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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
Wednesday was another disappointing session for the S&P 500 with the index losing 0.8%, adding to Tuesday’s 0.3% decline.
While this 1% slip from record highs isn’t a big deal by itself, the bigger worry is this is the start of something even larger.
The size and speed of gains since October’s lows was shocking to say the least. As I often write, markets love symmetry and something that goes up too much tends to fall too far in the subsequent pullback. It is only fair to ask if we are on the verge of that next pullback.
Only time will tell, but that’s the problem, we won’t know until after it happens. All too often, traders wait until the market moves against them before selling. But what’s the point in selling after a big chunk of our profits have already evaporated? Why not sell before the pain of regret forces us out?
That’s why I like trading with trailing stops so much. They take these decisions out of my hands and I don’t have to worry about “what if?” When my trading plan tells me it is time to get out, I sell. Easy as that. And guess what, if prices bounce an hour later, it isn’t hard to buy back in.
Only inexperienced traders try to pick tops. Unfortunately, that approach leads to an emotional attachment to that position because no one likes admitting they are wrong. But guess what? Trading is hard and we are wrong a lot, like a lot.
Those of us that have been doing this for a while are more than happy to sit back and simply follow the market’s lead. I don’t care if this goes up or down. All I care about is that I’m in the right place at the right time.
There is nothing wrong with locking in some very healthy profits following such a big run. We only make money when we sell our winners and this is as good of a time as any to harvest some of those well-earned gains. Sometimes all it takes is a little profit in our pockets to help us look at the market more clearly and sleep better at night.
And that’s exactly what I did. I started locking in profits Tuesday and Wednesday when prices started retreating. I still have some money in the market and will be ready to jump back in with what I sold if prices find a bottom and bounce. But if the selling continues, I’m out and waiting for the next bounce.
Odds are good I sold unnecessarily the index will be back at the highs soon enough, but I don’t mind. The inconvenience is cheap insurance against holding through a much larger decline.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slipped 0.35% Wednesday, but this isn’t a bad performance if a person is focused on the half-full side of the glass.
The index has been up nearly every day since mid-October and down days here and there are perfectly normal for any bull market. In fact, I would actually feel more comfortable if October’s rebound had several more down days mixed in.
And that’s the crux of our problem. As good as the run from the October lows has been for our trading accounts, maybe it’s been a little too good. Markets love symmetry and a rally that goes too high is almost always followed by a pullback that goes too far.
No doubt we have a date with “too far” in our near future, the question is if Tuesday’s weakness was the start of the next pullback to support.
That said, anyone betting against this bull market lost a lot of money. The same goes for anyone that chickened out and sold too early. The trick, as always, is not overreacting to a little weakness the same way those critics and cynics have been doing all year long.
As I’ve said previously, the most critical and telltale sign of every market pullback is prices actually pulling back! Today we got a little selling. Is this enough to break the dam? Or will this bout of weakness turn out just as fleeting as all of the other dips that came before? Only time will tell. The best we can do is prepare for all eventualities and let the market decide our next step.
Lucky for us, as independent traders, we can be both patient and nimble. If this market wants to sell off, we get out at our stops and wait for the next bounce. If this is nothing more than another minor wobble on our way higher, we keep holding for higher prices. And if the market wants to whipsaw us, we can handle that too as long as we are willing to jump aboard the next bounce (even if it comes a few hours later).
And as I wrote Monday, there is nothing wrong with locking in some very healthy profits following such a big run. We only make money when we sell our winners and this is as good of a time as any to harvest some of those well-earned gains. Sometimes all it takes is a little profit in our pockets to help us look at the market more clearly and sleep better at night.
The pullback is coming. If didn’t start Tuesday, it will start soon. Make sure your trading plan is ready.
Monday I said TSLA looked good and owners had nothing to worry about. Tuesday the stock plunged 12%. Well…that sucks.
Lucky for those of us with a sound trading plan, we got out above $1,100 when the early selling violated Monday’s lows.
As much as we try, we cannot be right all of the time. In fact, do this long enough and we will make so many mistakes we won’t be able to remember all of them. That’s why every savvy trader has an exit plan that protects their backside when they are wrong.
And to be fair to myself, I bought the bounce off of $600 support and locked in some very nice profits above $1,100. Should I really be calling this trade a mistake?
And with TSLA finding support above $1k, it actually makes sense to start putting a little of that money back to work with a stop under this level. The TSLA trade is far from over and just because we sold at our stops doesn’t mean we need to give up on it. If the $1k bounce doesn’t hold, we get out and buy the next bounce.
More important than being right or wrong is being in the right place at the right time and if that means being wrong a few times first, so be it.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis
The S&P 500 bounced between small gains and losses Monday, ultimately finishing 0.09% in the green.
While 0.09% is ordinarily nothing to write home about, adding to Friday’s flirtation with 4,700 and finally closing above this psychological level is definitely significant.
Such a record close would have been impossible to imagine only a few weeks ago when the index was threatening to crash through 4,300 support. We’ve come a long way since those lows and even more impressive is the incredibly short amount of time it took us to get here.
As scary as these heights feel, the market continues trading well. We’ve been solidly overbought for weeks, yet buyers keep throwing even more money at these record highs.
Monday afternoon saw a small wobble into the red and this counts as test for the market. If this rebound is fragile, all it takes is a small crack to break things wide open. But so far things are holding together. Now, one afternoon doesn’t mean we are in the clear. In fact, what happened Monday is far less important than what’s coming on Tuesday and Wednesday. That said, a good day on Monday is definitely better than a bad day.
If nervous owners start taking profits, that selling could feed on itself and push the index back to 4,600 and even 4,550 is on the table. While a pullback to support is a very normal and healthy thing to do, it would feel jarring given how effortless the climb to these levels has been.
Or buyers could keep throwing money at this market and we’ve only seen the start of the silliness.
At this point, either outcome is likely and trading is simply a matter of waiting for sentiment to tip over. No doubt we are close to the next routine step-back, but the same thing could have been said last week and the week before that.
We trade the market we are given and while this one will eventually consolidate these gains, but it isn’t dipping yet and that’s the way we have to trade it. As scary as this looks, there is nothing to do but keep holding and lifting our stops.
If a person is paranoid, there is nothing wrong with taking some profits off the table. It’s been a great run and we only make money when we sell our winners. Take a portion of your position off the table and let some ride. Sometimes harvesting some profits is all it takes to get a better night’s sleep.
Lift stops to the lower/mid 4,600s and see where this goes.
TSLA tumbled after Twitter told Elon to sell 10% of his TSLA stock. Some owners panicked dumped shares in anticipation of that big overhang of looming supply. That said, the knee-jerk selling was fleeting and prices are quickly bounced above those early lows.
There are lots of reasons to sell this stock, but Elon selling a fraction of his holdings is not one of them. While an academic with his pocket protector and calculator will tell us one thing, given this stock’s absurd valuations, it’s been years since this stock heeded any academic’s advice.
This is a momentum trade and the momentum is still higher. Use this morning’s lows as a stop and anything above this level is holdable/buyable.
If we get dumped out, no big deal. Be happy to lock in those profits and get ready to buy the next bounce, probably somewhere around $1k.
Of course, the stock might not even sell off and that’s why we continue holding until our trailing stops are hit. (Most nervous owners bailed out hundreds of dollars ago.)
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