Fear of Omicron came roaring back Tuesday morning and Powell’s late morning comments about scaling back bond buying added fuel to the fire. By the end of the day, the S&P 500 shed 1.9% and undercut Friday’s lows.
While Monday’s bounce looked promising, often these things go through a few false starts before finally finding their footing. For anyone that tested the water buying Monday’s bounce, the clear signal to abandon ship was undercutting the morning lows near 4,620.
Any give-back stings a little, but as the saying goes, the first loss is the best loss. And that was clearly the case here with the index falling another 50 points from the sell signal before the close.
No one likes losing money, but if a person jumped aboard Monday’s bounce early and started with a partial position, the actual losses are fairly modest if they were disciplined and got out near 4,620. Given the potential reward of a bounce back to the highs, the risk-reward was definitely skewed in favor of the dip-buyer even if this particuar trade didn’t work out.
But now that savvy traders are out of the market, it is time to start looking for the next bounce. Maybe it comes Wednesday. Maybe it doesn’t happen until next week. But savvy traders know the bounce is coming and they don’t want to miss it.
We only have to look back a handful of weeks to see the last time this strategy paid huge dividends. While there were a few whipsaws near the October lows, as long as a trader stuck with it, they were rewarded with a nice, nearly 400 point rally when the move finally took hold.
While no one likes taking 10, 20, and even 40 point losses. If that’s what it takes to be in the right place at the right time to catch the next big 400 point wave, who’s really complaining about a little tail-chasing here and there?
Monday’s bounce didn’t work. And the next one probably won’t work either. But as long as we start small, get in early, keep a nearby stop, and only add to a trade that’s working, we will minimize losses while guaranteeing we’re in the right place at the right time for the next big move.
TSLA keeps making hay following November’s bounce off of $1k support. Despite all of the noise in the broad market, TSLA’s bounce is alive and well. This remains holdable above $1k no matter what Elon is Tweeting or doing with his personal shares.
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