Bears tried to break the market and they were broken instead. Plus, is Bitcoin so bad it’s good?

By Jani Ziedins | End of Day Analysis

Jan 10

Free After-Hours Analysis: 

Monday proved to be a wild ride for the S&P 500 with the index traversing more than 150-points intraday.

While it felt like the world was ending in the first two hours of the session, as is often the case when the crowd gives up hope, stocks found a bottom and it was all uphill from there. In fact, this decisive rebound carried us so far we nearly erased all of those early losses.

Bears tried to break the market and they were broken instead. This price action is as bullish as it gets. Bears threw everything they had at the market and all of it bounced off.

While this won’t end our near-term volatility, it did go a long way toward shaking out most of the weak hands and with them gone, there are a lot fewer people left to sell the next bout of weakness. Every selloff eventually runs out of sellers and that is the exact moment when the gettin’ gets good!

Hopefully most readers honored their trailing stops last week and locked in a pile of profits before this morning’s blood bath took place. At most, we should have carried a small partial position through the weekend, and even that would have been dumped not long after Monday’s poor open.

But like every nimble trader, as soon as we are in cash, the first thing we do is start looking for the next buying opportunity. And wow, was that bounce off of 4,600 was a thing of beauty. Entry points don’t get much better than that!

Now that our early buys have 70-points of profit margin in them and our follow-on purcahses are doing nearly as well, it is simply a matter of holding and seeing where this goes. This has already gotten to the point where we can lift our stops to our entry points, giving us in effect, a nearly free trade.

Huge upside and nearly zero downside, gotta love that risk/reward. These are the kinds of trades we dream about. Hopefully you didn’t miss it.

But as is always the case, the market is anything but predictable and that’s what our stops are for. But as long as this reams above Monday’s lows, this bounce is alive and there is nothing to do but keep holding and adding.

Bitcoin went through a similar whipsaw Monday morning when it undercut $40k support. While this felt horrible for anyone that’s been holding since the $60k’s, for those of us that used trailing stops and locked in really nice profits months ago, this bounce off of $40k support is a great entry point.

Buy the bounce with a stop underneath $40k and see where this goes. I don’t particularly care for bitcoin’s long-term prospects as an investment, but I know a good trade when I see one. While there is a good chance this bounce could fail, this is a clearly defined entry point with a sensible nearby stop. Low risk, high reward. Even with a lower probability of success, that’s still a great trade and very much worth making.

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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.