The S&P 500 set a new record closing high Friday and then proceeded to give it all back Monday. Easy come easy go, but that’s the way this happens sometimes.
I don’t mind occasional down days mixed in with up days. In fact, I prefer my rallies balanced this way. It keeps things from getting overheated and how healthy, long-term rallies progress.
That said, Monday’s close falls in the disappointing category because it finished on a swift wave of selling and closed at the intraday lows. Thirty minutes before the close, the situation looked pretty decent. But those final 15-minutes changed everything and left me with an uneasy feeling. Not panic, abandon hope, and run for the hills kind of feeling, but it was enough to warrant caution.
If a person is cautious by nature, they could have peeled off some nice profits near the close just in case. But that is only a partial position reduction to better manage risk. On the other hand, a more aggressive person could continue holding since the close was still well above our stops in the mid-460s.
Like a lot of trading, this situation falls in the gray area where individual discretion plays a major role in decinding what to do. Nervous? Sell some. Confident? Hold and see what happens tomorrow. Both are valid ways of dealing with Monday’s disappointing close.
But no matter what we do, anytime we sell, we are always looking for that next opportunity to get back in. If we sold anything Monday afternoon, be ready to buy a bounce Tuesday morning. And if Monday’s selling continues instead, always respect our stops spread across the mid-4,600s.
But no matter what happens Tuesday, Wednesday, and Thursday, any near-term weakness is giving us a buying opportunity. No matter what the cynics claim, weak markets don’t keep setting new record highs. This remains a strong market and there is only one way to trade this and that is from the long side.
Bitcoin keeps hitting its head on $50k resistance and dip-buyers are nowhere to be found. This weekend’s quick poke above $50k didn’t last long and the cryptocurrency retreated back to the mid-$40k’s.
For me, this doesn’t get interesting until it can hold $50k. Until then this is a no-touch. As I often say, it is better to be a little late than a lot early. Just ask anyone that bought a few weeks ago in the upper $50k’s.