Wednesday was the first really good session for the S&P 500 in nearly three weeks. The index arrested a nearly two-week-old slide, bouncing nicely off of the 50 dma and adding 0.85%
Is this the real bounce, or just a false bottom on our way lower? Unfortunately, only time will tell and we won’t know the answer until long after this trading opportunity passed us by. Sometimes the first bounce is the real deal, but often it takes two or three false starts before turning for good and Wednesday was only the first attempt.
But just because we don’t know if this is the real bounce or not doesn’t mean we cannot trade this move intelligently. When I have no idea if this is the real bounce or not, I trade it as the real thing until proven otherwise.
Reclaiming 4,460 yesterday afternoon was a nice entry point and closing above 4,480 gave us another entry. As for stops, hold above Tuesday’s lows near 4,350 and everything looks good. Fall under this key support level and all bets are off. Easy as that.
I have no idea if this bounce is the real bounce, but I have a plan and I’m trading it. And if this isn’t the real bounce and the slide continues, no big deal. I simply get out and buy the next bounce. In fact, the lower this goes over the near-term, the better it is for me because the larger discounts give me more profit opportunities during the subsequent rebound. That makes this is one of those times I hope I’m wrong.
As always, start small, get in early, keep a nearby stop, and only add to a position that is working. If the market rallies today, move stops up to our entry points, giving us a free trade.