The S&P 500 went for another wild ride on Friday.
The index gapped lower at the open, but as is often the case with opening gaps, supply dried up within minutes and prices bounced back to breakeven. (I’ll get into the reasons why this happens so often in another post. Sign up for free email alerts so you don’t miss it.)
Unfortunately, the relief was short-lived and prices quickly slumped back near the opening lows when dip buyers failed to show up and support the early buying.
But rather than crash through the lows and trigger another wave of panic selling, supply dried up for a second time and the index actually bounced back to breakeven, even managing to eke out a small, 4-point gain by the end of the day.
Phew, that was a mouthful and it was definitely a topsy-turvy session. But what it wasn’t was another rout. Bears had the perfect setup to launch another big wave of panic selling, but they couldn’t get stock owners to play along. And that’s a pretty good indication bulls are still in control of this market.
As I often remind readers, it’s not how we start but how we finish that matters most. And while it is hard to get excited about a measly 4-point gain, that is actually a respectable win given where the index spent most of the session.
In fact, I was encouraged enough by this price action to start buying back in. If this market was fragile and vulnerable to a larger collapse, it would have happened Friday. The fact we closed well above early lows tells me this market wants to go higher, not lower.
To the untrained eye, it looks like I am chasing my tail these last two weeks because I keep getting in and out of the market. (And it definitely feels like I am chasing my tail!)
I sold the initial dip at my stops in the upper 4,700s. Then I bought the first bounce late last week but ended up getting dumped out during last Friday’s pathetic close. I tried again this Monday, buying that impressive bounce. That trade worked well until Thursday’s interest rate second-guessing told me it was time to get out again. And then as I wrote above, I bought back in Friday afternoon.
I hate buying and selling this often. But that’s what my trading plan tells me to do at each of these junctures and I know better than to question my trading plan. When done right, my trading plan A) keeps me safe and B) makes sure I am in the right place at the right time to take advantage of the next big move.
If that means I have to chase my tail every once in a while, so be it.
While I collected a small profit this week arbitraging these whipsaws, that’s not the reason I’m selling these dips and buying these bounces. I’m doing it to protect myself from a larger selloff.
I will be the first to admit I can’t predict the future and I don’t know if this pullback will bounce at 4,600, 4,400, or 4,200. What I do know is it doesn’t matter if this is a 200 point pullback or a 600 point pullback, I don’t want to hold through either of those pullbacks.
When I move to the safety of the sidelines, I no longer care if it is a 200 point or a 600 point pullback. And as soon as I’m in cash, the first thing I’m doing is looking for the next buying opportunity so I can get back in.
Maybe Friday’s buy will prove to be a mistake. And I’m okay with that. I simply get out and try again. Or maybe the market bounces nicely Tuesday and I add more.
Either way, it doesn’t matter to me as long as I’m standing in the right place at the right time.
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TSLA took a big hit Thursday, but more importantly, the stock held $1k support.
While it is more fun watching a stock go up every single day, we know that’s not realistic.
TSLA is trading well enough to stick with as long as it remains above $1k support. In fact, for those that missed the first bounce, this pullback is giving you a second chance to get in.
Buy the bounce with a stop just under support.
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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.