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S&P 500: Bulls Still In Control After Friday's Wild Ride

By Jani ZiedinsStock MarketsJan 16, 2022 01:20AM ET
www.investing.com/analysis/sp-500-bulls-still-in-control-after-fridays-wild-ride-200614864
S&P 500: Bulls Still In Control After Friday's Wild Ride
By Jani Ziedins   |  Jan 16, 2022 01:20AM ET
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The S&P 500 went for another wild ride on Friday.

The index gapped lower at the open, but as is often the case with opening gaps, supply dried up within minutes and prices bounced back to breakeven. (I’ll get into the reasons why this happens so often in another post.)

Unfortunately, the relief was short-lived and prices quickly slumped back near the opening lows when dip buyers failed to show up and support the early buying.

But rather than crash through the lows and trigger another wave of panic selling, supply dried up for a second time and the index actually bounced back to breakeven, even managing to eke out a small, 4-point gain by the end of the day.

Phew, that was a mouthful and it was definitely a topsy-turvy session. But what it wasn’t was another rout. Bears had the perfect setup to launch another big wave of panic selling, but they couldn’t get stock owners to play along. And that’s a pretty good indication bulls are still in control of this market.

As I often remind readers, it’s not how we start but how we finish that matters most. And while it is hard to get excited about a measly 4-point gain, that is actually a respectable win given where the index spent most of the session.

In fact, I was encouraged enough by this price action to start buying back in. If this market was fragile and vulnerable to a larger collapse, it would have happened Friday. The fact we closed well above early lows tells me this market wants to go higher, not lower.

To the untrained eye, it looks like I am chasing my tail these last two weeks because I keep getting in and out of the market. (And it definitely feels like I am chasing my tail!)

I sold the initial dip at my stops in the upper 4,700s. Then I bought the first bounce late last week but ended up getting dumped out during last Friday’s pathetic close. I tried again this Monday, buying that impressive bounce. That trade worked well until Thursday’s interest rate second-guessing told me it was time to get out again. And then as I wrote above, I bought back in Friday afternoon.

I hate buying and selling this often. But that’s what my trading plan tells me to do at each of these junctures and I know better than to question my trading plan. When done right, my trading plan A) keeps me safe and B) makes sure I am in the right place at the right time to take advantage of the next big move.

If that means I have to chase my tail every once in a while, so be it.

While I collected a small profit this week arbitraging these whipsaws, that’s not the reason I’m selling these dips and buying these bounces. I’m doing it to protect myself from a larger selloff.

I will be the first to admit I can’t predict the future and I don’t know if this pullback will bounce at 4,600, 4,400, or 4,200. What I do know is it doesn’t matter if this is a 200 point pullback or a 600 point pullback, I don’t want to hold through either of those pullbacks.

When I move to the safety of the sidelines, I no longer care if it is a 200 point or a 600 point pullback. And as soon as I’m in cash, the first thing I’m doing is looking for the next buying opportunity so I can get back in.

Maybe Friday’s buy will prove to be a mistake. And I’m okay with that. I simply get out and try again. Or maybe the market bounces nicely Tuesday and I add more.

Either way, it doesn’t matter to me as long as I’m standing in the right place at the right time.

Tesla (NASDAQ:TSLA) took a big hit Thursday, but more importantly, the stock held $1k support.

While it is more fun watching a stock go up every single day, we know that’s not realistic.

TSLA is trading well enough to stick with as long as it remains above $1k support. In fact, for those that missed the first bounce, this pullback is giving you a second chance to get in.

Buy the bounce with a stop just under support.

S&P 500: Bulls Still In Control After Friday's Wild Ride
 

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S&P 500: Bulls Still In Control After Friday's Wild Ride

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Comments (2)
Peter ONeill
Peter ONeill Jan 16, 2022 6:02AM ET
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Simply love the buy dip mentality. The reason for 95% of the market rally IS NOT organic growth or strength - it is as the Fed has flooded the money market with $4 TRILLION in QE / Mone supply - all of which is now looking to find a home to hide from soaring inflation (leading to artificial stock highs / profits). The market is LONG overdue a 25%+ correction not a 'dip'. S&P 500 profits are projected to be 7% - 9% higher in 2022 versus 45% in 2021. A LOT of companies' stocks currently trading at 40 and 50-year highs (esp in financials, EV, Energy and Semiconductors). Many stocks are still trading 35%+ over their long-term PE ratio averages. This is despite all projections anticipating much slower global growth in 2023-2026 due to inflation/ increasing taxes to pay off debt hangovers. US National Debt is at its highest point since WW2, US Corp Debt is similar and Inflation is at 40-year highs. You buy the dip all you like....I will wait for reality to set in.
Alexey Krutov
Alexey Krutov Jan 16, 2022 2:03AM ET
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You are still bullish and all your day trading is with that approach. Formally SPX. is in bull market still but look at Nasdaq. Usually they will be together anyway. And bro, you are FIGHTING THE FED now. Look at 1999-2000 graphs. Today the situation even worse - inflation is back after 40 years. Good luck
 
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