The S&P 500 slumped 2.5% yesterday, in the biggest one-day loss since the election. While everyone is waiting for the inevitable demise of these frenzied bubble stocks, they were some of Wednesday’s few winners with GameStop (NYSE:GME) popping 135% and AMC Entertainment (NYSE:AMC) adding a staggering 300%.
While experienced investors are growing concerned about bubble mania, clearly the fringe speculators driving these frothy stocks higher are not heeding the clear and obvious warnings.
As I wrote yesterday, bubbles take far longer to inflate and pop than most people realize. As crazy as things appear right now, most likely we still have a ways to go before this bull market is taken down by valuation worries. But just because higher prices are ahead for the indexes doesn’t mean we cannot take a few step backs along the way.
While I still believe higher index prices are ahead, that doesn’t mean I’m holding “no matter what”. As I wrote previously, I’ve been following this rally higher with stops in the mid to upper 3,700s and those stops got hit today. Regardless of what I believe, that’s my signal to get out and reevaluate. As easy as it is to buy back in, there is no reason to stubbornly hold a falling market.
Most likely this is just another false alarm on our way higher, but I’m not willing to bet my money on it. If prices bounce today, I’ll get back in. If they keep falling, even better, that means I’m entering at even lower prices.
I still like this market but that doesn’t mean I’m blindly following it. These are the times we follow our thoughtful trading plan, not shoot from the hip while overcome with anxiety and second-thoughts.