Why this is the wrong time to be patting myself on the back

By Jani Ziedins | End of Day Analysis

Nov 01

Free After-Hours Analysis: 

The S&P 500 popped another 1% Wednesday, making this three up days in a row.

While this still has a long way to go before getting back even half of the previous eight sessions of losses, three days of gains is a good start.

Lucky for me, this is the trade I was waiting for. As I wrote Tuesday evening:

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.

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The Fed gave us another interest rate decision Wednesday afternoon, and as expected, they kept rates unchanged. More interesting is how little the market reacted to the news. Investors have correctly anticipated every Fed rate move this year, but that hasn’t stopped traders from overreacting to every announcement. So, it was actually refreshing to see the market maintain its composure this time. A calm market is a bullish market.

As for my 3x ETF trade that bought this bounce, this is passing the tipping point between offense and defense. While it is tempting to pat myself on the back for spotting a good trade, these gains actually make me nervous. That’s because I know markets move in waves, and all good things come to an end.

The index broke through 4,200 support/resistance and now rests just under the 200dma. It wouldn’t surprise me to see this rebound run into some headwinds. That would be the normal and healthy thing to do, and I’m comfortable holding a measured and methodical rebound. Less sustainable is triggering a powerful short squeeze, and that is what would cause me to punch out and collect profits over the next few sessions.

But no matter what happens, I’m already making a plan to collect my profits. In my book, selling too early always beats holding too long. Remember, we are only in this to make money, and we only make money when we sell our favorite trades.

Keep holding, but lift stops to guarantee some of these profits, and wait to see what Thursday brings.

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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.