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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 bounced back nicely Monday, reclaiming 1.3% of Friday’s headline-fueled bloodletting.
The Omicron variant continues to dominate headlines, but after a weekend of thinking about it, investors are far less fearful than they were last week.
But this isn’t a surprise. I was warning premium subscribers all last week light holiday trade often leaves us vulnerable to elevated volatility. That’s because when big money heads out on vacation, emotional retail traders take control of the market. And boy do these little guys love overreacting to everything.
But as expected, when big money’s steady hand returned, a calm came back to the market. If the original Coronavirus lockdowns and follow-up Delta variant couldn’t kill this bull market, why should we be any more afraid of Omicron? And based on Monday’s price action, the market’s answer is we shouldn’t.
Now, one day’s bounce doesn’t mean we are out of the woods. And without a doubt, the situation could take a turn for the worse, but between Friday’s tumble and Monday’s bounce, we have plenty of key levels to watch. The most basic being as long as prices remain above Friday’s intraday lows, this bounce is alive and well.
While it was fairly predictable to anticipate Monday’s bounce, that doesn’t mean holding Friday’s selloff was the right call. If the selling violated our stops, we had no choice but to get out. As the saying goes, it is better to be out of the market wishing you were in than in the market wishing you were out.
Monday’s bounce made a lot of sense, but we just as easily could have opened down -3% too. Anyone trading a leveraged ETF, that’s just too big of a risk to take. It is better to pull the plug and wait to buy the bounce even if that means missing a little in the exchange. In my book, that’s really cheap insurance and is worth it every time.
But now that everyone is back in the market following Monday’s bounce, it is time to spread our stops between Monday’s open and Friday’s lows and see where this bounce takes us.
And if we get dumped out, no big deal, we simply wait for the next bounce and try again.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday was another quiet session for the S&P 500 with the index declining a quarter of a percent.
While counting profits on up days is more fun, healthy rallies need periodic stepbacks like this to stay healthy and sustainable.
Only the biggest of bears are making a big deal about this 0.26% loss. But in reality, if this is the best the naysayers can muster, the rest of us don’t have anything to worry about.
Last week’s dip and bounce continues to be our line in the sand. Hold above last week’s lows and the bounce is alive and well. Fall under this key level and we need to get defensive. It doesn’t get much more straightforward than that.
Keep holding with stops spread across the mid-4,600s and see where this goes.
TSLA’s bounce off of $1k support is developing nicely. It was on the edge there for a couple of days, but we knew it was going to take a lot more than a few tweets to kill the phenomenal bullish sentiment in this stock. Keep holding with stops under $1k and see where this goes.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Monday was a do-nothing session for the S&P 500 as it finished exactly where it left off Friday. (The index closed down 0.001%, technically making this a red day, but that is splitting some pretty fine hairs.)
The thing to remember is boring is bullish. Fragile and weak markets tumble quickly, they don’t defy gravity by holding near the highs for weeks. If this market was truly overbought, last week’s crack was more than enough to trigger a larger wave of reactionary selling. Instead, supply dried up and prices bounce.
Now, I count myself as one of the skeptics. It definitely felt like prices got a little too high a little too fast since the October lows. But never forget we trade the market, not our opinions. That’s why I bought back the positions I sold defensively last week.
There is nothing wrong with taking worthwhile profits following a nice run, especially when the market is flashing warning signs. But when the expected pullback doesn’t happen, that in of itself is a bullish signal and we need to get back in. (A market that refuses to go down will eventually go up.)
Now, maybe Friday’s bounce was a false bottom and stocks are still headed lower after a little delay. But for that to happen, prices first need to undercut last week’s lows. Until that happens, this latest bounce remains alive and well.
Continue holding with stops spread across the mid-4,600s and see where this goes. If we get dumped out again, no big deal, sell at our stops and be ready to buy the next bounce, even if it happens a few hours later.
TSLA is on a wild ride. Live by Elon, die by Elon. But long-term owners know this and this stock hasn’t always been an easy hold. But as I said last week, as long as this remains above $1k, the latest bounce remains holdable. Fail to hold $1k support and it is time to lock in profits and wait to buy the next bounce.
If you find these posts useful, please return the favor by liking and sharing them!
Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every evening.
What’s a good trade worth to you?
How about avoiding a loss?
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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