How savvy traders are handling this pullback from the highs

By Jani Ziedins | End of Day Analysis

Mar 31

Free After-Hours Analysis: 

Thursday turned into the ugliest session for the S&P 500 since early March as the index shed 1.6%. This quarter-ending blood bath was a fitting finish since it capped off the first losing quarter in two years.

As dire as that sounds, the index is only down 5% from all-time highs, so stocks are actually doing fairly well, all things considered.

There are two ways to interpret the index’s stubborn resilience. Either stocks are defiantly strong and no amount of bad news can weigh them down. Or stocks are standing on a ledge and there is a whole lot of open air underneath us.

And as usual, every bullish or bearish interpretation largely comes down to a person’s biases and outlook.

That’s why avoid all the noise and simply follow the market’s lead. If it wants to go higher, great, I jump aboard the rally. If stocks want to retreat back to 4,400 support, no big deal, I step aside and wait for the next bounce.

As for what comes next. Stocks go up and stocks go down. That’s what they do. And Thursday happened to be one of those down days.

If a person has been following this blog, they were sitting on a nice pile of profits after buying March’s spectacular rebound. But rather than get complacent by our good fortune, we were getting nervous at these towering highs and played defense by snugging our trailing stops up near 4,600.

Now that those stops have been violated and dumped us out, it is time to start looking for our next entry point. From here, I see two. Bouncing back above 4,600 resistance and resuming this week’s breakout. Or dropping back to 4,400 and bouncing off of support.

Either of those will be our buy signal. Start small, get in early, keep a nearby stop, and only add to a position that is working. Until then, I’m watching this one from the safety of the sidelines.

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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.