull will die like all of the others that came before it. But this is not that point and bears will continue getting humiliated by this stubborn bull.
TSLA slipped under $1k support last week and that was our final, undeniable signal to get out. Smart traders were already peeling off profits as the stock slipped from $1,200 resistance, but now that we’re under $1k support, there is no excuse to keep holding.
I’m not giving up on this stock and it will probably make higher highs at some point, but I don’t need to hold through the pullback in the meantime. And in fact, I’m looking forward to buying back in at lower prices.
For the time being, this doesn’t get interesting until it gets back above $1k. Until then, keep watching from the safety of the sidelines.
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By Jani Ziedins | Free CMU
Free After-Hours Analysis:
The S&P 500 tumbled Tuesday for the second session in a row. While two material down days isn’t much fun for stock owners, so far the selling has been contained and the index bounced nicely off of 4,600 support.
During events like this, most people are asking themselves, sell the dip or keep holding?
But the better question is, why not do a little bit of both?
All too often people think of trading as a binary decision. Good or bad. Up or down. All-in or all-out. But that’s not the way savvy traders approach the market. They don’t even restrict themselves to these black and white terms. Instead, they focus on the gray of managing risk.
Is this a good time to be fully invested or does it make sense to peel off some risk? That’s a much different question than should I sell or should I keep holding.
I’m pretty confident this dip will bounce. Because you know what, every dip over the last 10 years has bounced. In fact, every dip in the history of the stock market has bounced back even higher.
The question is if I want to wait that long. And as a trader, the answer is always, “Of course not.”
I started peeling off risk when this starts falling and I start getting edging back in when prices bounce.
Sometimes this approach leads to riding through some whipsaws, like this week. But riding whipsaws sure beats holding something that is falling.
I peeled off some risk Monday afternoon and sold more when the index undercut the opening lows Tuesday morning. But prices bounced nicely off of 4,600 support in midday trade and that was our signal to start buying back in.
Sure, I could have held through this dip. The problem is I never know which dip will turn out to be the real dip and I’m not willing to bet my trading account on always being right.
The simple answer is I treat all of the dips as the real deal and I treat all of the bounces the same way. That way I always ensure I will be standing in the right spot at the right time when the market makes its next big move. And if I have to chase my tail every once in a while, it really isn’t that big of a deal.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 set a new record closing high Friday and then proceeded to give it all back Monday. Easy come easy go, but that’s the way this goes sometimes.
I don’t mind occasional down days mixed in with up days, in fact, I prefer my rallies balanced this way. It keeps things from getting overheated and how healthy, long-term rallies progress.
That said, Monday’s close falls in the disappointing category because it finished on a swift wave of selling and closed at the intraday lows. Thirty minutes before the close, the situation looked pretty decent. But those final 15-minutes changed everything and left me with an uneasy feeling. Not panic, abandon hope, and run for the hills kind of feeling, but it was enough to warrant caution.
If a person is cautious by nature, they could have peeled off some nice profits near the close just in case. But that is only a partial position reduction to better manage risk. On the other hand, a more aggressive person could continue holding since the close was still well above our stops in the mid-460s.
Like a lot of trading, this situation falls in the gray area where individual discretion plays a major role in decinding what to do. Nervous? Sell some. Confident? Hold and see what happens tomorrow. Both are valid ways of dealing with Monday’s disappointing close.
But no matter what we do, anytime we sell, we are always looking for that next opportunity to get back in. If we sold anything Monday afternoon, be ready to buy a bounce Tuesday morning. And if Monday’s selling continues instead, always respect our stops spread across the mid-4,600s.
But no matter what happens Tuesday, Wednesday, and Thursday, any near-term weakness is giving us a buying opportunity. No matter what the cynics claim, weak markets don’t keep setting new record highs. This remains a strong market and there is only one way to trade this and that is from the long side.
Bitcoin keeps hitting its head on $50k resistance and dip-buyers are nowhere to be found. This weekend’s quick poke above $50k didn’t last long and the cryptocurrency retreated back to the mid-$40k’s.
For me, this doesn’t get interesting until it can hold $50k. Until then this is a no-touch. As I often say, it is better to be a little late than a lot early. Just ask anyone that bought a few weeks ago in the upper $50k’s.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 added a modest 0.3% Wednesday, but that was good enough to make this three up days in a row and leaves the index within 1% of all-time highs. Not a bad result given all the panic selling we were experiencing only a few sessions ago.
But that’s the way this usually works. Prices don’t bounce until the crowd has given up and now a lot of impulsive sellers are left watching this rebound from the outside.
I’m a huge believer in using stops to protect my backside. There is never a valid reason for a nimble trader to hold through a larger pullback. But at the same time, I also recognize stops often get us out unnecessarily.
So what’s a trader to do when faced with these competing concerns of selling just before the bounce or holding through a larger decline?
It actually isn’t that hard if we start with a sensible trading plan.
First and foremost, never be foolish and cheat our stops by holding a falling market. I always get out when I say I’m going to get out.
But once I’m out, the first thing I do is start looking for that next opportunity to get back in. Maybe that causes me to chase my tail every once in a while. But you know what? I would much rather chase my tail than A) hold through a larger decline or B) miss out on the next big rebound.
As it turns out, tail chasing is really cheap insurance that helps ensure we sidestep the big declines while also making sure we are in the right spot at the right time to catch the next big wave higher.
All too often people get hung up, thinking a trade is dead once they sell and they have some phobia about getting back in. If it was a great trade before, it is probably still a great trade and there is no reason to avoid it because of a perfectly normal, healthy, and temporary step back.
As for stops, the best way to avoid getting out at the wrong time is by getting out early. Sell at the beginning of the decline when the first signs something is wrong emerge. Not the bottom of a dip when impulsive traders pull the plug after getting overcome by fear and regret.
As I often remind readers, start small, get in early, keep a nearby stop, and only add to a trade that is working. Follow those simple rules and events like Omicron hubbub are nothing more than a blip on our way higher.
GME posted disappointing earnings after the close.
But did this actually surprise anyone? This is a retailer with an obviously obsolete business model.
Their last hail mary is Christmas shopping and if they cannot get their act together this quarter, the company won’t survive, let alone justify of $13 billion valuation.
At best, this is a $15 stock selling for $170. Get out while you still can.
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What’s a good trade worth to you?
How about avoiding a loss?
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