Why smart money is getting ready to buy the next bounce

By Jani Ziedins | End of Day Analysis

May 04

Free After-Hours Analysis: 

The S&P 500 slipped another 0.7% Thursday as traders continue digesting Wednesday’s Fed rate hike.

The Fed did what it said it was going to do and the market’s response has been cool but measured. Prices slipped as some of the most optimistic investors were disappointed the Fed didn’t hint at rate cuts later this year, but in a volatile world where 1%, 2%, and 3% daily swings are not uncommon, -1.4%  over two sessions is hardly panic material.

Stocks go up and stocks go down, that’s what they do. Monday evening, I warned readers to start locking in worthwhile profits:

Now is the time to start protecting last week’s profits by lifting stops and even taking some partial profits proactively…The price action looks good, and 4,200 is still very much on the table, but this is the wrong time to be getting greedy and cocky. Anyone doubling down up here is exposing themselves to a very routine step back on our way higher.

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I had no idea the market would shed 100 points over the next three sessions, but that’s how these things go. Always has and always will. Last week was a nice bit of up and we’ve given back all of those profits this week. Easy come, easy go.

I can’t repeat this often enough, this is a choppy market and that means one day’s profits will become the next day’s losses. If we’re not taking worthwhile profits when we have them, we’re not going to have any profits left to take a few days later.

But now that the index slipped back near the April lows and the 50dma, we find ourselves on the other side of this pendulum. Rather than aggressively short this weakness, we should be getting ready for the next bounce. For shorts, that means locking in worthwhile profits. For everyone else, that means getting ready to buy the next bounce.

As I said earlier in the week, 4,200 is still very much in play and nothing has changed, the market is simply taking the long road to getting there.

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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.