Monday started off well enough for the S&P 500 with the index quickly bouncing above the key 4,400 support level shortly after the open. While it was a promising start, unfortunately, it was all downhill from there and the index skidded over the next 5 hours, finishing at the daily lows and well under 4,400 support.
As I often write, it isn’t how we start but how we finish that matters most. And by that measure, Monday was a dreadful session. The nice tailwind at the start should have tempted out any dip buyers waiting in the wings and it would have been off to the races. But as it turned out, those dip buyers were nowhere to be found and gravity dominated the rest of the session.
While I want to give this market the benefit of the doubt, days like Monday's make it really hard. I’ve been advocating buying last week’s bounce, but there was no denying the ominous signals yesterday's fizzle gave off and I started moving those positions to cash.
Maybe the bounce is just around the corner, but it looks like this wants to go lower first and that means stepping out of the way. While a lot of inexperienced traders succumb to the impulse to taunt dip buyers for being wrong, if a dip buyer played his cards right, this was actually a very savvy trade.
I advocate getting in early all of the time because that gives us a ton of flexibility. Buying last week was only a mistake if a person waited and bought well after the bounce was established.
But for those of us that got in not long after those 4,300 bounces, we were bailing out in the upper 4,300s and actually collected a few bucks for being “wrong.”
A trade with 10% upside potential (3x) and if I’m wrong, I still collect a few hundred bucks? I’ll take that every day of the week and it doesn’t matter what names people call me.
Trade smart and you can have your cake and eat it too.