The mistakes bears made

Free Weekly Analysis: 

The S&P 500 finished the week higher by nearly 4%, giving us the biggest weekly gain in several months. Not bad for a market that many people had given up for dead little more than two weeks ago.

As I’ve been saying for a while, this is a volatile market and that means big moves in both directions. Markets love symmetry and as quickly as prices fell in early September, we should have expected an equally impressive rebound. An 8% advance from the lows in little more than two weeks is not something we see very often. Hopefully, most readers recognized this strength early and find themselves sitting on a nice pile of profits.

As I often remind people, no matter what we believe, our plan always needs to account for the possibility we are wrong. It was fair to be bearish and think the market was on the verge of collapse a few weeks ago. But more important than up or down was having an exit in mind if a short didn’t go according to plan. There is nothing wrong with trying a trade, but always have a clearly defined point, decided ahead of time, where you will admit defeat and close your positions. No one is right all the time, myself included. This is why I spend far more time planning my exits than my entires.

For those that missed the rebound, unfortunately, one of the characteristics of sharp rebounds is the bulk of the gains arrive early. While there still more upside left in this move, the gains will be slower and take longer. That said, as long as the index remains above 3,400, keep giving this the benefit of doubt. In a few more weeks we should be challenging all-time highs.

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