The S&P 500 surged 2.5% Friday, finishing the week at multi-month highs and easily brushing off bruising earnings reports from GOOGL, META, and AMZN.
With three of the biggest and most important tech stocks deep in the red this week, you’d think the market would have rolled over and be racing toward the 2022 lows. But you’d be wrong.
As much as I don’t always agree with, or even understand, what the market is thinking, the simple truth is the market is far larger than I am and it doesn’t care what I think. Rather than disagree and argue with the market, I tell myself, “Okay, if that’s what it really wants to do, I’m happy to follow along.”
After doing this for decades, one of the most important lessons I’ve learned is to never question the market when it is doing something unexpected. That means the forces acting under the surface are so strong they overpower common sense and conventional wisdom. And if the mysterious phenomenon is that powerful, you better watch out because it will run over anyone that gets in its way.
Two days ago I was preparing to lock in some really nice profits if this rebound stalled and retreated back under 3,800. It’s not that I expected a bigger pullback, just that it’s been a good run and we only make money when we sell our winners. As easy as it is to buy back in, there is no reason to stubbornly hold a position if the rebound was cooling off.
Lucky for me, the market never tested my stops under 3,800, but even if it did, the first thing I do after I get out is to start looking for the next opportunity to get in. And Friday morning’s counterintuitive strength would have been that signal to jump back in.
When something doesn’t make sense, it means there is a lot of power behind the market and we better grab on. At this point, 4k is very much in play. What happens when we get there is still up for debate, but at the very least, we should expect the market to get into the upper 3,900s over the next few days and weeks.
From there, we can judge the market’s price action and figure out its next move. But a nearly 500-point rebound from the October lows and it wouldn’t be a surprise to see a little profit-taking weight on the market after we get near 4k.
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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.