Stocks bounce after all hope is gone

By Jani Ziedins | End of Day Analysis

Sep 28

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The S&P 500 popped 2% Wednesday, snapping a six-day losing streak.

Even in this overwhelmingly bearish environment, seven down days was a little too much and a bounce was inevitable. But this isn’t a surprise for readers of this blog. As I wrote Tuesday:

When the market doesn’t do what it is supposed to do, in this case, devolving into a panicked dash for the exits, we have to sit up and take notice. As bad as things feel near the lows, maybe we really are finally running out of fearful sellers and are on the verge of bouncing on the resulting lack of supply.

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Markets go up and markets go down, that’s what they do. After a month and a half of falling, we are due for some up. How much up is anyone’s guess and we won’t know until after it is all over, but in the meantime, Wednesday was the start of the buyable bounce we’ve been waiting for and the earlier we jump aboard these bounces, the less risky they become.

Economic data has been mostly stable even if coming on the disappointing side of what some investors were hoping for. The lack of meaningful fundamental changes means this remains a sentiment-driven trade and as quickly as sentiment sours, it can bounce back once stocks stop falling.

While Wednesday might not be the real bounce, by starting small and getting in early, we quickly build up a profit cushion to protect our backside. By Wednesday afternoon, we savvy traders were already adding more and nudging their trailing stops closer to their entry points. While not a free trade yet, it is looking pretty good.

Odds are good this bounce will fizzle and we will get to do this all over again in a few days, but since I have no way of knowing if the first, second, or third bounce attempt will turn into the real one, the only thing I can do is buy all of them.

Start small, get in early, keep a nearby stop, and only add to a trade that is working and our risks are actually quite low. If this doesn’t work, no big deal, I pull the plug and try again next time., but so far so good.

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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.