The S&P 500 crashed through 4k support Tuesday and ended up threatening 3,900 support before recovering a handful of points in the final minutes of the session to finish in the mid-3,900s.
Again, economic headlines were mostly benign and this continues to be a sentiment-driven trade as recent “hope for less bad” morphs into “fear of worse”.
Big stock market crashes are driven by significant and unexpected developments. So far, we can say neither of those criteria have been in play this week. Instead, this is little more than a normal and healthy pullback from multi-month highs.
Everyone knows stocks cannot go up every single day and down days are part of every move higher. But that never stops the naysayers from coming out every time the market slips a handful of points.
As I wrote Monday evening, this is the 8th retreat from relative highs since the October lows. And for those that are counting, seven of those retreats ended with stocks rebounding to even higher prices. While it is too early to say conclusively this will bounce higher, if we want to bet on the high probability outcome, always bet on the continuation because rallies continue countless times but they can only die once.
But just because we expect this dip to bounce doesn’t mean we need to hold it all the way down. I locked in some really nice profits at my trailing stops in the mid-4k’s and I’ve been waiting for the next bounce from the safety of the sidelines. And as a matter of fact, since I’m in cash, the lower this goes now, the more money I make buying the inevitable bounce, so lower is better for me.
But as I said above, I don’t see a lot of downside potential in this pullback and we are most likely close to the bounce. If not Wednesday morning, then that afternoon or over the next two days. Don’t stray too far because the next buying opportunity is almost here.
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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.