On Monday the S&P 500 extended Friday’s bounce and now finds itself 3.2% above Thursday’s close. Not bad for two days of work.
If you assumed there was some huge breakthrough that triggered this buying frenzy, you’d be wrong. The headlines this week are no different than the headlines last week when we were carving out fresh lows. But that’s the way emotional markets work. We didn’t need a reason to crash and we don’t need a reason to bounce.
Even though it feels great to put 150 points of breathing room between us and the recent lows, we should be careful about reading too much into this bounce. If this market can bounce for no reason, then it certainly can fall just as easily for no reason (again).
This remains a volatile market and that means large moves in both directions. As I wrote last week, things will look better once we reclaim and hold 3,320. So far that’s what we’ve done, but we still need to be wary of any dip under 3,300. I don’t expect a big crash, but this will be a choppy market for awhile. Trading this well means getting in early and taking profits early. Wait a few hours too long and those profits will evaporate.
If a person doesn’t feel like dealing with this volatility, there is no need to rush in now. Even if prices rally higher this week, no doubt the next dip will knock us back to these levels, if not even lower. Don’t feel pressured to chase. Just wait for the market to come to you. Often the best trade is waiting for the next trade.
And if a person really wants to short, wait for the next breakdown. No doubt it will be a multi-percent move. Just make sure you are ready to take profits quickly because the next bounce isn’t far away.
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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.