One day down and three days back up. As poorly as the week started, amazingly enough, by Thursday the S&P 500 already turned green for the week.
Bears did their best to break this market, yet most owners showed their stubborn resolve and kept holding. Real estate bubbles in China? Fed tapers? None of it seems to matter to this bull market. But should anyone be surprised? This bull market was born in the depths of a global health pandemic. Of course it doesn’t care about these “little” things.
While I bought the dip following Monday’s late bounce and added more on Tuesday, I’m not convinced this bounce is the real deal. False bottoms also look like the real deal moments before the bottom falls out.
Lucky for those of us that got in early, we already moved our stops up to our purchase price and are now sitting on low-risk trades. Compare that to the person who abandoned ship on Monday and is now riddled with regret and indecision. One trader is coasting on easy street. The other is lying awake at night, stressing over what they should do next. Which trader would you rather be?
As I say over and over again, every time we sell, always, always, always have a plan to get back in. Dips are almost always false alarms and we need to have a plan to deal with them so we don’t get left behind when the market bounces.
Start small, get in early, keep a nearby stop, and only add to a trade that is working. Follow those simple rules and dips like this won’t bother you either. In fact, you will actually look forward to them because they are some of the easiest and fastest profit opportunities we get.
But now that the good dip-buying opportunity is behind us, now it’s time to figure out what to do next.
As I said, I’m not convinced this bounce is the real bounce. Lucky for me, just because I bought the bounce doesn’t mean I’m married to it. My stops are at or above my reentry points, but even more important, I’m focused on SPX 4,400. Hold above that level and the rebound is alive and well. Fall under it and we need to move to a defensive posture, which means scaling back open positions. And at this point, there is zero excuses to stick with a trade if the index falls under 4,350.
Remember, the best traders move proactively, not reactively. Have a plan ready and you will never get stuck on the wrong side of the market.
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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.