Tuesday was a rocky session for the S&P 500 with the index shedding 60-points intraday. But by the time it was all said and done, the index recovered half of those losses before the close.
As calm as things have been, a return of volatility definitely got people’s attention. But as dramatic as Tuesday felt, it really wasn’t that big of a deal. The index briefly tested the lows from three weeks ago before bouncing. If the bears were are looking to break this bull, they need to do a lot better than a modest test of lows so recent, if they were milk, they’d still be drinkable.
As bad as this felt midday, the close was robust and showed most institutional investors are not taking profits and still holding for higher prices. How we finish always matters more than how we start and despite the red close, this qualifies as a good finish.
These midday lows gave us our new stop levels and the index is ownable as long as it remains above 4,120.
If this dip crossed your stops (like it did mine), we have no choice but to get out. But just because the market dumped us out doesn’t mean we have to give up on this trade.
Most dips are false alarms and that means we always need to be looking for an opportunity to get back in. Sometimes we are lucky and the dip carries on for a bit, allowing us to get in at much lower levels.
Other times we are not as lucky and the bounce is quick, leaving us chasing our tails. But at the end of the day, I always prefer an annoying whipsaw over stubbornly holding through a far more damaging correction.
Savvy traders are willing to take small losses when it allows them to avoid larger ones.
Edit: Corrected to reference Tuesday
Three weeks ago I wrote the following about Dogecoin:
While I don’t have a problem buying something that is going up (meaning Dogecoin is a legitimate trade), but that is only as long as people are trading this and not investing in it. As long as a person is agile and willing to take profits, they can ignore all Dogecoin critics. But if a person believes the hype, good luck with that.
Dogecoin has doubled since then, yet nothing has changed about how I’m approaching this. This trade is a ton of fun. But if a person doesn’t have a plan to take profits, they will end up giving all of this back and then some. Don’t be the fool left holding the bag.
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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.