What Monday’s feeble bounce means for the index, plus a word of warning for $GME holders

By Jani Ziedins | End of Day Analysis

May 03

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On Monday, the S&P 500 bounced back from Friday’s dip and recovered 0.27%.

While this green day seems positive enough, bears will point to the index’s inability to hang on to the psychologically significant 4,200 level. The opening strength fizzled and the index ultimately closed nearly the daily lows. That makes this price action “a green day with an asterisk”.

As is usually the case, there are no clear and obvious bullish or bearish trading signals. That would make this easy and as everyone knows trading is anything but easy.

As speculators, we live in a world of shades of gray. Monday was bullish in that Friday’s modest dip didn’t continue. And the resulting bounce had hints of bearishness since the index couldn’t hang on to the early highs. That gives us a mixed bag with both sides having something to crow about.

While this price action seems like a tie, in these situations, we always give the benefit of the doubt to the trend. When all things are equal, we stick with what has been working.

In this case, this mixed day still favors the bulls. If this rally was truly overvalued and fragile, Friday’s selling would have accelerated, not stalled and bounced.

Until we see a more compelling warning, keep holding for higher prices and lifting our trailing stops.

While GME has faded from the headlines, the stock price remains stubbornly high.

The problem for GME bulls is this was always a momentum story. Unfortunately, the public has forgotten about this trade and as a result, momentum has vanished.

That said, this stock is still ridiculously valued (a $20 stock selling for $162). And that means the selloff still has a long, long way to go.

The bounce back to $200 was a fun ride and produced a quick buck for nimble traders. But the subsequent retreat has given us another lower-high and the downtrend is still very much intact.

This party is over and anyone still holding out for $1,000 is deluding themselves. If a person has profits, take them. If a person is stilling on losses, chalk the lesson up as experience and sell while prices are still high. There will always be other trading opportunities (as long as we still have money left to trade!)

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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.