Is it still safe to buy this rebound?

By Jani Ziedins | End of Day Analysis

May 27

Free After-Hours Analysis: 

As unpopular as this rebound has been with the cynics, it could care less and keeps chugging higher. We saw the market rebuff another selloff attempt today. A promising pullback had a good start as the indexes skidded into yesterday’s close and then followed that up by converting a nice open this morning into a bearish reversal before lunchtime. As ominous as this price action looked, most owners shrugged and continued holding. When confident owners don’t care, headlines and worrying price action stop mattering. As long as confident owners keep holding stubbornly, every dip fizzles and bounce within hours.

Now obviously this cannot last forever, but this is our reality and we need to keep giving this rebound the benefit of doubt until it proves otherwise. What could have started the long-awaited pullback unsurprisingly turned into yet another push higher.

This two-week-old bounce has been a great trade for readers who had the wherewithal to buy two weeks ago at much lower levels. But what about the people who missed this move? That’s a much trickier question to answer.

With a couple hundred points of profit cushion acting as a buffer, proactive dip buyers have time on their side. Keep following this move higher with a trailing stop and let the profits come rolling in. But what about the guy who missed that initial move? Is it too late?

Unfortunately, this is a much riskier level to be buying in because prices have already realized a big portion of their near-term gains and pushed the risk/reward away from us. Buying these higher levels exposes us to a fair amount of risk and with each passing day, the profit opportunity gets smaller and smaller.

Sometimes the best trade is to wait for a better trade. I really like the way the market is trading here, but for anyone still out of this market, it is better to wait for the next lower-risk entry point. It will come along sooner than you think.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM


About the Author

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.