The only way to trade bubbles

By Jani Ziedins | End of Day Analysis

Sep 02

Free After-Hours Analysis: 

This market is on fire. The S&P 500 has been up 9 out of the last 10 sessions. Today’s 1.5% pop is the biggest gain in more than two months, meaning the rate of gains is accelerating, not slowing down. But the real star of the show is tech and momentum stocks with double-digit gains becoming the norm.

While a lot of people are nervous because it feels like this market is getting frothy, and I’m one of them, the thing to remember is bubbles last longer and go further than even the most bullish cheerleaders thought possible. I wouldn’t feel comfortable buying stocks at these ridiculously extended levels, but I sure am glad I’m holding positions with huge profits and I continuing to participate in this runup. And for the time being, I have no interest in selling. I’m following this rally higher with a trailing stop. I have no idea how much further it will go, but I definitely want to be apart of it.

The greatest strength we have as independent traders is the nimbleness of our size. We do in seconds what it takes institutions weeks and months to accomplish. This market is getting absurdly expensive, but we are nimble enough to ride this wave higher and be able to get out right after it rolls over. We don’t need to predict the future if we are fast enough (and disciplined enough!) to react to the market in real-time.

The great thing about euphoric accelerations is they tend to be one-way moves, meaning we can easily follow this rally higher with a trailing stop. Keep it 50-100 points behind the market and we should safely navigate any near-term whipsaws. And you know what? If we get stopped out prematurely, there is no rule prohibiting us from getting back in. If a false alarm squeezes us out, no problem, just jump back in when prices recover.

Stick to the above plan and see how much further this frothiness takes us. No doubt the top is still a good distance above us.

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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.