The S&P 500 gapped 1% lower at Monday’s open after Biden’s Build Back Better bill died in the Senate and Omicron spread like wildfire over the weekend.
But the selling didn’t accelerate as most owners continued holding their favorite stocks and the index finished the day almost exactly where it started. This definitely counts as a bad day for stocks, but after the dreadful open, the herd didn’t rush for the exits and that follow-up stability was nice to see.
The final weeks of the year are vulnerable to increased volatility because big money’s steadying hand already left for vacation. That puts retail traders in control through New Year’s. But lucky for us, these impulsive traders don’t have much money and they run out of ammunition quickly. While they can drive dramatic swings like Monday’s open, they struggle to sustain these moves and they tend to bounce back fairly quickly.
I don’t read much into what retail traders are doing this week, but the price is the price and we have to respect these moves even if we don’t believe they will stick around.
We don’t change our trading plan just because this is a holiday week and little guys are running amok. We sell violations of our stops and we buy the (inevitable) bounces by starting small, getting in early, and keeping stops nearby.
Monday morning’s slump under the opening levels forced me out of my partial positions for a loss, but the potential for this to happen is why Friday’s purchase was only a partial position.
But like any good trader, I don’t know when to give up and when the index bounced above Monday’s opening levels Friday afternoon and actually closed fairly robustly, I went ahead and bought another partial position. If stocks open well Tuesday morning, I’ll add even more. If not, no big deal, I pull the plug and keep watching and waiting for the bounce. Maybe Wednesday.
But the market traded well Monday afternoon, all things considered, and I don’t see any panic in the midday price-action, which is a good first sign.
Bad keeps getting worse in Tesla (NASDAQ:TSLA) though, as last week’s violation of $1k is now testing $900.
This stock is down nearly 30% from this Fall’s highs and is just another reminder that holding too long is just as bad as selling too early. Always follow highfliers like this with a trailing stop because these things fall even quicker than they rise.
While no one wants to sell their favorite stocks, selling our biggest winners is the only way we make money in this game.
If $900 doesn’t hold, then $800 is up next.