The S&P 500 surged 1.4% Wednesday after the Fed told investors inflation came down faster than expected, and they penciled in three rate cuts for next year. That wave of buying led to the biggest one-day gains since mid-November.
Bulls are cocky, bears are defeated, and I’m nervous. As I wrote readers on Tuesday, even though I long this market and making good money with 3x leverage, I was already moving toward the exits:
While the market looks good, this is the tipping point where we shift our mindset from offense to defense. I’m not expecting a lot of upside, meaning I plan on collecting profits relatively quickly. I’m not selling right now, but I already have my eyes on the exit.
The market has done nothing but go straight up since early November. And Wednesday’s gains were some of the biggest of the entire move. That looks a lot more like a climax than the start of the next big rally.
I’m not one to call tops, but this feels very toppy. I’m not saying momentum can’t keep pushing us higher over the next few days and weeks, but this late in the move, nearly everyone who wanted to buy has already bought. That means there are far fewer buyers left to keep pushing prices higher.
I bought the 4,600 breakout last week using 3x leverage, and it’s been a great ride. But I recognize good enough when I see it, and these gains were great. That’s good enough for me, and I have started collecting partial profits Wednesday afternoon.
Without a doubt, I’m probably pulling the ripcord prematurely, but since I don’t pick tops, that means I’m left choosing between selling too early and holding too long. Since I’m in this to make money, I always pick selling too early because that leaves me in the best position possible to be ready for the next trading opportunity.
Maybe that means I buy back in later this week, next week, or next month when prices keep racing higher. Or maybe I short the inevitable step-back when it finally gets here. But no matter what happens next, I will be ready for it.
We only make money when we close our best trades, and there is no way I’m letting this big pile of 3x profits escape.
If you find these posts useful, help me out by liking and sharing them!
Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every evening.
What’s a good trade worth to you?
How about avoiding a loss?
For as little as $1.28/day, receive actionable analysis and a trading plan every day during market hours
Follow Jani on Twitter @crackedmarket
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.