Why Bears are about to make the same mistake Bulls just made

By Jani Ziedins | End of Day Analysis

May 24

Free After-Hours Analysis: 

The S&P 500 skidded for a second session on Wednesday, giving up -0.7% and erasing all of last week’s gains.

As I warned readers late last week, and again on Tuesday:

If you are not taking profits when you have them, you won’t have profits left to take.

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Last week’s buyers that failed to heed this warning watched all of those profits slip between their fingers. Greed doesn’t pay in this market, and it has been zinging both bulls and bears over the last several weeks and months.

The debt ceiling bickering continues, and that is enough to cool demand for stocks near 52-week highs. As I’ve written before, the debt thing will get done because the consequences of it not happening are too great. But as is usual, a deal won’t be stuck until the final hour, and we should expect the headlines to get even uglier before then.

This stubborn standoff is SOP for partisan politics. And most traders know this, that’s why stocks are not significantly lower. But at the same time, this background noise is enough to keep investors from enthusiastically pushing stocks even higher.

As for what comes next, expect the choppy, sideways trade to continue. We’re not going anywhere, but that won’t stop impulsive traders from jumping from one side of the boat to the other.

Until further notice, we keep trading against these swings. That means this week’s swoon is a buying opportunity.

Sometimes it takes a few bounce attempts before the real one comes along, but that bounce is coming. And just like how bulls got stung this week, bears pressing their shorts this week are making the same mistake.

This is the kind of market where if we’re not taking profits, we will be taking losses a few days later.

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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.