The best way to trade the Covid rebound

By Jani Ziedins | End of Day Analysis

Aug 12

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It was another good day for the S&P 500, this time finishing just a whisker shy of a record close. Not bad for the worst economy since the Great Depression.

But anyone who reads this blog knew this was coming weeks, if not months ago. As I often say, a market that refuses to go down will eventually go up. As counterintuitive as this rebound has been, riding these gains has been fairly straight forward for anyone that wasn’t overthinking the situation.

And to the victor goes the spoils. Anyone who bought the June dip using a 3x leveraged ETF is up nearly 50%. The more aggressive buyer who jumped aboard this bounce in March is up nearly 200%. Not bad for a lowly index trade.

As much hype as highflying stocks like TSLA or ZM get, there is really good money to be made swing-trading the indexes. In fact, I find the risks to be lower and the rewards greater. I’m planning on writing a series of posts covering how I swing-trade the indexes using leveraged ETFs and showing readers just how profitable this strategy can be, even when compared against the hottest stocks.

Granted, I haven’t been snoozing at the wheel since the March lows and I moved in and out of the market several times since them. But when we can move all-in and all-out in a few mouse clicks, it makes sense to step aside when things appear uncertain. As easy as it is to jump out, it is just as easy to jump back in when the latest dip proves to be a false alarm. In fact, if you do it early and get a little bit lucky, you actually make more money selling the top of these little gyrations and buying the minor dips. It doesn’t always work that well, but even riding through a few minor whipsaws sure beats watching a losing position swell or watching the next breakout leave without you.

Now that we finally reached the old highs, what comes next? That’s a good question. We should expect prices to pause for a little bit as investors gather their bearings. After that, a frenzy of breakout buying could push us sharply higher. Or waves of contagious profit-taking send prices tumbling. Or thirdly, stubborn owners refuse to sell, reluctant buyers refuse to buy, and that stalemate leaves stocks drifting sideways for a while.

My guess is we see a modest breakout push prices higher over the next week or two, but that strength ultimately fizzles and the index retreats back to the old highs where we consolidate for a bit. I will continue holding for higher prices but will move my trailing stop nearby so my profits are protected if I’m wrong.

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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.