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By Jani Ziedins | Weekly Analysis
Free Weekly Analysis:
The S&P 500 finished the week 0.57% in the red, making this the first time we’ve had two consecutive down weeks since May.
The good news is that two week selloff back in May was nothing more than a minor hiccup on our way higher and the next three weeks finished green. Will we be as lucky this time? That’s the million-dollar question.
The most notable difference between this week and that episode in May is this week ended at the weekly lows while back in May, that second week finished near the weekly highs.
As I often write, it isn’t how we start but how we finish that matters most. And in this case, this Friday afternoon gave us a very poor finish.
The market attempted several bounces over the last two weeks and each one ended in disappointment. Markets bounce decisively from oversold levels and this week’s pathetic rebounds tell us we are not yet oversold. And if we know anything about emotional pullbacks, it’s that they don’t give up until they’ve gone too far. Quite simply, if this market isn’t oversold yet, then the selling isn’t over.
I still like this market even though I am approaching it with a lot more caution given the changing seasons. But I’m still treating this as a buyable dip. Friday’s violation of the weekly lows was a clear signal to get out. But that line in the sand now becomes our next buy signal. Bounce back above this level next week and it is time to get back in. Start small, get in early, keep a nearby stop, and only add to a trade that is working.
We will know pretty early in the week if this market wants to bounce or continue falling. Rather than try to predict what it will do, savvy traders simply wait and follow its lead.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 continues flirting with recent lows near 4,430 for the fifth day in a row.
To breakdown or not to breakdown, that is the question.
The thing about breakdowns is they typically fall hard and fast. Five days of grinding sideways isn’t hard and it isn’t fast. Does that mean the selloff is already over? The market sure is acting like it.
Lucky for us, we have a very clear line the sand near Tuesday’s lows that will tell us if and when this week’s bounce fails. Fall under this level and get ready for more selling. Hold above it and the rebound is alive and well. Above is buyable. Under is sellable. It doesn’t get any more straightforward than that.
But the market doesn’t like being easy, so the curveball might be a momentary violation of 4,435 support before bouncing back above. In that instance, the return above 4,435 is buyable and the rebound is back on.
Pundits are trying to convince us they know conclusively that this is either a bounce back to the highs or the start of a much lager selloff. Me, I don’t know and I really don’t care. I trade what the market gives me. If that means buying the bounce, then I buy the bounce. If it means shorting a bigger breakdown, then I short the bigger breakdown.
Following the market’s lead sure beats trying to win an argument when it isn’t listening.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday was the first real good session for the S&P 500 in nearly three weeks. The index arrested a nearly two-week-old slide, bouncing nicely off of the 50dma and adding 0.85%
Is this the real bounce, or just a false bottom on our way lower? Unfortunately, only time will tell and we won’t know the answer until long after this trading opportunity passed us by. Sometimes the first bounce is the real deal, but often it takes two or three false starts before turning for good and Wednesday was only the first attempt.
But just because we don’t know if this is the real bounce or not doesn’t mean we cannot trade this move intelligently. When I have no idea if this is the real bounce or not, I trade it as the real thing until proven otherwise.
Reclaiming 4,460 this afternoon was a nice entry point and closing above 4,480 gave us another entry. As for stops, hold above Tuesday’s lows near 4,350 and everything looks good. Fall under this key support level and all bets are off. Easy as that.
I have no idea if this bounce is the real bounce, but I have a plan and I’m trading it. And if this isn’t the real bounce and the slide continues, no big deal. I simply get out and buy the next bounce. In fact, the lower this goes over the near-term, the better it is for me because the larger discounts give me more profit opportunities during the subsequent rebound. That makes this is one of those times I hope I’m wrong.
As always, start small, get in early, keep a nearby stop, and only add to a position that is working. If the market rallies Thursday, move stops up to our entry points, giving us a free trade.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Friday makes it five down days in a row for the S&P 500.
That’s the longest stretch of down days since February. And for those that care about these things, the last time the index fell five days in a row, it ended up falling another 4% before finally finding a bottom. If history repeats itself, we could see the index fall another 200 points over the next week or two. As I said, this only matters to people that care about these things, so please feel free to disregard this if it isn’t relevant to you.
As I warned readers on Thursday:
Well, Friday’s pathetic price action confirmed this time is different and that means we haven’t seen the worst of this dip yet.
Unfortunately in trading, we have to make our moves before we have all of the information. Often that means pulling the plug days before something is obvious. Anyone still waiting for confirmation on Monday or Tuesday will be selling long after the damage has been done. By that point, why bother selling at all?
Smart traders buy early and they sell early. Suckers buy late and sell late. Please don’t be a sucker.
For those that have been paying attention, we moved to cash Thursday and waiting for that next buyable entry point. Odds are good stocks will bounce on Monday. But most likely that will be a fool’s bounce and lower lows are still ahead of us.
There is nothing wrong with buying Monday’s bounce if we are smart about it (start small, get in early, keep a nearby stop, and only add to a trade that is working). But odds are good Monday’s bounce will turn out to be a false bottom and we need to be nimble if we buy it. Most likely the selling will resume later next week before we finally carving out a more painful capitulation bottom.
But if we are savvy and nimble, we buy all of the bounces because we know we can get out when those false bottoms fizzle and start making fresh lows.
I have no idea if the first, second, third, or fourth bounce will turn out to be the real bounce. That’s why I buy all of them and then I don’t have to worry about it. (again, start small, get in early, keep a nearby stop, and only add to a trade that is working)
While some people hate volatility, I love it because that’s the fastest and easiest way to make money.
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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 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.
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