Quarters and years often adopt personalities. Some go up, others go down, maybe they are volatile, maybe they are calm. While this is obvious to everyone after it is all said and done, to trade successfully, we need to recognize these changes in personality earlier than everyone else. This means being hyper-aware of inflection points that signal this quarter is going to be different than last quarter.
The calendar rolled over to 2020 last week and we changed both quarters and years. This means we need to be especially sensitive to the market’s mood. That said, in the first few trading session of the year, it doesn’t look like anything changed. We got some potentially bearish news late last week, markets fell on the new and unexpected uncertainty, but like we saw all of last year, rather than trigger waves of additional selling, buyers quickly jumped on the discounts and propped up prices.
There are few things more bullish than a market that refuses to go down on bad news and that is exactly what we are seeing here. If this market was fragile and vulnerable, there have been more than enough negative headlines to send nervous owners scrambling for cover. Instead, we are getting the exact opposite. Not only are confident owners holding through this headline noise, they are jumping on every discount no matter how small. I wasn’t sure how January would start, but so far, it doesn’t look like anything changed. That means we stick with what worked so well last year.
This morning’s dip was an excellent buying opportunity after prices found a bottom minutes after the open. The nice thing about opens like this is they give us an excellent stop-loss level extremely close to our entry point. If prices bounce like they did, we let the profits roll in. If the early bounce fizzles and prices tumble lower, we get stopped out for a tiny loss and we wait for the next entry point.
If a person missed this morning’s buying opportunity, don’t fret, there is still a chance to get in, it just involves a little more risk since we are further above this morning’s stop-loss point. To account for the increased risk, we manage that by starting with a smaller position and then only adding more after the trade starts working.
I’m not totally convinced the rest of this quarter will be as strong as last quarter yet, but it is starting off well and that means there is only one way to trade it right now.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, 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 children.