Thursday was another bad session for the S&P 500. Not only was this the third loss in a row, but the previously rock-solid 3,800 support crumbled before our eyes.
As bad as this sounds, putting this pullback in perspective, today’s 3,768 close would have been a record high less than two months ago. This latest selloff only looks bad when compared to where we were a few weeks ago.
That said, it feels like sentiment flipped from half-full to half-empty following this latest runup in interest rates. As I wrote yesterday:
Even if this rise in yields is nothing more than another false alarm, the only thing that matters over the near-term is if equity investors believe this is the real deal. If they want to abandon the market and sell their favorite stocks at steep discounts, no one can stop them.
And that’s exactly what happened Thursday as the index crashed through support. This violation of 3,800 was shortable with a stop just above this level. At this point, proactive shorts should be moving their stops to at least their entry point, making this a free trade.
I have no idea how much further this selloff will go, but chances are it will only last a few days and that means shorts need to be ready to lock-in profits quickly. Fight the urge to get greedy. Remember, this is still a bull market and these things bounce hard and fast. Hold a little too long and all of your short profits will evaporate.
Jumping from the frying pan and into the fire, the S&P 500’s 5% loss pales in comparison to TSLA‘s 30% collapse. Back in mid-February, I warned TSLA owners to get defensive if the stock retreated under $800 support. And here we are a few weeks later, testing $600. And before anyone starts thinking the worst is behind us, a dip under $600 could easily fall all the way back to $400. I don’t think anyone needs to be told holding through a 50% pullback is an awful pill to swallow.
Savvy traders lock-in profits when everyone else is overcome with greed. And those same savvy traders are there to pick up the pieces when the crowd gets terrified and starts selling their stocks at steep discounts.
If a person locked-in profits back at $800, no doubt they are hoping TSLA tumbles all the way back to $400. I’m not sure this falls that far, but it will definitely get worse before it gets better.
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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.