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Free After-Hours Analysis:
The S&P 500 shot up 1.6% Tuesday, easily retaking 4,400 support and reclaiming even more ground before the closing bell.
Monday’s violation of 4,400 support couldn’t go any further than 4,370 before it ran out of impulsive sellers and bounced. To be honest, that was a pathetic showing by the bears. If that was the best they could do, what are people so worried about? And now that the index is back above 4,400 support, all lights are flashing green.
Is this finally the real bounce? Maybe. Maybe not. But as a nimble trader, I don’t care. I jump aboard these things early and within hours, I was already lifting my stops up to my entry point, giving myself a free trade. If the bounce continues, great, I let those profits pile up. If the bounce fizzles and retreats, no big deal, I get out near my entry point and I get to try again next time. No harm no foul.
While critics claim I’m stupid for buying bounces that are so obviously destined to fail, I don’t mind. Any low-risk trade is worth taking no matter how unlikely it is to work. It’s like I found a pile of lottery tickets. Just because the first three didn’t payout doesn’t mean I give up and throw the rest in the trash. I will keep scratching until I find the one that makes it all worthwhile. And if they are all losers, no big deal, the only thing I lost was my time.
In March, I hit the jackpot, catching that 450-point surge in a 3x ETF. Will the next bounce payout like that? Most likely not. But since I like free money, I’m willing to give it a shot.
Buy the bounce above 4,400. Move stops up to our entry points. And if a person isn’t already fully invested, add more Wednesday if the index continues trading well. And if prices rollover, no big deal, get out near our entry points. Simple as that.
In fact, there is no reason to hold this all the way back to our stops. If this looks broken, then it is broken. Real bounces take off and don’t look back. If this retests support so soon after bouncing, it’s not the real deal. Get out and wait for the next bounce. Remember, buying back in is always easier than wishing stocks will go back to the levels we wish we sold at.
I love buying bounces, but I will never keep holding one that’s stopped working.
NFLX got murdered in after-hours trade after badly missing subscriber growth projections.
Growth stocks are great…until they stop growing. Down 25% after the close. Ouch!
But this is nothing new for NFLX. This stock is already down 50% from last year’s highs. Anyone still holding from those highs is just plain foolish. We only make money when we sell our winners and right now, anyone that bought NFXL over the last few years watched big piles of profits vanish. And worse than that, they let a great trade turn into a big loser.
It is impossible to make money in the market with a strategy like that.
As for nimble traders, I don’t mind buying bounces and Tuesday’s bounce was buyable with a stop under Monday’s lows. But every disciplined trader starts with a small position and lets a trade start working before adding more. While waking up tomorrow to a 25% haircut is painful, it hurts a lot less with a 1/3 or 1/2 position.
As for how to handle NFLX going forward, the stock will probably bounce early Wednesday. Owners can keep holding with a stop under the early lows and try to reclaim some of those losses, but don’t get greedy and be ready to lock in losses later Wednesday or Thursday.
As for opportunistic traders, can buy the bounce with a stop under those early lows.
This bounce will probably fail and if (when) it does, there is no excuse to continue holding under the opening lows. From there, the pain will only get worse.
But don’t take this stock out of your scan. In a few weeks, just when things look their most hopeless, there will be a very large bounce from those grossly oversold levels.
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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.
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