Dark clouds over the indexes and a bad call in TSLA turns into a pile of profits

By Jani Ziedins | End of Day Analysis

Nov 09

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The S&P 500 slipped 0.35% Wednesday, but this isn’t a bad performance if a person is focused on the half-full side of the glass.

The index has been up nearly every day since mid-October and down days here and there are perfectly normal for any bull market. In fact, I would actually feel more comfortable if October’s rebound had several more down days mixed in.

And that’s the crux of our problem. As good as the run from the October lows has been for our trading accounts, maybe it’s been a little too good. Markets love symmetry and a rally that goes too high is almost always followed by a pullback that goes too far.

No doubt we have a date with “too far” in our near future, the question is if Tuesday’s weakness was the start of the next pullback to support.

That said, anyone betting against this bull market lost a lot of money. The same goes for anyone that chickened out and sold too early. The trick, as always, is not overreacting to a little weakness the same way those critics and cynics have been doing all year long.

As I’ve said previously, the most critical and telltale sign of every market pullback is prices actually pulling back! Today we got a little selling. Is this enough to break the dam? Or will this bout of weakness turn out just as fleeting as all of the other dips that came before? Only time will tell. The best we can do is prepare for all eventualities and let the market decide our next step.

Lucky for us, as independent traders, we can be both patient and nimble. If this market wants to sell off, we get out at our stops and wait for the next bounce. If this is nothing more than another minor wobble on our way higher, we keep holding for higher prices. And if the market wants to whipsaw us, we can handle that too as long as we are willing to jump aboard the next bounce (even if it comes a few hours later).

And as I wrote Monday, there is nothing wrong with locking in some very healthy profits following such a big run. We only make money when we sell our winners and this is as good of a time as any to harvest some of those well-earned gains. Sometimes all it takes is a little profit in our pockets to help us look at the market more clearly and sleep better at night.

The pullback is coming. If didn’t start Tuesday, it will start soon. Make sure your trading plan is ready.

Monday I said TSLA looked good and owners had nothing to worry about. Tuesday the stock plunged 12%. Well…that sucks.

Lucky for those of us with a sound trading plan, we got out above $1,100 when the early selling violated Monday’s lows.

As much as we try, we cannot be right all of the time. In fact, do this long enough and we will make so many mistakes we won’t be able to remember all of them. That’s why every savvy trader has an exit plan that protects their backside when they are wrong.

And to be fair to myself, I bought the bounce off of $600 support and locked in some very nice profits above $1,100. Should I really be calling this trade a mistake?

And with TSLA finding support above $1k, it actually makes sense to start putting a little of that money back to work with a stop under this level. The TSLA trade is far from over and just because we sold at our stops doesn’t mean we need to give up on it. If the $1k bounce doesn’t hold, we get out and buy the next bounce.

More important than being right or wrong is being in the right place at the right time and if that means being wrong a few times first, so be it.

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About the Author

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.