Is smart money betting the eighth time is finally the real one?

By Jani Ziedins | End of Day Analysis

Dec 05

Free After-Hours Analysis: 

The S&P 500 fell -1.8% Monday and finds itself retesting the all-important 4k level after smashing through this key resistance level only four sessions ago.

As impressive as last Wednesday’s 3% blast through 4k resistance was, it turns out a lot of investors have a fear of heights and few were willing to chase Wednesday’s surge even higher. That lack of follow-on demand allowed the index to slip all the way back to the widely followed 4k level.

Often resistance turns into support and we will learn early Tuesday if that’s the case this time. If the selling continues Tuesday morning, last Wednesday’s buying frenzy could finally be the climax top bears have been calling for and it is all downhill from here. But what are the odds?

As you can see from the above chart, there have been eight potential “tops” since the October lows. And seven of those “tops” ended in even higher prices. Is the eighth time the charm? Will this one finally be the real top?

While only time will tell what comes next, the one thing we know about up-trends is they continue countless times but they can only reverse once.

Trading is a form of betting, so the question is, should we bet on the outcome that happens 90%+ of the time? Or the trade that is right less than 10% of the time?

Until proven otherwise, I will continue giving the October rebound the benefit of doubt and there is nothing in the last three sessions of selling that changes my outlook.

All of that said, as much as I believe this latest swoon will ultimately resolve to the upside, my trailing stops got me out in the mid-4k’s. And no matter how much I disagree with a selloff, there is one thing I never do and that is argue with the market.

But just because I locked in profits Monday morning doesn’t mean I need to stay out. I’m already looking for that next bounce and I could be buying back in as soon as Tuesday morning if we get a nice bounce off of 4k support.

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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.