Thursday’s session was one of those days where both bulls and bears got their butts kicked and the market proved it is still the boss.
The session started poorly for the S&P 500 after January’s PPI report showed wholesale inflation remains stubbornly resilient. That headline sent the index tumbling 1.5% shortly after the opening. But just all hope was lost and bears were feeling their most confident, supply dried up and prices bounced hard, recovering a majority of those early losses by Thursday afternoon.
This bounce shouldn’t have surprised anyone. First, the PPI data wasn’t new or unexpected and it fell in line with recent Fed, consumer, employment, and economic data. If equity owners weren’t dumping stocks following last week’s headlines, why should we think this PPI report would suddenly change their minds?
That midday bounce send bears scrambling for cover as the index recovered a majority of those opening losses. But what’s good for the goose is good for the gander. Just when bulls were starting to feel good about themselves, the market pulled the rug out from underneath them and sent stocks tumbling back to the opening lows.
Just like the early bounce, Thursday’s late retreat shouldn’t have surprised anyone either. As I’ve been writing for weeks, this is a choppy market and that means lots of back-and-forth. In fact, Wednesday evening I reiterated that sentiment when I told readers:
No matter what the bulls and bears claim, this market is not going to explode higher and it is not going to crash lower. But that’s okay for the savvy and opportunistic trader. Buy the dip, sell the bounce, and repeat as many times as the market lets us. But remember, if we are not collecting profits early and often, the market will take back all of those profits and turn our trade into a loser.
Keep buying the dips and selling the pops because this market is going nowhere fast. This choppiness means we need to collect profits early and often because holding a few hours too long is the difference between worthwhile profits and watching a winning trade turn into a loser.
I could go on and on with similar statements from previous posts because we’ve been in this sideways grind for a while. Anyone trying to trade the next breakout or breakout is getting chewed up by these reversals. But that doesn’t stop bulls and bears from making the same mistakes again the next day.
No one can trade these wild whipsaws perfectly, so don’t even try. But when you have a profit, you better be taking it because odds are good it will be gone in a few hours.
As for what comes next, expect more of the same. As bad as Thursday’s close looked, Wednesday’s close looked good. And we saw how that turned out. This is the “opposite market” and the smart trade is going against conventional trading signals instead of following them.
Maybe stocks open poorly Friday, but rather than jump aboard the selling bandwagon, be on the lookout for that next bounce because odds are good it will come hard and fast.
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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.