Why I’m happy I was wrong

By Jani Ziedins | End of Day Analysis

Aug 15

Free After-Hours Analysis:

The S&P 500 is teetering on the edge after the index shed -1.2% Tuesday and closed at the lowest levels in a month.

This retreat leaves the index just under 4,450 support and the 50dma. But at this point, the violation has only been by a handful of points, and we haven’t gone flying off the edge…yet.

China cut interest rates in the middle of the night as their officials struggle to restart their stalling economy. This move unnerved investors and kicked off Tuesday’s big wave of selling in US markets. But as I’ve written previously, it’s been years since China’s economy mattered to US stocks. Between Trump’s trade war and China’s multi-year lockdowns, the Chinese economy hasn’t mattered to the rest of the world in a long time.

Anything can trigger an impulsive wave of selling, but very few investors are basing their US equity buying decisions based on what China is doing. Even if China continues skidding, its consumers have largely shunned US brands in favor of domestic producers, so even their slowing consumption won’t put much of a dent in US corporate earnings. This whole thing is a non-issue.

That doesn’t mean US stocks can’t slip for a few more days, especially if the selling continues Wednesday and we undercut the next tranche of automated stop-losses. But even if the selling keeps up for another day or two, this is a buying opportunity and we need to be ready to jump aboard the next bounce.

As readers know, I liked Monday’s bounce and I was a buyer. I won’t deny that Tuesday’s poor open stung. Lucky for me, I recognized the risks of buying this market and I was careful. As I described on Monday:

Monday’s bounce was buyable with a stop near Friday’s lows. Start small, get in early, keep a nearby stop, and only add to a trade that’s working. If the selling resumes later this week, no big deal, pull the plug at our stops and try again next time. It really is that simple.

As it turned out, I was wrong. I got dumped out for a modest loss on a partial position, and you know what? It wasn’t that bad. No one is right all of the time, and that includes me. That’s why all of my positions start with defense in mind.

As for what comes next, just because I got dumped out on Tuesday doesn’t mean I’m giving up on this trade. If stocks bounce on Wednesday or even next week, I will be there to jump on those discounts. In fact, the lower we go now, the more money we can make buying the next bounce. That means I’m hoping I continue being wrong on Wednesday and Thursday. Bring on an even bigger wave of panic selling! After my stops moved me to cash, the lower we go, the better.

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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.