Why smart money isn’t pressing their short positions here

By Jani Ziedins | End of Day Analysis

Dec 19

Free After-Hours Analysis: 

The S&P 500 fell 0.9% Monday as last week’s post-Fed selloff continues.

Headlines haven’t changed in a meaningful way and that includes last week’s inflation report and the Fed’s rate hikes. Inflation is moderating modestly and the Fed is slowing the pace of rate hikes. Both of these results fall in line with most investors’ expectations and we are not seeing any significant deviations in the fundamental data.

This remains a sentiment-driven trade and the October and November waves of optimism have given way to this latest bout of second thoughts. 3,800 is the next obvious support level and now we get to see if it holds. Either it does or it doesn’t and that binary outcome is the basis for our next trade.

Monday’s late test of 3,800 support held. That was our signal to lock in some very juicy profits on our short positions. And for the most adventurous, test the waters with a small buy and a stop under Monday’s intraday lows.

Odds are good closing our short positions Monday afternoon could be premature, but with over 200 points of profit in this trade, the risks of holding too long far outweigh the reward of squeezing a few more bucks out of this trade.

Remember, we only make money when we sell our winners and this has been a great trade. No reason to get greedy and keep pressing our luck. As easy as it is to buy back in, there is no reason to get stubborn here. Take those profits and get ready for the next trade.

Adding more to a long position Tuesday morning if the bounce off of 3,800 sticks, or switching direction and shorting a break under 3,800. This is as easy as it gets.

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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.