When good enough is good enough

By Jani Ziedins | End of Day Analysis

Aug 30

Free After-Hours Analysis: 

The S&P 500 added 0.4% on Wednesday, making it four winning sessions in a row.

Headlines haven’t changed in a meaningful way, and in fact, some weaker-than-expected economic news came out over the last few days, causing many investors to cheer because they assume the Fed is done hiking rates.

Is weaker-than-expected economic news good? I don’t buy into the bad-is-good trading philosophy, but if traders want to buy bad news, no one can stop them.

As for my personal trades, I really liked this market last week when the index was under 4,400. Now that we are above 4,500, the risk/reward flipped against us. A big chunk of the upside has been realized, and there is not a lot left in this move over the near term. On the other side, risk is a function of height, so by that measure, the index is 150 points riskier than it was last week.

Combine these two ideas, and this is a better place to be collecting our 3x ETF profits than adding new money. By the time it looks safe, it is usually too late to buy. No doubt, it won’t take long for many of Wednesday’s tardy buyers to regret that decision.

Now, don’t get me wrong, I’m not predicting a return to recent lows under 4,400. But everyone knows the markets move in waves, and after a nice bit of up, we need a little down. Anyone expecting another 150-point rally over the next few sessions doesn’t understand how markets work.

Smart traders buy when they don’t want to buy, and they sell when they don’t want to sell. This beautiful rebound above 4,500 makes it hard to pull the plug on a 3x ETF trade that is working this well. But collecting worthwhile profits is never a mistake. Remember, we only make money when we sell our favorite positions.

Sign up for my FREE email alerts so you don’t miss the market’s next big move

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 as little as $1.28/day, receive actionable analysis and a trading plan every day during market hours

Follow Jani on Twitter


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.