The critical moves to make now that the index is challenging 4,400

Free After-Hours Analysis: 

Tuesday proved to be a mixed session for the S&P 500. Early strength tagged yet another intraday record high, this time cresting 4,390. This latest move put the index within whispering distance of the psychologically significant 4,400. Unfortunately, a midday selloff prevented us from closing at those levels and instead, the index gave up a very modest third of a percent.

Two steps forward, one step back, that’s how this game works. But the thing is, a third of a percent retreat doesn’t really count as a step back, especially following a 5% rally in less than a month…

At the very least, we should expect the rate of gains to stall at 4,400 for a while. Probably even the remainder of the summer. And here’s the thing, stalling at 4,400 doesn’t mean flatlining at 4,400. There will be some choppiness in this sideways trade, but there is no reason (yet) to think any near-term weakness will trigger larger declines. Instead, this latest run to 4,400 needs to catch its breath and this will most likely transition into a sideways grind.

Quite simply, we need to dial back our expectations for the remainder of the summer. This rally has been moving in 200 point increments and challenging 4,400 puts us at the top of that next step. It is totally unreasonable to expect this rate of gains to continue non-stop to 4,600.

So what’s a trader to do? There is no reason to abandon a flat market, but it does make sense to start locking in some of these nice profits. If this pops above 4,400 sooner than expected, it is easy enough to buy back in. But as I often remind readers, we don’t make money until we sell our winners. And for the nimble swing traders in the audience, these are definitely worthwhile profits that need some pruning.

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