Why this rebound was inevitable

By Jani Ziedins | End of Day Analysis

Jan 23

Free After-Hours Analysis: 

The S&P 500 smashed through 4k resistance on Monday and powered its way to fresh 2023 highs. That’s a long way from last week’s fearful selling that challenged 3,900 support.

Just as last week’s tumble was not fueled by meaningful headlines, this latest rebound didn’t need a fundamental justification to blow up in bears’ faces either. If we can fall on no news, then we can also rally on no news.

This continues to be a sentiment-driven market and sentiment by itself can only push prices so far, meaning these swings are prone to snapping back, which is exactly what happened on Friday and Monday.

Stocks can’t stay in one place, and that means wobbling back and forth for no real reason at all. Last week it was down, this week it is back up. But this shouldn’t surprise readers of this blog, as I wrote last Wednesday:

I’m itching to get back in and will be looking for a bounce to buy Thursday morning or afternoon. And if not Thursday, then Friday. A bounce is coming, the only question is when.

and Thursday:

[N]othing has changed and that means this is most likely just another routine buyable dip on our way higher. At least that’s how I’m approaching it

Here we are, four days later and 120 points higher.

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As for what comes next, the 2023 up-trend is still intact, and that means higher prices over the medium term. Another wave of selling and profit-taking could push us back to 4k, but at this point, the market wants to go up, not down, so any near-term weakness is just another buying opportunity.

Monday’s nice pop shows why smart money was buying when everyone else was selling for no good reason. As independent traders, we don’t buy dips, but as soon as prices find a bottom and start bouncing, it is full speed ahead.

But now that the market is 120 points above Friday’s lows, we have to be more careful. We buy early and we get out early. That means it is already time to start thinking about an exit.

Move trailing stops up and even consider locking in some profits proactively. At this point, there is more risk underneath us than reward above us. Plan your next trades accordingly.

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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.