Don’t fight a trade that’s working

By Jani Ziedins | End of Day Analysis

Nov 13

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The S&P 500 finished Monday’s session down a modest 0.1%. More importantly, the index held on to 4,400 after breaking through this key resistance level last Friday.

Economic headlines haven’t changed in a meaningful way in months. Bears are just as bearish as they were last week, last month, and last year. The difference is we ran out of fearful sellers two weeks ago, and stocks popped decisively after supply dried up.

While 5% in one week is a tremendous amount, at this point, the market keeps acting like it wants to go even higher. No one should expect another 5% run over a few sessions, but given Thursday’s and Monday’s failed selloffs, the market is telling us the path of least resistance remains higher.

As I wrote early last week:

Hold near 4,400 resistance for a few more days, and these levels will feel less risky. That’s when some of those left behind last week will find the courage to start buying.

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Holding recent gains was the first step to breaking through 4,400 resistance, and that’s exactly how it played out over the last two sessions.

Of course, the easy gains are behind us, and there will be a lot more back-and-forth going forward, but only fools are fighting this market right now.

Last Friday’s rebound was buyable, and we could add more Monday with stops already lifted up near Monday’s lows. I don’t see a big pile of near-term upside ahead of us, but when we can enter a trade in a low-risk way, we don’t need a lot of profit potential to make it a trade worth making.

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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.