Surprise, surprise, the S&P 500 recovered from Wednesday’s massive intraday reversal. Okay, no one was really surprised because Thursday’s 1.4% bounce was the market’s third rebound attempt this week.
“If at first, you don’t succeed; try, try again.”
You definitely have to give bulls credit for not giving up. The level of selling since Thanksgiving has been staggering, yet here we stand, only 3% from record highs. Talk about a can-do attitude!
As I often write, trends are far more likely to continue than reverse. That’s because a bull market bounces countless times but dies only once.
Maybe this bull market is dying, but smart money is sticking with the higher probability trade. Bears have been wrong all year, so what are the odds they’re right this time? Yeah, not very good.
The smartest way to trade this volatility is continuing to give the benefit of the doubt to the bull market while protecting our backside with a sensible stop-loss; ie, buy the bounce but keep a stop under recent lows.
Monday’s bounce didn’t work and neither did Thursday’s early rebound, but you know what, more often than not, the third time’s the charm.
It is hard to buy a third bounce after the first two unceremoniously dumped us out. But the harder it is to buy a bounce, the more likely it is to succeed. (contrarian trading)
I bought the bounce early because if I’m wrong, no big deal, I sell at my stops and wait to buy the fourth bounce.
Remember, getting in early is critical because:
- it greatly reduces our risk by giving us a healthy profit cushion, and
- by the time the bounce is obvious, most of the discounts will be long gone.
Meanwhile, Facebook's (NASDAQ:FB) recent price action looks downright dreadful. But is this finally getting so bad it’s good?
The stock is setting up for a nice bounce off of $310 support. Above this level, the stock is buyable. Under this key level and we get out. It really doesn’t get any simpler than that.
Okay, maybe it gets a little more complicated if the stock dips under $310 for a bit before bouncing back above this key level. In that case, we get out under $310 and buy back in above $310.
(Violating support before bouncing is an even more bullish trading signal than simply bouncing off of support because it shows selling capitulation and that bears have lost control of this trade.)