It definitely felt like another rough week for the S&P 500 as the market retreated from last week’s rebound, especially Wednesday when the market shed 4.4% in a single session. That said, if you stand back and look at the weekly chart, it doesn’t seem so bad. For the week, we only gave back 2% of last week’s 10% rebound. I’d actually go so far as to call that resilience a win.
Stocks tumble from unsustainable levels quickly and the market had plenty of invitations to unleash bigger waves of defensive selling. Yet, most of the weak daily opens were met with buying, not follow-on selling. At least to this point, investors seem more interested in buying these discounts than selling them.
How much longer this can last is anyone’s guess, but the longer this goes, the more solid the ground is under our feet becomes. Calm and rational trade is almost always bullish and the longer we hold off another waterfall selloff, the better our prognosis becomes.
That said, the best case is falling into a trading range near the lows. Just because we don’t tumble doesn’t mean we are ready to race back to the highs. Expect prices to settle into a range between 2,300 and 2,600 for a while. As long as we remain inside that spread, everything is under control. Just make sure you remember this includes dipping back to 2,300. While everyone else is scared out of their minds, we will know better. (If the crowd didn’t think a dip was real, no one would sell and prices wouldn’t dip!) As long as we recognize what is going on, then we will be in a far better position to profit from it.
Chances are good the market tests 2,300 support next week and until further notice, we treat that as a dip-buying opportunity. That said, our greatest asset is our nimbleness. If prices tumble under the lows, we close our longs and go short. If prices bounce back, we close the short and go long. Moving proactively and keeping a nearby stop minimizes the cost of these whipsaws. More important is we ensure we are in the best possible position to profit from the next move no matter which direction it goes.
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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.