What nimble traders are doing Friday morning

By Jani Ziedins | End of Day Analysis

Aug 17

Free After-Hours Analysis: 

The S&P 500 tumbled another 0.8% Thursday as the wave of reflexive selling continued.

The index violated 4,450 support and the 50dma earlier in the week, and the latest victim was 4,400 support.

Wednesday’s weak price action left me watching Thursday’s tumble from the safety of the sidelines. When I have cash, I’m always looking for the next bounce, but Thursday’s price action didn’t give me an entry point and that means I’m still in cash. No harm, no foul.

As I wrote on Wednesday:

I hope prices will fall even further on Thursday and Friday. But if they don’t, I will be one of the first standing in line to buy the next bounce. I’d love to get in at much lower prices, but I don’t get to choose what the market gives me. If this wants to bounce at 4,400, I’m a buyer. If it waits until 4,300 to bounce, that’s even better. The only thing that matters is I don’t get left behind when the bounce finally arrives.

Remember, we don’t buy dips, we buy bounces. And as always, start small, get in early, keep a nearby stop, and only add to a position that’s working. Follow those simple rules and we will be ready for whatever comes next.

As bad as Thursday looked, the thing to remember is this is the way it usually feels right before the bounce. We can debate how bad it needs to get before this gets good, but without a doubt, we are closer to the bottom than we were on Tuesday or Wednesday.

The nice thing about one-way selloffs like Thursday is they tend to bounce early the next session. That means if we buy early enough, that initial bounce will give us a handy profit cushion to play with.

If the market capitulated Thursday, Friday’s early bounce will keep running and won’t look back. In that case, keep holding, adding, and letting those profits come to us.

On the other hand, if another wave of selling is headed our way, that early bounce will fail and the sell-off will resume. In that case, we pull the plug at our entry point and try again later Friday afternoon if the market attempts another bounce. But if Friday ends in another one-way selloff, that’s no problem. We buy Monday morning’s bounce and do this all over again.

Markets move in waves and no matter where this is headed over the medium and long term, a near-term bounce is headed our way. For nimble traders, that’s a profit opportunity. Don’t miss it.

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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.