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Trading The S&P 500’s Latest Wobble; What The FAANG Stocks Are Telling Us

By Jani ZiedinsStock MarketsMay 11, 2021 12:22AM ET
www.investing.com/analysis/trading-the-sp-500s-latest-wobble-what-the-faang-stocks-are-telling-us-200579135
Trading The S&P 500’s Latest Wobble; What The FAANG Stocks Are Telling Us
By Jani Ziedins   |  May 11, 2021 12:22AM ET
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SPX Daily Chart
SPX Daily Chart

Monday started off well enough for the S&P 500 with the index opening near Friday’s record close. Unfortunately, second thoughts overcame traders later in the afternoon and those pushed the index under 4,200 by the close.

Is the top already in? Bears certainly think so. Of course, they’ve been saying the same thing for the last several hundred points so we take everything they say with a huge pile of salt. But like a broken clock, eventually, they will be right. Could this be that time? Without a doubt yes…but in reality, probably not.

The key levels for this market are 4,200 on the upside and 4,120 on the downside. Get back above 4,200 Tuesday and all is forgiven and forgotten. Fall under 4,120 and last week’s bounce is dead and the bears might be on to something.

How do we trade this? Easy, keep holding until our stops get hit. And even if our stops haven’t been hit, there is nothing wrong with lightening up a little until this gets back above 4,200. It is always easier to think more clearly with a partial position and the reduced threat of loss.

While it is tempting to hold through a small dip, the inconvenience of trading around a whipsaw definitely beats the discomfort of holding a through “small dip” that turns out a lot bigger than expected.

But as has been the case all year long, if we get out, always be ready to get back in if/when this wobble proves to be yet another false alarm. Just ask all the people that failed to get back in following the dips at 3,300, 3,500, and 3,700.

This market is buyable above 4,200 and shortable under 4,120. Plan your next trade accordingly.

While the S&P 500’s 1% loss felt uncomfortable, that was quaint compared to the bloodbath taking place in the FAANG stocks. The best FAANG stocks, Apple  (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL), “only” lost 2.6%. The rest shed between 3% and 4%. Ouch!

While I’m not overly concerned with the S&P 500’s price action (yet!), the FAANG stocks are a different story. And unfortunately for the broad market, losing the best-of-the-best stocks is enough to take everything else down.

I’m giving the S&P 500 the benefit of the doubt but if this FAANG underperformance continues this week, it is time to get defensive and all bets are off.

Trading The S&P 500’s Latest Wobble; What The FAANG Stocks Are Telling Us
 

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Trading The S&P 500’s Latest Wobble; What The FAANG Stocks Are Telling Us

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Comments (3)
Matt Novakovich
Matt Novakovich May 11, 2021 9:56AM ET
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wrote this from his mom's basement apartment
Carry Dorbo
Carry Dorbo May 11, 2021 4:32AM ET
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hi there am ally Judy am from Alabama am working in Bitcoin trade online business am selling land an cars
Andrew Bevan
Andrew Bevan May 11, 2021 1:32AM ET
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Well, under the maxime 'this is not that day' I exited my shorts in the DAX yesterday, which closed on a high, but which on all account will look like a lower top. A poor decision in view of the market opening 1,5% lower today. Just to remind concerning the complexities and how difficult it is to stay ahead.
Paulo Ribeiro
Paulo Ribeiro May 11, 2021 1:32AM ET
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same here
 
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