Everything looked promising for the S&P 500 when it retook 4,300 last Thursday afternoon. Unfortunately, that was as good as it got and it was all downhill from there. The index entered a death spiral Friday morning and the selling didn’t stop until Monday afternoon when the index hit 4,060.
While that sounds dreadful, the silver lining is the index bounced nearly 100-points in the final hours of Monday’s session and actually finished in the green.
I know I sound like a broken record, but savvy traders sell strength and buy weakness while fools do the exact opposite. The time to abandon March’s huge rebound was back in March, which is exactly what I told readers back on March 31st:
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.
In case anyone’s counting, that was 500-points ago. People selling last Friday and this Monday morning are waaaaay late to the party.
Savvy traders look at a market that fell 500-points see a buying opportunity, not a reason to abandon ship.
Everyone knows markets move in waves, yet people always forget this very simple fact in the heat of battle. Sell at the top, not at the bottom. Buy at the bottom, not at the top. While everyone understands that, so few people actually do it.
I bought last Thursday’s bounce. It looked great. But as is often the case, it didn’t work. I got dumped out near my entry points for a very inconsequential breakeven trade, and now I’m buying Monday’s late bounce. See how that works?
These are the kinds of trades I live for. If I’m right, I make a boatload of money. If I’m wrong, I lose little to nothing.
Maybe Monday’s late buys work, maybe they don’t. But if this isn’t the real bounce, it will come eventually because markets ALWAYS bounce. Even bear markets bounce. In fact, bear markets have the biggest and fastest bounces of them all, so bear markets are some of the best times for nimble traders to buy the bonce.
Buy weakness, sell strength, and repeat as many times as the market lets us.
Will I make money Tuesday? Maybe, maybe not. But with my stops already near my entry points, I don’t have much to lose if I’m wrong and everything to gain if this finally takes off.
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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.