The S&P 500 continued climbing this morning and notched yet another higher-high for this unprecedented rebound. But just as the market was looking invincible, concerns about the long-forgotten Chinese trade war started seeping back to the forefront.
The last two weeks have been a great run as the market ricocheted off the May lows. The index bounced 300-points over a handful of days and as good as that felt, everyone knows this cannot continue indefinitely. Savvy traders buy weakness and sell strength. Now that this resilience is obvious to every Tom, Dick, and Harry, maybe it is time to start taking some profits off the table.
As I wrote yesterday, this is definitely late in the game to be adding new money. And given today’s weak close, it might also be time to start thinking about locking-in some profits too. Maybe that means taking profits proactively. Maybe that means tightening up our training stop. Or even better, a bit of both.
Wednesday’s lows look like a good spot for a trading stop. Fall under that level in early trade tomorrow and we should definitely be moving to a defensive posture. On the other hand, if traders forget about this afternoon’s fizzle and start piling back into the market as they have done countless other times during this rebound, stick around and let those extra profits come to you.
Everyone knows markets move in waves and it’s been a good run. Rather than get greedy or become complacent, start eying the exits. If we get squeezed out by a false alarm, no big deal. Just buy back in when prices resume their uptrend. But if prices fall further, even better, that gives us another opportunity to buy the dip.
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