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The S&P 500 started the week off well enough, notching a 1.9% gain following the longest weekly losing streak in 70 years.
As bad as every stock chart looks right now, that is exactly why we should be prepared for a near-term bounce. Everyone knows markets move in waves, yet most people forget this simple fact in the heat of battle. While a 70-year losing streak is impressive, savvy traders are anticipating a vicious snapback, not another seven weeks of selling.
As I’ve been warning readers, the market likes to go where people are looking and 3,840 was a widely followed level simply because that represents a 20% pullback from January’s highs. Well, as luck would have it, Friday’s session touched the magical -20%. But rather than trigger a follow-on wave of reactionary selling, supply dried up and prices bounced nicely into the close. Funny how that works.
As much as I expect lower prices over the medium-term, Friday’s late rebound was the perfect invitation to jump aboard a near-term bounce that could travel as high as 4,300 resistance. 400 points of upside is nothing to sneeze at!
This is the trade we’ve been waiting for and hopefully, most readers were able to take advantage of it. Buy Friday’s late bounce, add more Monday morning, and move stops up to our entry points. It doesn’t get much more straightforward than that.
Hundreds of points of potential upside and by getting in early, we already have a nice profit cushion and next to no downside. Trades don’t get any better than this.
If the bounce fizzles, we get out near our entry points, no harm no foul. If the rebound continues to 4,300, we make a pile of money. Gotta love that risk/reward!
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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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