Why we should have seen this pullback coming

By Jani Ziedins | End of Day Analysis

Oct 19

Free After-Hours Analysis: 

Monday started off well enough after the S&P 500 rallied nearly 20 points shortly after the open. Unfortunately, that was as good as it got. By the end of the session, prices had retreated 75-points from those early highs in the biggest single-day decline in nearly a month.

As ugly as Monday looked, it shouldn’t surprise anyone. Stocks were approaching the old highs and some near-term resistance was inevitable. Cognitively everyone knows markets move in waves, yet people are still surprised every time stocks take a near-term step back.

Hopefully, everyone who bought September’s bounce was following this rebound with a trailing stop and were able to lock-in some really nice profits over the last few days. If a person bought September’s rebound using a 3x ETF, they locked-in a pretty easy 20% gain over the last few weeks. Not bad.

The key to buying dips is starting small, getting in early, keeping a nearby stop, and only adding to what is working. Even if we got shaken out in September’s first couple of failed bounces, our losses were small and easily offset by riding this 300-point wave higher.

As always, the key is being willing to act when everyone else is afraid of making a mistake. Fortune favors the bold.

As for what comes next, we could see some near-term weakness, especially if our politicians fail to agree on a Covid stimulus bill this week. But if we’re in cash, the lower we go now, the better. It means we make even more money buying the next bounce. That said, unfortunately, I’m not expecting prices to fall a lot further. The market will most likely remain rangebound leading up to the election and the next big trade won’t happen until November.

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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.