The S&P 500 bounced back from Tuesday’s thrashing, that is if a 0.16% gain qualifies as “bouncing back”.
The best we can say about Wednesday’s lethargic price action is at least the rout didn’t continue. But an early bounce that fizzled and finished near breakeven is nothing for bulls to crow about. If that’s the best offense dip-buyers can muster, it is going to be a very difficult few days for the market.
As I wrote Tuesday evening, markets rarely retreat and bounce exactly off of support. That would be too easy and the marked hates being easy. Prices either bounce above support or they bounce below support. Since the index already retreated back to last week’s closing lows, bouncing above this level is off the table and that means we have a date with a bounce under this level.
Now don’t get me wrong, I’m not fatalistic about this market. In fact, I’m looking at this weakness as a buying opportunity. (I even bought last week’s modest bounce and managed to squeeze a few bucks out of it before this second wave knocked us lower.)
Every directional move is a profit opportunity and I don’t care which way it goes. If the market bounces off of 4,350, great, I will buy that. If it is 4,305, even better. The lower we go over the near-term, the more money I make from these discounts. And if we crash through 4,300, that’s the best case of all because I’m currently in cash and the lower we go now, the more money I make later.
Let the bulls and bears slug it out on social media. I will be over here minding my own business and picking up all the money those other guys keep dropping.
As for a trading plan. Buy a bounce back above 4,400. If prices fall under 4,350, buy the bounce back above that level. And if prices crash under, 4,300, buy the bounce above that level. It really isn’t complicated. Start small, get in early, keep a nearby stop, and only add to a position that is working.
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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.