The foolish mistake both bulls and bears are making

Free After-Hours Analysis: 

The S&P 500 rebounded another 0.7% Monday after nothing terrible happened over the weekend.

Headlines remain benign, and that means this continues to be a sentiment trade. Since sentiment trades don’t go very far in either direction, it’s not a surprise to see these swings stall and reverse within a handful of days.

Lucky for readers, I anticipated this bounce in last Thursday’s free analysis after the index fell for three sessions in a row:

As for what comes next, these swings are vanilla sentiment gyrations and nothing more. Going up and down like this is as natural as breathing for the market. Since the latest wave of selling wasn’t propelled by meaningful and unexpected headlines, it won’t go far and we are nearing the bottom.

That means locking in our short 3x ETF profits and getting ready to buy the next bounce…[T]aking profits a little early makes sure we are in the right spot to take advantage of the next trading opportunity, which is most likely buying the bounce Friday or early next week.

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Bulls and Bears positioning themselves for the next big breakout or breakdown keep getting frustrated by this stalling and reversing price action. But for those of us who see this for what it is, buying the dips and selling the bounces is the best way to squeeze some very attractive 3x ETF profits out of this market.

At this point, I don’t see this pattern changing any time soon. We need something dramatic to wake us from this sideways grind. I don’t know what that will be, but I will know it when I see it, and so far, I don’t see it.

The warning I gave readers last week is equally applicable this week:

And when this dip finally bounces, don’t expect it to go far and take worthwhile profits off the table as soon as we have them because, just like [last] week, it won’t be long before those profits get away from anyone that gets greedy and holds too long.

If we’re not expecting a big rally, that means we are already looking at these 3x ETF profits and planning an exit.

The market is acting well enough, and Monday’s nice close tells us to keep holding. So keep holding and lifting our stops. But remember, the biggest mistake is letting a winning trade turn into a loser, so make sure our 3x ETF stops are at least as high as our entry points. With little to no risk underneath us and lots of profit opportunity above us, what’s not to like about this trade?

My plan is to see what happens Tuesday and make a decision on what to do with these 3x ETF profits based on the upcoming price action. But so far, so good.

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