Apr 05

Why savvy traders saw this bounce coming and how they got ready for it

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 rallied 1.1% on Friday after the monthly employment revealed another strong showing in April. So much for Thursday’s huge selloff.

In case anyone missed the memo, this is a back-and-forth market. That means frequent and dramatic reversals, as greedy bears learned the hard way on Friday. Unfortunately for them, Thursday’s big dip was a continuation of this back-and-forth pattern, not the start of something new.

Luckily for readers, I said as much Thursday night following that day’s big bloodbath:

[T]here wasn’t any meat to Thursday’s selling, so I question the sustainability of this move lower. We need headlines that will shatter bulls’ confidence and turn them into fearful bears for this rally to break. I didn’t see anything on Thursday that will convince bulls to start selling their favorite stocks. Until proven otherwise, I will be looking for the next buyable bounce; it will probably be here sooner than most people will be ready for.

We didn’t have to wait more than a few hours for the next buyable bounce. Hopefully, you didn’t miss it.

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As for how savvy traders approached Friday’s session, when the sellers failed to show up and prices bounced, that was our signal to buy. As I wrote Thursday evening, this moment was going to arrive far sooner than most people were expecting, which is why savvy traders arrived Friday morning prepared for the unexpected.

For those who bought Friday’s bounce, we can already lift our stops to our entry points, turning this into another low-risk, high-reward trade. If prices retreat next week, we get out at breakeven, no harm, no foult. If the rebound continues, let those profits roll in.

But most importantly, don’t get seduced by the same overconfidence that stung bears on Friday. No matter whose side you are on, this is a back-and-forth market, and that means collecting profits early and often. If you hold too long, those profits will turn into losses.

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Apr 04

Lemmings jumping off the off the cliff

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

Thursday started off well enough for the S&P 500 as it popped more than half a percent at the open on a better-than-expected weekly employment report. But all of those good feelings vanished in the blink of an eye. Not long after lunch, the market entered freefall, turning nice opening gains into big losses by the close.

If you believe the financial press, investors got spooked when a couple of Fed officials suggested rate cuts might not be as close as many investors were hoping. But more than these somewhat questionable explanations, this looked more like lemmings following each other off the cliff than a rational response to some unofficial comments by some relatively unknown Fed officials.

I will be honest, I came into Thursday long because I liked the way the market bottomed on Tuesday. As I wrote Wednesday evening, the market was acting well, which made it buyable. I wasn’t expecting a big rally because that’s not what this market has been giving us, but it was a decent, low-risk entry.

Luckily, Thursday’s open allowed me to lift my stops above my entry points, so I was sitting pretty with another low-risk trade. And I felt good about my position until the selling knocked us under the morning’s lows. That’s when the selling accelerated, and I got concerned enough to pull the plug even before my stops were hit.

Remember, stops are our last line of defense, not our only line of defense. If something doesn’t feel right, it probably isn’t right. That’s what it felt like as Thursday’s selling started feeding on itself. And no matter what it feels like, there is never an excuse to let a winning trade turn into a loser, so even if a person didn’t get spooked by the accelerating selling, they should have pulled the plug at their entry points no matter what. Follow these simple defensive rules and most people would have missed all of Thursday afternoon’s pain.

As for what comes next, there wasn’t any meat to Thursday’s selling, so I question the sustainability of this move lower. We need headlines that will shatter bulls’ confidence and turn them into fearful bears for this rally to break. I didn’t see anything on Thursday that will convince bulls to start selling their favorite stocks. Until proven otherwise, I will be looking for the next buyable bounce, it will probably be here sooner than most people will be ready for.

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Apr 03

Why bears keep getting it wrong as this market refuses to breakdown

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 added a tenth of a percent on Wednesday, ending a two-session skid as the index continues testing 5,200 support.

The index opened Wednesday’s session with modest losses, but within minutes, supply dried up, and dip buyers rushed in, shoving the index into the green. It remained there for most of the session, but a bout of momentary second-guessing knocked it into the red in the final hour of the day. But that momentary selling was the best bears could do, and the index bounced into the green in the final minutes of the session.

While not overly bullish, Wednesday’s session was constructive and shows most owners are comfortable at these prices and are not rushing for the exits. If prices were overbought and vulnerable to a collapse, it would have happened by now. Yet, every time the market slips into the red, supply dries up, and prices bounce. That’s not how a weak market behaves.

Without a doubt, this market is not in a hurry to go anywhere, but anyone betting on a collapse is going to be disappointed. There have been countless excuses and opportunities for stocks to tumble, yet every time, stock owners shrug and keep holding. This situation can’t last forever, but it will take something new and unexpected to convince these confident owners to sell. As we’ve seen over the last couple of sessions, undercutting 5,200 isn’t going to do it.

Stocks can fall at any time for any reason, but right now, they are not interested in falling for no reason at all. Until something forces bulls to reconsider their outlook, expect all of these dips to continue bouncing within days, if not hours.

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Apr 02

Why Tuesday’s selloff is already running out of gas

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 skidded over 1% Tuesday morning as gas prices and interest rates continue climbing. But rather than trigger a bigger wave of follow-on selling after the index undercut 5,200 support, most owners shrugged and kept holding. The absense of reflexive selling put a floor under prices, and the market recovered nearly half of those early losses by the close.

If stocks were grossly overbought and vulnerable to a collapse, prices would have tumbled a long time ago. The market rarely gives us this long to sell the top, so odds are good this is not the top.

While a few hours of constructive trade Tuesday afternoon was great to see, by itself, that doesn’t kill the selloff. That makes Wedensday’s early trade is critical. If we survive that, the bears are in trouble.

Unless Wednesday morning turns into a dramatic waterfall selloff, this is simply another buyable dip on our way higher. That’s the way I’m trading it. I bought a partial long position Tuesday afternoon with a stop under the early lows.

If the rebound continues Wednesday afternoon, I add more and lift my initial stops up to my entry points. If the selloff resumes, I get out of my partial position at my stops for a small loss, no big deal.

To be honest, part of me hopes this selloff continues even though I’m holding a partial position. The lower this goes now, the bigger the profit opportunity the market will be giving us. Unfortunatly, I don’t think I will be that lucky and most likely, Tuesday’s selloff won’t amount to much. That’s why I’m already buying.

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Apr 01

Why smart traders are not trading this chop

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 shed 0.2% on Monday as this sideways snooze-fest continues.

The index rallied in the second half of last week, meaning it was time for the pendulum to swing in the other direction. This simple reversal explains most of Monday’s trivial losses: One day’s ups become the next day’s downs.

Nothing meaningful is changing in the financial headlines, which is why the price action is so benign. Bulls are staying bullish, and Bears are staying bearish. This will inevitably change at some point, but we need a big and unexpected headline to shake things up and get the market moving. Until then, expect this slow, choppy grind with a slight upward bias to continue. Better trading opportunities are coming, but they are not here yet.

I will let the day traders fight over these nickels and dimes while I wait for better profit opportunities. Maybe that will happen later this week, or maybe it will take a week or two. But the next trade is coming because it always does, and it will be here when we least expect it. Until then, my goal is to avoid losing money overtrading this meaningless chop and that means sitting on my hands.

Remember, long-term success in the markets doesn’t come from our winning trades but from not giving those profits back in our follow-up trades. Often, the best trade is not trading.

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Mar 27

What Wednesday’s bounce tells us about what comes next

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The S&P 500 ended a three-session losing skid on Wednesday, bouncing 0.9% as the index recovered most of its prior losses.

Little changed between Wednesday, Tuesday, or even last week. The market is comfortable at these highs, and few owners are interested in selling. But at the same time, those with cash are reluctant to chase prices even higher. This draw between bulls and bears leaves us mostly treading water above 5,200 support.

Prior momentum is clearly higher, and that means all ties go to the bulls. If prices were grossly overbought and vulnerable, stocks would have tumbled by now. As long as we keep getting more of the same headlines, I don’t expect anything to change. One bad headline can flip sentiment in an instant, and if that happens, there is a lot of air underneath us, but we need to get that bad headline first. Until then, expect this back and forth to continue, but with a little more up than down.

If this market was going to break down, it would have happened by now.

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