Why taking worthwhile profits is never a mistake

By Jani Ziedins | End of Day Analysis

Jul 20

Free After-Hours Analysis: 

The S&P 500 finished Thursday down 0.7% as the index digested a poor performance by two of its highest profile components.

NFLX and TSLA tumbled after their earnings disappointed investors. It wasn’t that these companies performed poorly, but the higher prices get, the bigger the expectations become. And both of these companies failed to live up to the hype.

Are these two isolated incidents? Or do they threaten the market’s half-full mood?

While we can’t read too much into one day’s price action, recent gains across the market leave us vulnerable to some near-term weakness. I’m in no way predicting a top, but it wouldn’t surprise me if the indexes cooled down following this month’s impressive 200-point run to 4,600.

Two steps forward, one step back. Rinse and repeat.

While the market acted well Wednesday, sometimes we have to recognize good enough. If we’re not selling early, then we are holding too long.

This is exactly what I told readers in Wednesday afternoon’s free analysis:

Everything looks great, and that’s eactly why smart money is already peeling off some of their profits. As easy as it is to buy back in, we can always buy the next move above 4,600. But until that happens, we need to protect the profits we have now.

I don’t pick tops, but taking worthwhile profits after a good run usually gets me close enough. After a bit of up, the next bit of down is inevitable.

There is no way of knowing if Thursday’s dip will bounce Friday or keep going for a bit. But now that I’m in cash, it doesn’t matter to me what comes next. All I know is I will be ready for whatever profit opportunity arrives next.

Thursday’s weakness was shortable with nearby stops for the most aggressive traders. For everyone else, collect recent profits and get ready to buy the next bounce.

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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.