Category Archives for "End of Day Analysis"

Mar 26

If you’re not taking profits, then you’re taking losses.

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 produced its first three-day win-streak since early February. Congress agreed to a $2 trillion stimulus package and the Fed assured us they have “unlimited ammunition”. Those headlines were enough to launch stocks nearly 20% above Monday’s intraday lows. Looking beyond this relief rally, the bigger question is if these government interventions are enough to solve the market’s problems or if this strength is just another fleeting bounce on our way lower.

Three days ago bears were gloating over their investing prowess. Today it’s the bull’s turn. And so goes the swinging pendulum of sentiment in this violently volatile market. While it was definitely better to be a bull today than a bear, is the Coronavirus epidemic really solved? Did our politicians actually accomplish anything more meaningful than adding $2 trillion to our national debt? Ummmmm, no. We are in much of the same place we were Monday…and last Friday…and the Friday before that. Nothing has been fixed but at least some issues have been addressed…if only marginally.

These constructive headlines were at least good enough to stem the cascade of relentless selling. That said, we shouldn’t expect prices to race back to the highs anytime soon. The world is still gripped by fear of a killer virus and all the economic damage that goes along with these extreme preventative measures.

As I wrote on Monday, this market is incredibly volatile and that means huge swings in BOTH directions. One day’s gains become the next day’s losses (plus or minus a day or two). In periods like this, if swing-traders are not taking profits, then they are taking losses. Rather than gloat over the corpses of your adversaries, be savvy enough to realize that if you hang around too long, your corpse will soon be the one underfoot. While giving up on a winning trade is always hard to do, if you don’t, the market will take all those profits back.

I warned bears a few days ago and now I’m warning bulls. Lock-in those profits and be ready to go the other direction. The next big swing is just around the corner.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Mar 24

Why both bulls and bears insist on losing a lot of money

By Jani Ziedins | End of Day Analysis

Free After-Hours Update

The S&P 500 surged more than 9% today, putting up one of the market’s strongest performances in 100 years. While nothing concrete happened, stocks rallied in anticipation of Congress’s comprehensive stimulus bill that is inching closer to becoming law.

Who could have possibly seen today’s huge rebound coming? Easy, anyone who’s been paying attention. (Or at least reading this blog.) The strong, unidirectional moves are long behind us. This market entered the choppy, basing period a couple of weeks ago, typified by extreme volatility in BOTH directions. While it feels like the market’s done nothing but go down over the last two-and-a-half weeks, that’s hardly been the case. Over this period, we’ve seen up-days of +5%, +9%, +6%, and now today’s +9%. In fact, nearly every day over the last 12 sessions alternated between huge gains and towering losses.

As much as bulls and bears want to believe the next move will be a huge, multi-day rally or collapse, we are most definitely in the choppy phase of this correction and that means a lot of back and forth. One day’s dip is followed by the next day’s pop. These are great swing trading opportunities for the bold and nimble, but it is chewing up anyone coming to the market with a strong bias. Savvy traders are buying these dips and selling these pops, not gloating on social media that the other side is dumb, only to be left looking like the fool 24-hours later while holding a pile of losses.

Chances are good we haven’t seen the lowest lows of this bear market yet, but rather than crash lower, further losses will be nibbling at the edges, like yesterday’s dip, only to see prices bounce back into the consolidation a day or two later. As we transition into the basing phase, almost all of these daily breakdowns/rebounds are false alarms that should be traded against, not jumped on.

Avoid the temptation to fall into the bull or bear argument. No matter what we believe long-term, if we want to trade this chop successfully, we need to be pragmatic. Even if we’re bullish, that means shorting an unsustainable move higher. Or if we’re bearish, buying the next oversold plunge.

There is a ton of money to be made in this chop. But that also means we can lose a lot of money if we go at this the wrong way. Keep your biases in check and you will be miles ahead of everyone else getting ground up by these swings.

As for what comes next? Look for today’s huge rebound to fizzle and retreat back to the lows. Maybe this reversal starts tomorrow at the open. Or maybe we rally into midday before running out of buyers. Either way, be ready to short the next stumble. There is a good chance the next leg lower will follow the stimulus bill’s announcement in a classic buy the rumor, sell the news reversal.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Mar 23

Should we be buying or shorting these levels?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 tumbled another 3% Monday and set fresh lows for this selloff. Overnight futures were limit down, holding 5% losses for most of the night after the Congress failed to agree on a bailout package Sunday night. But spirits lifted shortly before Monday’s open after the Fed said they were prepared to buy “unlimited” Treasuries and mortgage-backed securities. Unfortunately, further gridlock on Capitol Hill rained on the Fed’s parade and is why stocks ultimately closed lower on Monday.

Higher, lower, or finding a bottom? That’s the question on everyone’s mind. Plenty of bulls are claiming this is a buyable dip while countless bears are screaming this is still the shorting opportunity of a lifetime. Who is right? At this point, both sides are doing nothing but blindly guessing in the dark. But they certainly don’t lack conviction in the accuracy of their blind guesses!

This is far and away the most uncertain time in anyone’s living memory, yet that uncertainty isn’t preventing anyone from telling us what they are convinced will happen next. I wish I had an answer for you, but no amount of fundamental, technical, or historical analysis will give us the answer. This situation is unique and it needs to be treated as such.

But just because this Coronavirus crash is unique doesn’t mean it will end any differently than any of the other “unique” crisis the market navigated. Assuming society doesn’t collapse, this is a buyable dip and is no different than any other crisis in market history. The only question is how low we go before bouncing.

Markets have fallen nearly 35% in a month. Could they fall 45%? Sure. But 6 months from now, how many people will be bragging about selling stocks when they were down 35%? Or is it more likely people will be bragging about buying stocks when they were down 35%?

The time to sell was four weeks ago when these waves of panic first hit the market, not now that the majority of the damage has already occurred. While prices could fall even further over the next few days and weeks, twelve months from now, no one will regret buying stocks at the lowest levels since 2016.

Once you admit you cannot pick the bottom, it simply becomes a choice between buying too early or too late. Either approach works well as long as it is consistent with a well thought out trading plan that includes risk management appropriate for this situation. (ie starting small, only buying sensible entry points, and keeping a valid stop nearby.) Don’t fall for the bull or bear arguments, be a pragmatic opportunist and the profits will come to you.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Mar 19

Why we should have seen this selloff coming and how to profit from it going forward

By Jani Ziedins | End of Day Analysis

The Coronavirus continues dominating financial headlines as “social distancing” takes a heavy toll on economic activity. What seemed like the worst-case scenario only a few weeks ago is now our reality. While the actual effect of the virus itself has yet to be felt by most people, preventative measures are definitely impacting everyday life.

I will be the first to admit I have a bullish bias and that’s because over the long-term, markets also have a bullish bias. But over the short-term, anything can happen and that’s why it pays to be pragmatic. Back in late February, when this crash first started, I told readers:

Whether the market is right or wrong about the Coronavirus, it doesn’t matter, we trade the market we are given. As it stands, this 3% kneejerk reaction could go either way. We bounce sharply off the lows and never look back as confident owners continue ignoring every bearish headline. Or this massive strawbale shatters the camel’s back and turns formerly confident owners into a herd of panicked sellers.

The next day I wrote

What happens next is where it pays to be pragmatic. Rather than dig in my heels and argue this selloff was unjustified, I recognized the market’s emotional state and knew a great trade was going to explode in one direction or the other. Sometimes these things bounce hard and fast. Other times they keep going. As an opportunist, it made no difference to me which way the market went as long as I was making money.

And the following day I shared an educational post about the best way to trade these volatile markets. This simple approach produced four weeks of outstanding trades.

If we know a big move is coming, all we need to do is jump on the next move that comes along and see where it takes us. Prices bounced this morning. Great, buy the dip, start small, get in there early, keep a stop near your entry, and only add more money after the trade starts working. If we’re wrong, prices slip under our stop, we take a small loss, and we try again next time. Maybe that is another rebound attempt. Maybe stocks tumble under the lows and we flip to shorting the weakness using the same sensible approach. It makes no difference to me what the market does next as long as it does something. If you leave your bullish or bearish biases at the door, you can make money too.

As for what comes next? We should be thankful for this buying opportunity the Coronavirus just gave us. Back during 2018’s late meltdown, I wrote a post about Bad Luck Brian who was unlucky enough to start investing at the dizzying height of the dot-com bubble. But as bad as his timing sounds, consistently buying the biggest market collapses in stock market history proved to be incredibly profitable for Brian.

And lucky for Brian, he kept buying those discounted Nasdaq shares for more than a decade. Accumulating 20 and 30 shares per month started paying off handsomely when the index finally climbed out of its hole. By the time the Nasdaq recovered to the old highs in 2015, Brian had been able to buy so many shares at a discount that his $93,000 of invested principle was worth $204,000! The index was flat, but amazingly Brian was up 120%!

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Mar 12

A trading plan for this worst of days

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis: 

The following is an updated excerpt of what I shared with subscribers today during the trading session. This explains how I feel about this situation and I wanted to share it with my free subscribers too:

The S&P 500 crashed at the open and the bloodbath triggered the second trading halt this week. A tsunami of headlines hit us yesterday between the NCAA basketball tournament closing its doors to the public, the NBA suspending its season, and Trump banning Europeans from entering the U.S. And not to be left out, the NHL, Nascar, Formula 1, and countless other leagues put the brakes on their seasons today too. This officially puts us in full panic mode.

The Fed tried to cheer traders up with promises of a fresh liquidity injection, but the enthusiasm was short-lived and prices quickly retreated back to the lows. Today ended as the single worst trading day since the 1987 crash and it officially killed the longest-lasting bull market in U.S. history. 

As bad as this sounds, it is important to keep in mind these selloffs bottom just when everything seems its worst. While the spread of the Coronavirus will continue to get worse before it gets better, we won’t see a perfect storm of successive headlines like this again. In fact, yesterday and today’s gut punches moved the bar so low that no matter what happens going forward, even horrible news will still be less bad than what many people are fearing right now. School closings and the MLB suspending its season are foregone conclusions. The only way for this to get worse is a national militarized lockdown. While that could happen, I don’t think any of our politicians are willing to make that draconian of a call for something that is realistically only marginally worse than the seasonal flu.

The Coronavirus is definitely running out of control, but without a doubt, fear of the virus will prove to be far more economically damaging than anything the actual virus does. While this is terrible for anyone that is seriously affected, for almost everyone else, it will be little more than an inconvenience. Humans are really good at rationalizing away risk. They will panic for a few days or weeks. But after the worst fails to materialize, people will get lazy and be less willing to tolerate the incontinence. They will wear masks for a few weeks, but after no one gets sick, they will stop bothering. Now parents are insisting schools close down. In a few weeks, these same parents will beg schools reopen. After 9/11, everyone claimed nothing would be the same. A few months later, the only thing that changed was airport security and a war half a world away. 

There is a good chance this is the market’s darkest day and everything starts getting better from here. I’m buying the dip, but I’m staying as cautious as ever. My positions are small and my stops are nearby. But even if I get stopped out, I’m going to try again tomorrow and the next day. The bottom is close, but in a world where markets move 5 and 10% per day, we definitely need to be careful. 


Trading Plan

Most Likely Next Move: The capitulation point is close and this headline tsunami could very well be our darkest hour. There is a good chance pessimism is peaking and going forward we will start seeing a lot more “less bad than feared”.

Trading Plan: Buy the bounce with a stop under the lows. Add to what is working but keep overnight position sizes modest until you have a comfortable profit cushion. If stocks bounce tomorrow, ride that wave higher. If they devolve into another panic, short the weakness. But when shorting, take profits early and often because the biggest up days always come in the worst bear markets. 

If I’m Wrong: The public starts dumping their 401k’s and this bloodbath is only getting started. Our stops will get us out and our plan will have us short further weakness. No matter what happens next, we are prepared and will profit from it.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Mar 11

Why the Coronavirus matters when Trade Wars and Brexits didn’t

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

Anyone following the market over the last few years came to appreciate this market’s Teflon nature. No matter what headlines were thrown at it, it shrugged them off and continued higher. Earnings recessions. Brexits. Trade Wars. Rate Hikes. Nothing slowed this market’s relentless climb to, and then beyond, all-time highs. That is until the Coronavirus came along and now we are in the middle of the biggest and fastest stock market crash since the 2008 Financial Crisis. Why this? Why now? What makes this different?

The simple answer is all of the other events were economically quantifiable. After a brief shock and a few percent corrections, traders were able to quantify the financial impact of 25% tit-for-tat tariffs between the US and China. The Brexit was a little less clear since no country left the EU before, but after a few gyrations, the market quickly realized both sides would work this out and even if they didn’t, both economies could survive the divorce even if it got ugly. Rate hikes? Been there, done that. All of these things were bad for stocks but after a brief bobble, traders got used to them, priced the news in, and moved on.

But the Coronavirus? Nothing like this happened in modern history. There is no telling how far the economic damage could go. Business travel is suspended. Conferences canceled. Festivals canceled. Sporting events canceled, postponed, or held without spectators. Even the Olympics this summer is threatened. Airlines are already reporting a bigger decline in bookings than they saw after the 9/11 terrorist attacks and there are few things more disturbing than the images we saw that day.

We haven’t seen anything like this in our lifetime and that makes it impossible to predict the economic fallout. By nature, markets hate uncertainty more than bad news. It can price in bad news and move on. But the unknown, how do you price that in? You can’t and is why many investors are taking a sell now, ask questions later approach to their portfolios.

And unfortunately, I don’t see the uncertainty clearing up anytime soon. But that isn’t all bad for the market. While the headlines will continue to deteriorate, with every passing day and each successive headline, there are fewer and fewer scared owners left in the market. Once the last of those have sold, supply dries up and prices bounce no matter what is going on in the news. While some people are waiting for a slowdown in the infection rate or a vaccine to be announced, the stock market will rebound from the lows long before then.

When will that bounce happen? The honest answer is I don’t know. And no one else does either. This is an emotional selloff and conventional rules don’t apply. Trendlines, support levels, moving averages, P/E ratios, all of it is totally and completely meaningless to an emotional market. This selloff will end when we run out of scared sellers. Nothing more, nothing less. Are we close, yes, we’re very close. The challenge is in a market that falls 4%, 5%, and 7% in a single day, an imminent bounce might come to our rescue, but prices could be at much lower when it finally happens.

This is a day-trader’s paradise. Everyone else should resist the urge to react to these gyrations. That means either sticking with your long-term positions and buying more of your favorite stocks, or watching this unfold from the safety of the sidelines and only jumping back in after the overnight gaps and intraday swings calm down. As the saying goes, it is better to be a little late than a lot early.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AAPL $AMZN

Mar 04

How the market’s behavior is going to change over the next few days

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 rebounded from yesterday’s Coronavirus tumble following Biden’s decisive comeback performance in Super Tuesday’s primaries. That said, the Biden bounce was actually short-lived and didn’t last much beyond the open. This market continues to live and die based on Coronavirus headlines. And while those headlines didn’t improve overnight, they didn’t get materially worse either, which at this point, is a good thing. Last week’s tumble from the highs priced in a tremendous amount of bad news and most likely took things way too far. So while the Coronavirus headlines continue to be overwhelmingly negative, the market actually rallied from the lows because things haven’t gotten a whole lot worse.

As I’ve been telling readers since last Monday, this is a volatile market and we should expect sharp moves in both directions. Emotional markets always take things too far. That means crashes that go too low are quickly followed by bounces that go too high. Now that we are a few gyrations into this, expect the size and speed of these swings to moderate. Volatility will definitely remain elevated for a while, but we won’t see violent whipsaws like we lived through last week and the first half of this week.

Unfortunately, those oversized moves were a lot easier to trade than the choppy phase we are moving into. That’s because previously, the market would move from one extreme to the other extreme before changing direction. Now that some of the emotion has moderated, these swings don’t drive as far and that means bounces and breakdowns can also occur in the middle of the range. Just like today’s rebound that took hold well above the prior lows. And the same could happen for the next peak. Rather than stretch all the way to the upper limit, we could stub our toe tomorrow morning and tumble back to 3k.

These erratic and choppy moves are harder to trade and require us to be even more nimble. That means we will make more mistakes and our profits will be smaller. And more than ever, we need to take profits early and often. Wait a couple of hours too long and nice profits will turn into disappointing losses. Just ask yesterday’s gleeful shorts.

If a person collected some really nice profits over the last few days getting ahead of these oversized moves, there is no reason to stick around and trade this chop. In fact, quite a few savvy traders could take the next 10 months off and still finish with an outstanding year. But if a person insists on trading this chop, always be on the lookout for the next reversal. We closed strong today and there is a good chance we will open strong tomorrow. But rather than buy that strength, I would be ready to short it at the first signs of weakness. Short early, start small, only add after the trade starts working, and take profits early. Then repeat in the other direction the next day. While these moves won’t be nearly as profitable as the ones already behind us, there are still profits to be had for proactive traders that know how to manage their risk.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Feb 24

What it looks like when I’m wrong

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 cratered 3% this morning after Coronavirus anxiety hit full-panic-mode over the weekend. This health epidemic continues to spread beyond Chinese borders. While the number of reported cases outside of China is still quite small, the fact western governments are unable to contain it is leading to some doomsday predictions.

Whether the market is right or wrong about the Coronavirus, it doesn’t matter, we trade the market we are given. As it stands, this 3% kneejerk reaction could go either way. We bounce sharply off the lows and never look back as confident owners continue ignoring every bearish headline. Or this massive strawbale shatters the camel’s back and turns formerly confident owners into a herd of panicked sellers.

Which is it? It is a little premature to say conclusively, but the market’s midday rebound gives us some hope. While there is no telling how far an emotional selloff can go, the fact stocks mostly traded around opening levels is a good initial indication. It signals most owners are staying calm and not rushing for the exits. The midday dip under the opening lows could have triggered another cascade of defensive selling, but within two hours, supply dried up and prices bounce back. It is definitely a tad early to be celebrating, but this is a good first step. Anyone with a little cash can buy the bounce and put a stop under the midday lows. As always, start small and only add to a position that is working. If prices go the other way and violate the lows, a short could position be called for. Times like this, we simply follow the market’s lead.

As for my personal trading, this morning’s tumble caught me off guard. Last Friday I liked the way the market went into the weekend and I put on a small position. I wrote about the reasoning here. The Cliff Note’s version is three weeks ago I had a great trade that started with buying a Coronavirus Friday slump. Two weeks later, the S&P 500 was nearly 200-points higher and I locked in some really nice profits. Last Friday’s setup was similar and presented an attractive opportunity. But as we saw today, there are no guarantees in the market. Luckily, this isn’t my first rodeo and I was prepared for this outcome, both strategically and emotionally.

First, I bought wisely last Friday. I entered nearly the daily lows and even more importantly, I started with a small position. I always start small and only add more money after the trade is working. That way, when I’m wrong, it doesn’t hurt and I’m still in a great position to jump on the next trade. Between experience and modest position sizes, waking up to a morning like this isn’t a big deal. In fact, I’m excited by today’s price action because this volatility screams profit opportunity.

This is definitely a buyable dip, the only question is how low we go first. While I took it on the chin this morning, I actually welcome this dip because there is far more profit opportunity following a 5% plunge than there would have been riding Friday’s 1% rebound.

We don’t get to chose the opportunities the market gives us and we need to be ready for everything. This morning’s tumble got me out of my small position, but as soon as I bailed out, I started looking for the next opportunity to get back in. An aggressive approach is buying the midday bounce with a stop under the lows. Buying this tumble means I can make even more money than if I were originally right about Friday. If I’m wrong, I get squeezed out and try again, this time buying even more attractive discounts.

The key to surviving this game is always trading from a position of strength. We don’t need to be right all the time, but we do need to know how to respond confidently to every situation the market presents us. Many times that response is even more profitable than if we had been right all along.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Feb 20

Should we be selling the dip or buying it?

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 started the day with modest losses and even rebounded back to breakeven. But moments before lunchtime, the crowd got spooked and prices fell off a cliff.

If you believe the financial press, this waterfall selloff was triggered by a renewed fear of the Coronavirus epidemic and the impact it is having on the economy. Were these recycled headlines really worth falling nearly 30-points over just a few minutes? Or was something else at play?

As I wrote previously, here, here and here, this market likes to slow down and consolidate gains near the round 100-point levels. It has been a nice, nearly 200-point rally since the February lows. To expect this rate of gains to continue indefinitely would be a tad nieve.

If the market was going to pause at these levels anyway, it doesn’t really matter what the headlines are. Supply and demand needs some time to catch up and is the real reason stocks stalled under 3,400 this week. If it wasn’t these headlines, it would have been something else. Rally this far and inevitably you run out of new buyers. It is that simple.

Now that we know the real reason behind the market’s stumble, we are in a better position to figure out what comes next. Since this wobble was triggered by a supply and demand imbalance, not a fundamental change in the market’s outlook, this is nothing more than a routine and healthy dip. The kind that bounces within days, if not hours.

If we understand why the market is doing what it is doing, we are far less likely to overreact to these periodic wobbles. If a reader has been following along, they knew this was coming and included this possibility in their trading plan. Hopefully, you were taking some profits proactively last week and had cash ready to buy the dip. If not, don’t worry about it, there is always next time. Just make sure you create a plan ahead of time that includes possibilities like this and you won’t worry about days like today. In fact, you’ll be happy to see them because they are profit opportunities for those of us that come prepared.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM

Feb 18

Why we don’t need to predict the headlines

By Jani Ziedins | End of Day Analysis

Free After-Hours Analysis

The S&P 500 slipped from record highs following the long Presidents’ Day weekend. The biggest market-related headline was Apple warning investors Coronavirus interruptions would cause the company to miss its revenue forecast. That disclosure renewed concern about the financial impact of this health epidemic half a world away. While today’s headlines and declining stock prices threw some cold water on the market’s previously blasé attitude, a 0.3% decline is hardly panic selling.

As I wrote last Friday, the market is quickly approaching 3,400 and that seems like a good place for the rate of gains to take a break. I didn’t have any insight into this weekend’s headlines, but I didn’t need to. The market is a pendulum and after swinging in one direction, it is only inevitable that it comes back the other way. If it wasn’t these headlines, it would have been something else.

The market receives mixed messages every day. There is never a day when the news is all good or all bad. What matters more than the headlines is where we are in the supply and demand cycle. The higher we go now, the harder it is for us to make that next push higher. Eventually, every wave higher runs out of momentum and the rate of gains either stalls or pulls back. Most of the time it has nothing to do with the headlines the journalists are pointing to. It is simply the laws of supply and demand coming back into balance.

Last Friday I suggested readers lock-in some worthwhile profits. Not because I knew something bad was going to happen. But because it was time. If we are in this to make money, the only way we do that is by selling our winners. Friday felt like a good time to lock-in profits and that’s what I did.

But the thing to remember, once we are out, the very first thing we do is start looking for the next opportunity to get back in. Maybe prices slip a little further and give us a nice dip-buying opportunity. Or maybe prices firm up over the next few days and we consolidate under 3,400. Hold here for a week or two and the market will be ready for its next rally leg. I don’t need to predict what the market will do if I have a trading plan that factors in these different outcomes.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AAPL

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