Why smart money is buying this bounce
By Jani Ziedins | End of Day Analysis
The S&P 500 rallied another 0.6% Tuesday, extending this week’s rebound.
Nothing meaningful changed in the headlines to justify this bounce, but after a certain amount of selling, we always run out of sellers. This time, it took eight days to exhaust the supply of near-term sellers.
As I wrote last week, and again on Monday, this is the bounce I was waiting for:
I have no idea if Monday’s bounce will stick, but it was a good start, and that’s all I needed to put on a partial position. Start small, get in early, keep a nearby stop, and only add to a trade that’s working.
If the index retreats on Tuesday, I will pull the plug for a small loss and try again next time. If the rebound keeps going, I will add more and lift my initial stops to near my entry points, greatly reducing my risk.
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I still have no idea how long this rebound will stick around, but now that prices are comfortably above my entry points, I lifted my stops to my purchase prices, making this nearly a risk-free trade. If the index retreats on Wednesday, I get out near breakeven. If the rebound continues, I will let those profits keep rolling in. These low-risk/high-reward trades are what I dream of.
The odds are still good this bounce will fail because two bounces fail for every one that works, but if this rallies just a little further, expect bears to start scrambling for covers as they get squeezed.
Maybe this week’s bounce is nothing more than a false bottom on our way lower, but as a nimble swing trader, I’m okay with that. I plan on collecting profits long before the next down wave hits.
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