Should we be afraid of missing the next rally?

Free After-Hours Analysis: 

Wednesday was a good day for the S&P 500 as it pushed toward 3,500 for the first time in history. As bad as the real world is around us, no one in the stock market seems to care. Investors are far more concerned about missing this latest runup than they are about what could go wrong this fall. And who can blame them? Anyone that bought June’s dip using a 3x ETF is up more than 50% in only two months.

While anyone can point out great trades after they happen, it if far more useful (and profitable) to see these trades coming before they make their big move. Lucky for regular readers of this blog, this is exactly what I told them June 11th when the market collapsed 6% in a single session:

This pullback was long overdue, but this was just a normal and healthy step-back on our way back to all-time highs. This is not the start of some much bigger collapse. Expect this selloff to bounce like every dip that came before it this spring. If the bounce doesn’t occur Friday, then look for it early next week.

Two months later, here we are, standing at those all-time highs. Trading isn’t hard if we know what to look for. While that post helped readers two months ago, it is old news and now everyone wants to know what comes next.

While I loved riding this wave higher, it’s gotten a little too easy and obvious. Buying June’s dip was hard and that’s why it worked. On the other hand, buying this breakout to record highs is far too obvious. In fact, most people are more afraid of missing the next leg higher than they fear the next dip lower. And that’s exactly what makes me so nervous right now.

Everyone cognitively knows stocks go up and stocks go down, but all too often people forget these simplest ideas in the moment. As great as things feel right now, this is not the time to fear being left behind. It is the time to fear holding something that could go down.

I’m not ready to pull the plug on this breakout just yet, but I keep moving my trailing stops up. With profits this big, it would be foolish to let greed wipe all of those away. I don’t mind riding this higher for a few more days or weeks, but I’m definitely itching to lock-in my profits and get ready for the next trade.

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