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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slipped modestly following Monday’s open, but fortunately, it found good support near 4,150 and eventually closed near the intraday highs.
Monday ultimately finished a quarter of a percent in the red, but more importantly, this price action looked more supportive than anything else. The majority of last week’s bounce remains intact and the index is holding comfortably above 4,120 support.
Unsustainable bounces tend to fizzle and retreat quickly. Holding support and trading more sideways than down this afternoon shows most owners are not looking for the exits and would rather hold for higher prices.
As I said previously, selling begets selling and any break in the selling pressure allows most owners to keep holding. Another sideways to up day on Tuesday and last week’s dip will be old news.
As complacent as this market feels, the thing to remember about complacent markets is they last a long, long time before the inevitable fall. At this point, I don’t see anything that suggests we are on the verge of collapse. In fact, these resilient bounces tell much of the opposite. If there is one thing we know for certain about weak markets, they don’t keep setting record highs.
On the downside, the one thing that would make me cautious is retreating back under 4,120 and retesting last week’s lows so soon after bouncing off of these levels. Barring that, the only thing to do is keep holding for higher prices and lifting our stops when this starts making new highs.
It was an ugly weekend for Bitcoin, with the cryptocurrency retreating back to the lower $40k’s following Musk’s criticism last week.
While Bitcoin has always been the gold standard of cryptocurrencies, being the original of the breed also means it is the most flawed in terms of execution. Many alt-coins have tried to address Bitcoin’s shortcomings but they never matched the mainstream adoption of Bitcoin.
With Elon turning his billion-watt spotlight on Bitcoin mining’s inefficient use of energy, that could easily increase calls for a more efficient coin. Like Myspace and BlackBerry, often the first widely popular version is not the one that wins in the end.
Right or wrong, it doesn’t matter what the future holds for Bitcoin, only what the crowd thinks the future is at this very moment. If sentiment flips on Bitcoin, prices could fall a good long way before finding support since the next obvious levels under $40k all the way back at $30k and $20k.
If this falls under $40k, there is no reason to keep holding. Remember, it is far easier to buy back in following a bounce than beg the market to go back to a level you wish you sold at.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 kicked off the week with three dreadful sessions, but things got better in the second half after the index strung together a couple of winners and erased a big chunk of those early losses. By the time it was all said and done, the index only gave up 1.4% this week.
Two steps forward, one step back. Everyone knows this is how markets work, yet they always seem to forget this simple fact during every bout of selling.
The typical pattern for this bull market has been bouncing within a day or two, but this week’s selling turned into the first string of three losses since early March. But just when things felt their most hopeless, the selling capitulated and prices bounced decisively off of Wednesday’s closing lows.
As I reminded readers Thursday:
Anyone that followed this simple plan is back in the market and already sitting on some tidy profits. And not only that, there is enough margin that they can lift their stops to their entry point, giving themselves a free trade.
Is the dip already over? It sure looks like it. Unsustainable bounces fizzle and retreat quickly, often within hours. Instead, this bounce stretched across two full days and pushed the index back above prior support at 4,1200. Two days of non-stop dip-buying tell me there is a lot of money supporting this rebound.
As is usually the case, if a person waited for confirmation, they missed almost all of the profit opportunity. And not only that, by buying late, they expose themselves to the risk of a near-term dip.
The best way to trade this week was selling the dip early and buying the bounce early. Do that and you are ahead of the game. Unfortunately, most people listen to their gut and end up selling late and getting back in late. Those traders are left wondering why their account acts like it has a hole in the bottom of it. (Because it does!)
Approach the market proactively, not reactively and you will forever be better for it.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Q: What’s the best way to make money in the market?
A: Buy when other people are scared.
Following three dreadful days of selling, the S&P 500 was poised for a bounce.
While this rebound provided much-needed relief, the question on everyone’s mind is if this was the real bounce or just another false alarm on our way lower.
Was Thursday’s bounce the real deal? Maybe…but probably not. The problem is we won’t know until after it is over and by then it will be too late to trade it. That means to make money, we have to act with imperfect information.
What is the best way to approach these situations? Well, for nimble traders this is easy, treat every bounce as if it is the real deal. Start small, get in early, keep a nearby stop, and only add to a trade that is working.
If the bottom is already in, great, we bought early and added more as this rebound climbed back to the highs. That means we are already in the perfect position to profit from this bounce. (You were following the rally higher with a trailing stop and moved to cash when this selloff started, right?)
If this is not the real bounce, well, we got in early and placed our stops near Wednesday’s lows or Tuesday’s open. If prices retreat, we get out and try again the next time. No big deal. In fact, a deeper selloff is actually preferred because it gives us even more room to make money buying the next bounce. So here’s to hoping this bounce fails and the discounts get even bigger!
In reality, the third bounce seems to be the most likely to work, but I don’t want to be caught sitting on my hands if this time it’s the first bounce.
Stay nimble and be ready to buy when other people are too scared. If that means we buy one or two dips too early, no big deal. We get out and try again the next time. The important thing is we are in the perfect position to profit from the real rebound.
Elon shocked cryptocurrency investors Wednesday night when he announced TSLA would no longer accept bitcoin payments. This was a big blow because TSLA’s buying into bitcoin was a big component of the rally from $40k to $60k.
Even more concerning than if a bitcoin millionaire can buy his newest electric car using his favorite cryptocurrency is the reason Musk pulled the plug on this bitcoin experiment. It’s because he doesn’t like the amount of energy bitcoin mining uses and its impact on global warming.
This is an often overlooked aspect of cryptocurrencies and Elon shining his billion-watt spotlight on bitcoin’s energy usage could cause long-term ramifications. If this turns into a wider movement, we could see the herd move away from bitcoin and toward a more energy-efficient cryptocurrency. This green shift wouldn’t surprise me in the least.
As I said previously, a prudent trader was to waiting for bitcoin to break above $60k before adding new money. Now that prices have retreated under $50k, this is just another example of why it is often better to be a little late than a lot early.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Selling begets selling, that’s been the overriding theme for the S&P 500 this week. After closing at record highs last Friday, it’s been all downhill since then.
But as I reminded subscribers earlier today:
Before we panic and head for our bomb shelters, a dip back to 4k only amounts to a 5% pullback, something that happens once or twice a year during normal bull markets. While this feels awful and it could get even worse, this is still fairly routine behavior for a bull market.
The problem with impulsive selling is there is no way to predict how far is too far until it is over. What could have bounced off of 4,120 didn’t. How much lower we go before capitulating is anyone’s guess, but at this point, 4k is very much on the table.
As bad as things look, I remain optimistic. Bull markets dip and bounce countless times, but they die only once. From a statistical standpoint, this is almost certainly nothing more than another wobble on our way higher. But just because the odds are on our side doesn’t mean we blindly hold this dip.
As I’ve been saying all along, in addition to holding for higher prices, we also need to be following this rally by raising our trailing stops. If a person stuck to this plan, they locked in profits nearly 100-points higher and are in a great position to take advantage of this dip.
Just because we remain optimistic doesn’t prevent us from taking advantage of trading opportunities like this. This is almost certainly a buyable dip, but remember, we cannot buy the dip if we don’t have cash.
The Achille’s Heel for this market continues to be weakness in the FAANG stocks and today was no different. After a promising bounce Tuesday, these best-of-the-best stocks resumed letting us down today. While these stocks are leading us lower, most likely they will also be the ones to pull us out of this nosedive. Look for a bounce in these stocks to be the signal that the worst has passed us by. The first bounce in these stocks failed. And maybe the second one will too. But don’t give up, often the third time is the charm.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
It’s been a rough week for the S&P 500 as it shed more than 80 points over the first two days.
The index closed at record highs on Friday but by Tuesday it was already retesting 4,120 support. And so goes the swinging pendulum of sentiment.
There are only two ways this plays out. Either this is the start of the end. Or this is just another routine wobble on our way higher.
So far we haven’t seen any meaningful technical damage telling us “this time is different”. The index gapped near 4,120 support at open and traded mostly sideways for the remainder of the day.
While Tuesday finished deep in the red, more important is the selling didn’t accelerate following the opening gap. That tells us most owners chose not to pile on the weakness and instead, shrugged and kept holding their favorite stocks. This rally has been built on the unshakable confidence of owners and Tuesday’s dip didn’t change that. Most owners would prefer to keep holding for higher prices and as long as we avoid the waterfall selloff, expect them to keep holding.
And this gives us the tipping point for this market. Remain above 4,120 and most owners will continue shrugging off these inflation headlines and will keep holding for higher prices. But fall under 4,120 and the real second-guessing will start.
At this point, we still have to give the edge to the bulls. A trend is far more likely to continue than reverse. And let’s not forget, we are only two sessions removed from yet another record high. Weak markets do many things, but setting record highs is not one of them.
Monday was a dreadful day for the FAANG stocks as they went into freefall. Fortunately, Tuesday turned out much better, even going as far as being good for these best-of-the-best stocks.
As I wrote previously, these critical stocks have been underperforming the indexes and that persistent weakness threatened the entire bull market. Yet Tuesday was a stark turning point with most of these stocks producing nice gains or at least finishing well off their early lows on an otherwise dreadful day for the indexes.
If these tech highfliers lead us lower, it makes sense to reason that they could also be the spark that pulls us out of this funk. If these stocks have another good day Wednesday, the worst could already be over for both these stocks and the entire market.
That said, there are no guarantees and if these leading stocks retreat under recent lows, expect them to continue pressuring the entire market.
Tuesday was a really good day, but we need these stocks to confirm this reversal in fortune on Wednesday or Thursday.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Monday started off well enough for the S&P 500 with the index opening near Friday’s record close. Unfortunately, second thoughts overcame traders later in the afternoon and those pushed the index under 4,200 by the close.
Is the top already in? Bears certainly think so. Of course, they’ve been saying the same thing for the last several hundred points so we take everything they say with a huge pile of salt. But like a broken clock, eventually, they will be right. Could this be that time? Without a doubt yes…but in reality, probably not.
The key levels for this market are 4,200 on the upside and 4,120 on the downside. Get back above 4,200 Tuesday and all is forgiven and forgotten. Fall under 4,120 and last week’s bounce is dead and the bears might be on to something.
How do we trade this? Easy, keep holding until our stops get hit. And even if our stops haven’t been hit, there is nothing wrong with lightening up a little until this gets back above 4,200. It is always easier to think more clearly with a partial position and the reduced threat of loss.
While it is tempting to hold through a small dip, the inconvenience of trading around a whipsaw definitely beats the discomfort of holding a through “small dip” that turns out a lot bigger than expected.
But as has been the case all year long, if we get out, always be ready to get back in if/when this wobble proves to be yet another false alarm. Just ask all the people that failed to get back in following the dips at 3,300, 3,500, and 3,700.
This market is buyable above 4,200 and shortable under 4,120. Plan your next trade accordingly.
While the S&P 500’s 1% loss felt uncomfortable, that was quaint compared to the bloodbath taking place in the FAANG stocks. The best FAANG stocks, AAPL and GOOG, “only” lost 2.6%. The rest shed between 3% and 4%. Ouch!
While I’m not overly concerned with the S&P 500’s price action (yet!), the FAANG stocks are a different story. And unfortunately for the broad market, losing the best-of-the-best stocks is enough to take everything else down.
I’m giving the S&P 500 the benefit of the doubt but if this FAANG underperformance continues this week, it is time to get defensive and all bets are off.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
After a few weeks of flirting with 4,200, the S&P 500 finally smashed through this psychological barrier Friday.
The monthly employment report missed expectations by a country mile Friday morning, but not only did the shockingly poor employment fail to spook the investors, it caused them to flood in and start bidding up prices.
As paradoxical as this seems, this remains a stimulus-fueled bull market and lethargic employment promises to keep the government spigots flowing at full speed.
No doubt there will be consequences for all of this money printing, but that is a problem for another day. Today, let the good times roll.
Stick with what has been working and that is holding for higher prices. As I wrote Monday following a modest bounce :
More than 100 points later and this is still as true now as it was then.
There is an interesting divergence developing in the Crypto markets. Until recently, Bitcoin was the only place to be. Bitcoin surged from under $10k late last year to more than $60k earlier this year, leaving all of the altcoins for dead. But then a switch flipped as Bitcoin stalled near $60k and all of the copycats started popping, including the most famous meme coin, Dogecoin.
This resurgence of the altcoins has set off a treasure hunt as speculators chase the next Dogecoin.
The problem for Bitcoin (and all the other cryptos) is this rapidly widening net is diluting the money available to drive any individual crypto higher.
Those of us that have been doing this for more than a few months remember Bitcoin’s last peak back in 2017. Coincidentally enough, that top coincided with a similar explosion of altcoins. Fewer dollars chasing more coins means less demand for each individual coin. Less demand = lower prices.
Will this flood of altcoins end any differently? Only time will tell, but only a fool believes “this time is different”.
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What’s a good trade worth to you?
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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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