The S&P 500 kicked off 2021 with the biggest one-day loss since late October. Fortunately, Monday’s selling proved fleeting and the index rebounded smartly Tuesday, reclaiming half of Monday’s losses.
What counts more, Monday’s losses or Tuesday’s bounce? Good question.
The thing to keep in mind is one day of selling doesn’t kill a bull and a one-day bounce doesn’t end a dip. Quite simply, the information we need is coming Wednesday.
Tuesday’s bounce was definitely helpful for bulls. The biggest stock market crashes are multi-day affairs with no break in between. Tuesday’s bounce prevented this from turning into a runaway selloff. This is important because it gives stock owners a moment to collect their composure. And most of the time when you give stock owners the chance, they will choose to keep holding their stocks, ending the flow of supply.
As long as the index remains above Monday’s lows, expect stock owners to maintain their cool and keep holding for higher prices. Dip under 3,660 so soon after bouncing off of this level tells us Tuesday was a false bottom and lower prices are ahead.
It doesn’t get any more straightforward than this. Stocks are buyable above 3,660 and sellable/shortable if the index falls under this level. Plan your next trade accordingly.
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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.