Why smart money is already eyeing the exits

Free After-Hours Analysis: 

What a difference a day makes. Tuesday’s second thoughts were smashed by Wednesday’s 1.1% rally that surged through 4,400 and kept going.

As I wrote in Tuesday’s free analysis:

Keep holding Friday’s purchases with stops already moved up to at least our entry points. If the rebound continues, we let the profits roll in. If the selling resumes, we get out near our entry points and try again next time. Lots of upside and very little downside, what’s not to like about this trade?

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The market loves to make us second-guess our trades. If it wasn’t trying to get us to abandon our positions, it wouldn’t be doing its job. And as we all know, the market is very, very good at its job. But at this point, routine second-guessing is all that last week’s selloff appears to be. Headlines remain stable, and this rebound is simply the realization that last week’s Chinese fears were overblown, at least as far as U.S. equities go.

Capturing a big portion of a 100-point move in a 3x ETF is real money! That’s why we are already shifting our mindset from offense to defense. Start looking for an opportunity to harvest profits. 4,450 is coming up quickly, which will bring prior support/resistance and the 50dma into play. At the very least, these levels will be a minor speed bump. At worst, we could hit hour heads and tumble back to the lows, so we need to be watching how the market behaves at these levels over the next couple of days.

Remember, taking profits too early is always better than holding too long and letting all of these profits escape. Just because we lifted our stops above our entry points doesn’t mean we should let the index fall back to our stops before locking in profits. And remember, buying and selling are not binary decisions. We can always take some profits and let the remaining portion of our position ride, hedging our bets by taking the best from both approaches.

Keep holding, lifting stops, and start moving toward the exits.

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