Why I flipped last week’s short positions to long positions on Monday

Free After-Hours Analysis: 

The S&P 500 popped 0.8% on Friday, smashing the 4,900 barrier and setting yet another record close.

It is amazing how far we’ve come since the October lows when everything seemed broken. Now, the stock market can’t do anything wrong.

As regular readers will know, I was cautious last week as we were running into resistance near 4,900. But as was the case at 4,800, 4,700, 4,600, and 4,500, 4,900 resistance turned out to be little more than a speed bump.

I put on a short position last week after it looked like the index was getting rejected by 4,900 resistance. But as I often warn readers, shorting an uptrend is one of the hardest ways to make money in the market.  That means I approached last week’s short trade with risk management first and foremost. I started small, got in early, and kept a nearby stop.

As is obvious by nw, it didn’t take long for the market to knock me out of my position for a small loss.

When a trade doesn’t work, that forces us to reevaluate our outlook. As I often write, a market that refuses to go down will eventually go up. After a couple of failed selloffs last week, it became increasingly obvious that if this market were going to fail, it would have failed by now.

Last week’s attempted waves of selling continued Monday morning as the index briefly flirted with losses in early trade. But when the selling failed to stick, that told us bears were losing their grip, and the afternoon surge above 4,900 became all but inevitable.

This isn’t the trade I was looking for last week, but as a nimble, flexible trader, I follow the market wherever it takes me, and that meant buying Monday’s 4,900 breakout.

I have no idea how long this rally will last, but given Monday afternoon’s nice gains, my stops have already been lifted to my entry points, turning this into a low-risk trade.

If this turns out to be a climax top and prices crash next week, no big deal. I pull the plug at my stops and follow the market in the other direction. But until that actually happens, I’m riding Monday’s wave higher.

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