The way smart money is trading this market

By Jani Ziedins | End of Day Analysis

Feb 07

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Tuesday was a whipsaw session for the S&P 500, but by the time dust settled, the index powered 1.3% higher, ending a two-day losing streak.

The day’s big headline was public comments from Jerome Powell covering the economy, recent job gains, and future rate hikes. But for all the hype and anticipation, he didn’t say anything new or unexpected. That didn’t stop impulsive day traders from lurching from one side of the boat to the other.  But at the end of the day, what Powell said changed very few minds and that’s why these lurches didn’t accelerate in either direction.

More important is 4,100 support held for the second day, giving us the buying opportunity we were looking for. As I wrote Monday evening:

Big picture wise, there isn’t any meat to Friday’s headlines or this latest wave of selling. This is nothing more than a routine step back and consolidation near overhead resistance. Those dips are shallow and bounce quickly. Wait a few hours too long and you will miss the next buying opportunity.

Well, here we are a few hours later and the index now finds itself closer to 4,200 than 4,100. If you didn’t come to Tuesday’s session with a plan to buy, you missed some really easy money.

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As for what comes next, the most important thing to realize is this market doesn’t have big move potential. We get these tradable daily swings and there is more up than down, but every step forward is followed by a step back. That means we want to take profits early and often. Hold a few hours too long and the market will steal those profits back.

I really like Tuesday’s gains and I’m sitting on a pile of profits, but this is the wrong time to be getting greedy. I already lifted my stops and am planning my exit.

As easy as it is to buy back in, it makes sense to start taking partial profits as we approach 4,200 resistance. This market doesn’t have big move potential, so we don’t need to worry about getting left behind by a big breakout. Instead, we should be more worried about our profits escaping during the next step back.

Buy the bounce, sell the breakdown, and repeat as many times as the market lets us. That’s the way smart money is playing this.

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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.