The S&P 500 finished Monday down 0.6%, extending Friday’s employment-fueled swoon. But this continued cooling isn’t a surprise, as I wrote Friday evening:
While I don’t fear “too good”, I am aware that it’s been a good run and stepbacks are part of every move higher. I still like this market over the medium and long term, but the risk/reward has gotten away from us over the near term.
We only make money when we sell our winners and that’s exactly what I did last week. But just because I locked in some really nice profits doesn’t mean I’m giving up on the October rebound. I actually like the economy and don’t buy into this “good news is bad news” argument. Inflation is coming down AND employment is holding up. Isn’t that the soft landing we’ve been hoping for??? I don’t understand why so many people are afraid of good economic news, but I’m not one of them.
As regular readers know, I love taking worthwhile profits when I have them. But as soon as I get out, I start looking for that next buying opportunity because it often arrives a lot quicker than most people expect.
The index bounced nicely off of 4,100 support Monday morning and I was ready to start buying again. Unfortunately, the lackadaisical afternoon session and closing in the middle of the day’s range convinced me to hold off for the moment.
I’m itching to buy the next bounce, but I would rather be a little late than a lot early. That means I’m waiting to see what happens Tuesday. If the selling continues, I will keep waiting and watching for an even better buying opportunity. But if prices bounce Tuesday morning, I will jump aboard with a small position and a stop near Monday’s lows. If that initial position works well, I will add more money. If the trade doesn’t work and prices retreat under my stops, no big deal, I pull the plug at my stops for a small loss and try again Wednesday or Thursday.
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.
If you find these posts useful, help me out by liking and sharing them!
Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every evening.
What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, receive actionable analysis and a trading plan every day during market hours
Follow Jani on Twitter @crackedmarket
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.