Stocks are trading sideways and consolidating the recent rebound. We are still holding the 50dma and recovered the majority of January’s dip.
Nothing calms nerves like rebounding prices. Previously nervous owners were rewarded for holding this dip, making them even less likely to sell the next round of weakness. That lack of selling keeps supply tight and makes it easier for the rebound to continue. More than just tight supply, the selloff flushed many owners out of the market and they are now prospective buyers as they are forced to chase the bounce higher.
While it is human nature to try and assign a cause to everything we see, markets go up and down for no other reason than that’s what markets do. It is human nature to bid up prices to unsustainable levels and then sell them down to oversold levels. So far this volatility seems to be little more than these normal and routine fluctuations.
Expected Outcome: Climbing toward upper bound of an extended trading range
The time to buy the dip was when the crowd was fearful and selling stock at steep discounts. Buying now is a bit late to the party and if the market is in an 1,750/1,850 trading range, we are approaching the upper bounds and this is a better selling opportunity than buying one.
Watch for signs of stalling demand, signaling this rebound is nothing but a temporary reprieve. Likely another round of panic selling requires more spooky headlines, so keep an eye out for anything that could unnerve the market.
Buy weakness and sell strength.
Plan your trade; trade your plan
Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.