Tuesday was another wild session for the S&P 500 as it swung between 3% losses and breakeven before eventually finishing down an intermediate 1.2%.
When is a 1.2% haircut actually considered constructive price action? When it follows a 4% intraday reversal the day before. In this case, two steps forward, half a step back. It is hard to call Tuesday a bad day given what could have happened.
If Monday’s sharp rebound was a house of cards, it would have collapsed Tuesday during that early 3% retreat. But instead of spiraling out of control, supply dried up and prices spent most of the day comfortably above those early lows.
Everyone laments how they wish their favorite stocks would pull back so they could buy more. But every time the market gods answer our prayers, most people lose their nerve. Instead of loading up on all of those wished-for discounts, most people join the panicked herd dumping stocks. Pretty ironic, eh?
While it feels like these selloffs and bounces come out of nowhere, that is almost never the case. Like a lobster resting in a cool pot of water, the heat comes on gradually.
Back in early January, we got that first interest rate fueled 2% tumble. But the market actually gave us plenty of time to get out near 4,750 when prices undercut recent lows. (You use trailing stops right???) That was our first and best signal to start peeling off profits. A few days later, the index bounced off 4,600. People who missed the first 4,750 selling opportunities were given another chance to get out.
And here we are, two weeks later, testing 4,200.
I came into Wednesday with sensible trailing stops spread across the lower to mid 4,700s to protect my profits “just in case”, but I was already pulling the plug on some of those positions long before those stops got hit. As easy as it is to buy back in, there is no reason to stick around when the tide so obviously starts turning against us. When the panic selling hits, I want to be one of the first to get out, not one of the last. And that means acting early and decisively.
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That was then, but what about now?
While Monday’s 4% rebound left a lot of people flat-footed, Tuesday’s retrench gave everyone another shot at buying those big discounts. Did you have the nerve to take advantage of it?
Remember, start small, get in early, keep a nearby stop, and only add to a position that is working. Follow those simple guidelines and you can profit from these great trading opportunities too.
If prices retreat later this week, no big deal. We get out at our stops and then buy the next bounce. It really isn’t that hard.
If a person is paying attention, the market isn’t nearly as cruel as its reputation. Look for the clues and you can avoid most of the carnage and be there to profit from everyone else’s misfortune.
Keep your cool during times like this and making money is pretty easy.
Much like the indexes, TSLA gave us a nice buyable bounce Monday.
If we sold the violation of $1k support last week, we were sitting on a pile of cash looking for the next trading opportunity. And as luck would have it, it only took two trading sessions for TSLA to give us the next entry point. Buy the bounce with a stop under Monday’s lows.
Maybe this bounce holds or maybe it doesn’t. But someone that bought the $850 bounce is already well ahead of the TSLA owner that held this retreat from $1,200.
Profit comes to those willing to act. Everyone else gets left holding the bag. Don’t be everyone else.
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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.