Why bulls should be rooting for a bigger stock pullback, plus how much lower this Bitcoin selloff can go

By Jani Ziedins | End of Day Analysis

May 21

Free After-Hours Analysis: 

The S&P 500 slipped for a second week in a row. But for as ominous as things appeared Wednesday morning, the 0.43% weekly loss seems fairly benign.

This was the second week in a row bears tried to break this bull and the second week in a row they failed to get the job done. Dips in the first half of the week bounced decisively in the second half. And here we stand, within 2% of all-time highs following two weeks of robust selling. As I often write, a market that refuses to go down will eventually go up.

That said, there are no guarantees the second bounce is the end of this volatility and we could easily experience another test of 4k support next week. But if the first two attempts couldn’t close the deal, odds don’t look good for a third attempt. (Often the 3rd bounce is the charm!)

As has been the case all along, keep holding for higher prices, pulling the plug at our stops, and being ready to jump back in when the dip proves to be yet another false alarm. While trading through these whipsaws is inconvenient, it sure beats holding blindly through a much bigger correction. While the next dip will most likely bounce like all of the others that came before it, there are no guarantees and I certainly don’t feel like betting my trading account on it.

And in fact, I’d rather be wrong and see the index fall significantly further. The lower this goes now, the more money I make buying the next bounce.

I normally like to mix up these individual analysis pieces and spread them across different stocks, but Bitcoin is just too juicy to ignore. Thursday’s bounce above $40k support failed and this is back in the mid-$30k’s. If BTC cannot get back above $40k soon, we could very easily see prints that start with a $2#,###.

As I’ve been writing all along, with something this volatile, we need to have a stop and we need to stick to it. $60k was a sensible level to lock in profits. So was $50k and more recently $40k. And now there is a good chance people will be kicking themselves for not selling at $30k.

I’m not giving up on Bitcoin, but this has a nasty habit of falling 80% and that means this might not bottom until $12k! While this also has a habit of bouncing back, don’t forget last major selloff took three years to get back to the old highs. Just think about that when deciding if you want to hold through the dip.

Even the most bullish of bulls can see the value of selling $60k and buying back in at $12k.

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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.