Is This Bounce The Real Deal?
Jani Ziedins | Sep 10, 2020 01:49AM ET
After weeks of nothing but a boring grind higher, I finally have something interesting to write about. In fact, there is more going on than I have time for!
There are some spectacular things going on with Tesla (NASDAQ:TSLA), but I will save that discussion for another day. In the meantime, it looks like TSLA could claw its way back to $400 over the next few days, especially if the broad market bounces back from last week’s dip.
That segues me nicely to the main topic, the S&P 500’s impressive bounce Wednesday morning. There were not any meaningful headlines driving this strength, but that makes sense since there weren’t any meaningful headlines driving last week’s tumble. As I often say, the market loves symmetry and if we didn’t need news to trigger the fall, then we don’t need news to spur bounce. The herd got spooked last week and this week they realized that might have been an overreaction. Or so it seems.
One day’s price action is not enough to make a definitive proclamation, but it is enough for us to take notice. More important will be how traders respond Thursday. Do they keep buying the dip today or does yesterday’s strength fizzle and retreat back under Tuesday’s lows? In one scenario and the dip is already over. In the other, lower prices are ahead.
This is an emotional market and that means both outcomes are likely. While I cannot say for sure what’s coming, that doesn’t mean we cannot create an intelligent trading plan that accounts for both outcomes.
Hopefully, regular readers recognized that yesterday’s bounce was our signal to put on an initial position. Starting small allows us to be more aggressive while also controlling our risk. If the initial position works, great, we add more. If the second addition works, even better and we add even more.
On the other hand, if the bounce fizzles and retreats today, we have a profit cushion from yesterday to absorb some of the fall and we get out at our stops. No big deal. And rather than give up, if we get squeezed out, that just means we were early and we need to try again. If this isn’t the real bounce, it will be the next one, or the one after that. Buy smart, limit our losses, and always be in a position to profit from the next big move. That’s the way savvy traders profit from these opportunities.
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I bought Wednesday’s bounce as if it were the real deal. If I’m right, I keep adding to what is working and enjoy the ride higher. If I’m wrong, I take a small loss and try again. No big deal. Some people need to be right. Me, I’m only looking to make money.
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