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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 continues flip-flopping between freaking out and getting over it. Thursday was the first session the index reclaimed 4,400 in over a week and at least for the moment, bulls seem to be winning this tug-of-war near recent lows.
Thursday’s strength bodes well for the market because we probed the lows multiple times over the last week-and-a-half and so far, 4,300 support has been rock solid.
Stairs up and elevator down is the old market saying. If this market was standing on a trapdoor, each of the violations of support over the last several days were more than enough to trigger the next leg lower. Yet rather than accelerate lower, each bout of selling stalled and bounced.
Going down is supposed to be far easier than going up, yet bears cannot get this market to stay under 4,300 support for more than a few hours. That definitely counts as a win for the bulls.
As for how to trade this, the first thing a market needs to do when it is breaking down is to actually go down. That means anything above 4,400 and everything is fine and dandy. Falling under 4,400 but staying above 4,300 is not a huge deal, especially in the upper end of this range. But it is enough to warrant standing near the exits. Fall under 4,300 and all bets are off and it is time to wait for the next buyable bounce.
Stick to those simple guidelines and trading this dip will be easy money. Maybe this bounce is the real bounce. Maybe it isn’t. But as long as we are smart about our trades and ensure we are in the right place at the right time, we will come out ahead in the end.
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By Jani Ziedins | End of Day Analysis , Free CMU
Free After-Hours Analysis:
Wednesday’s resilient price action shows overnight traders don’t have a clue what they’re doing. The S&P 500 opened Wednesday’s session by gapping down nearly 1%. But those opening levels were as bad as it got and prices rallied nicely through the day. So much for all the death and destruction the futures market predicted a few hours earlier.
The problem with overnight markets is their thin volume allows them to be dominated by emotional retail traders. There is no way institutional investors can find the number of buyers and sellers they need to move their huge positions. That leaves basement dwellers and overseas speculators in control of a market they clearly don’t understand.
While these small traders can influence the open like they did Wednesday morning, when institutional investors show up for regular hours trade, they don’t give a hoot what overnight traders were doing. Instead, most of the time they go back to doing what they were doing the day before, which in this case was buying the bounce.
The best thing we can do if we find ourselves on the wrong side of an opening gap is to keep our cool. Often big overnight gaps reverse within hours. This is exactly what happened Wednesday when the daily low was within an hour of the open and the index rallied through the day, ultimately finished 1.5% above those early doom and gloom levels.
And this strategy isn’t just for protecting existing positions, if we have cash on hand, buy the early bounce with a stop under the early lows and enjoy the ride. If it doesn’t work out, no problem, get out near your entry point and wait for the next bounce.
As for what comes next for the market overall, always pay attention to how we close because how we open doesn’t count for squat. Wednesday was a nice close and even with the wind at their backs Wednesday morning, bears couldn’t extend the selloff. It definitely feels like we are running out of sellers at these levels and that is a recipe for a near-term bounce.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Meltdown, bounce back, meltdown, bounce back; the S&P 500 continues wrestling with what it wants to do next.
Following Monday’s meltdown, it felt like we were standing on a trapdoor, waiting for that next leg lower. Almost on cue, Tuesday bounced back, recovering nearly all of Monday’s losses. And so swings the pendulum of sentiment.
While it definitely feels like a bruising few weeks for bulls, they actually haven’t been doing too poorly since September 19th’s sharp down day. While the market probed and even violated those initial intraday lows, the selling keeps stalling and bounced not long after.
I could delve into all of the fundamental and technical reasons the market is doing what is it doing, but does it really matter? As speculators, all we want to know is how to trade this volatility. Lucky for readers I spelled it out Monday evening:
The simplest way of trading a volatile market is following its lead. If the selling continues Tuesday, we step aside and let it do its thing. If prices bounce Tuesday, we buy the bounce.
Guess what, Tuesday morning brought good news and the bounce is back on! For those of us that acted early, we got in at nice levels and were even able to lift our stops to our purchase price in the afternoon, more or less giving ourselves a free trade.
If this bounce keeps going, great, I collect all of those profits. If the bounce fizzles and retreats again, no big deal, I get out near my entry point and try again next time.
People beg for low-risk, high-reward trades. Well, guess what, the market just answered our prayers. Did you jump on the opportunity?
Now we wait to see what Wednesday brings….
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
The S&P 500 remains near multi-week lows as it processes the recent selloff.
Higher or lower, that is the question. And right now the S&P 500 is standing on the trapdoor.
The encouraging news is we violated recent lows multiple times over the last few sessions without triggering a larger tidal wave of defensive selling. Dip buyers often leave stop-losses under the lows and any violation triggers waves of reflexive selling. But so far, we slipped under the lows from two weeks ago and these subsequent violations failed to trigger follow-on waves of selling.
This is good for the market because it means most owners are holding steady and are not letting some arbitrary level determine their next trading decision. The bad news is the longer we hold near the lows, the more likely it is we violate them and few things shatter confidence like screens filled with red.
While we have inflation, debt ceiling, and Evergrande headlines swirling around us, that is largely a distraction from what is really driving this volatility, sentiment. Traders ignored headlines all year and there is no reason this latest round of headlines is any more significant. Instead, many traders realize it’s been a nice run and they fear the “inevitable” pullback more than anything in the press. These people are not selling because they fear inflation or Evergrande, they are selling because they want to get out before other people start selling. It is simple as that.
And so the answer to the question of what comes next comes down to how many people are confidently waiting for the bounce versus how many are on the verge of abandoning ship.
While lots of people are speculating over what comes next and it’s been a long time since I heard this many people predict a stock market crash, only time will tell what comes next. If there was a reliable indicator, everyone would use it. And since people promote a million different indicators, we know most of them don’t work. Because if one worked, we wouldn’t need the million other indicators.
Anyway, the simplest way of trading a volatile market is following its lead. If the selling continues Tuesday, we step aside and let it do its thing. If prices bounce Tuesday afternoon, we buy the bounce again. And if we get an inconclusive indication (not a bounce and not a further collapse), we simply push this decision to Wednesday.
And as always, start small, get in early, keep a nearby stop, and only add to a trade that is working. While buying Friday’s bounce didn’t work, if we are sensible about the way we enter a position, the risks are small and the potential rewards of getting it right are large.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Thursday was an ugly session for the S&P 500 with the index giving up early gains and closing deep in the red.
This bearish intraday reversal tells us dip-buyers are still MIA and that is not a good thing for a selloff struggling to find a bottom.
While it is easy to point these things out AFTER the market has fallen 5%, it is a whole other thing to see it coming while there is still time to act.
Lucky for readers, this is what I wrote back on September 9th when the index closed just under 4,500.
It’s been a rough week for the S&P 500 as Thursday’s 0.5% loss makes this four down days in a row.
Monday was Labor Day, making this unofficial start of the fall trading season. It’s been a nice and easy summer and a trend is far more likely to continue than reverse, but if the market’s mood is going to change, this transition in seasons is a good time for it to happen.
There isn’t a quantifiable reason to claim this rally is running out of gas and this week’s dip is different than all of the other failed dips this year. But just knowing where we are and where we’ve come from, it feels like this time could be different.
As I often write, how we finish is far more important than how we start and by that measure, Thursday’s was an ugly day. Early gains evaporated and the index crashed through 4,510 and 4,500 support on its way to closing near Wednesday’s lows.
I don’t mind red days that finish well above the early lows. In most instances those are bullish signals. But there was nothing bullish about Thursday’s retreat and close at the daily lows.
I had my stops spread across the upper 4,400s and lower 4,500s and Thursday’s pathetic price action squeezed me out. Most likely this week’s stumble will turn out to be nothing more than yet another buyable dip. But for me, it’s been a nice run and that makes this a good time to lock-in some profits.
If the index bounces back above 4,500 on Friday or sometime next week, I’m more than happy to get back in. But as long as it remains under 4,500, I’m more than content watching this from the sidelines.
But that was then and this is now. Those holding stocks are left wondering if there is still time to get out before this gets worse. Unfortunately, a big portion of the selloff has already happened and pondering a sale now is waaay late in the game.
Remember, the best sells tend to be when we don’t want to sell and the best buys tend to be when we don’t want to buy. Following that logic, this is a much better place to be thinking about buying than selling.
Now to be clear, I’m not suggesting people rush out and buy this selloff, but it is definitely time to start looking for that next bounce.
Thursday’s close was dreadful and we should expect the selling to smash through 4,300 resistance Friday or early next week. But after that, be on the lookout a capitulation bottom and bounce. While this might not be the ultimate bottom, we won’t know that until after it is way too late to trade it.
I always treat every dip and bounce as the real deal until proven otherwise. Get in early and get out early and it doesn’t matter if the next bounce is the real deal or not. The most important thing is we are in the right place at the right time when the next big move happens. And the only way to do that is to get in early and see where it goes.
If we start small, get in early, keep a nearby stop, and only add to a trade that is working, the risks are not all that bad. In fact, it is far safer than what most traders are doing here. Just ask anyone that’s been holding since early September.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 bounced back from Tuesday’s thrashing, that is if a 0.16% gain qualifies as “bouncing back”.
The best we can say about Wednesday’s lethargic price action is at least the rout didn’t continue. But an early bounce that fizzled and finished near breakeven is nothing for bulls to crow about. If that’s the best offense dip-buyers can muster, it is going to be a very difficult few days for the market.
As I wrote Tuesday evening, markets rarely retreat and bounce exactly off of support. That would be too easy and the marked hates being easy. Prices either bounce above support or they bounce below support. Since the index already retreated back to last week’s closing lows, bouncing above this level is off the table and that means we have a date with a bounce under this level.
Now don’t get me wrong, I’m not fatalistic about this market. In fact, I’m looking at this weakness as a buying opportunity. (I even bought last week’s modest bounce and managed to squeeze a few bucks out of it before this second wave knocked us lower.)
Every directional move is a profit opportunity and I don’t care which way it goes. If the market bounces off of 4,350, great, I will buy that. If it is 4,305, even better. The lower we go over the near-term, the more money I make from these discounts. And if we crash through 4,300, that’s the best case of all because I’m currently in cash and the lower we go now, the more money I make later.
Let the bulls and bears slug it out on social media. I will be over here minding my own business and picking up all the money those other guys keep dropping.
As for a trading plan. Buy a bounce back above 4,400. If prices fall under 4,350, buy the bounce back above that level. And if prices crash under, 4,300, buy the bounce above that level. It really isn’t complicated. Start small, get in early, keep a nearby stop, and only add to a position that is working.
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?
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Follow Jani on Twitter @crackedmarket
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