Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Why Smart Money Was Buying the Debt-Ceiling Uncertainty Last Week

Published 05/31/2023, 12:35 AM
Updated 07/09/2023, 06:31 AM
US500
-

Our politicians finally did their jobs and reached an agreement to lift the debt ceiling. No one is happy about the proposed deal, but that’s why it’s called compromise.

And since the looming debt ceiling was the biggest worry hanging over the market, stocks finished Tuesday’s session…flat. Funny how that works.

But that doesn’t surprise readers of this blog. This lethargic reaction to good news happens so often it has become a market cliche: ” Buy the rumor, sell the news.”

S&P 500 Index Daily Chart

Anyone waiting to buy the news of a debt deal is waaaay late to the party because all of the profits were collected last week when the outcome was far from certain. This is why I was telling readers to buy last week’s dip on Wednesday:

As for what comes next, expect the choppy, sideways trade to continue. We’re not going anywhere, but that won’t stop impulsive traders from jumping from one side of the boat to the other.

Until further notice, we keep trading against these swings. That means this week’s swoon is a buying opportunity.

Of course, now that we are 100 points higher, the risk/reward flipped against us. The easy profits are behind us, and we are more vulnerable at the upper end of the recent range.

This is the time to be taking profits, not chasing an imaginary breakout. Feel free to leave some money in the market, but make sure we lift our trailing stops to protect last week’s profits. And as always, taking some worthwhile profits proactively is never a mistake. Remember, we only make money when we sell our winners.

As for what comes next, S&P 500 break above 4,200 could trigger a short squeeze up to 4,300. That’s not the most likely outcome, but it is certainly a possibility. If prices rally on Wednesday, buy back what we sold on Tuesday and ride that wave higher. But most likely, not much will happen, and that means we waiting to buy the next dip under 4,200.

It makes no difference to me what happens next, only that my trading plan will be ready when the next profit opportunity comes along.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.