S&P 500: Buying Monday's Breakout Was a Mistake
Jani Ziedins | Feb 01, 2024 02:02AM ET
The S&P 500 corrected 1.6% on Wednesday.
It was a perfect storm between “disappointing” earnings from big techs and Powell telling investors the Fed doesn’t have plans to cut rates in March.
None of these things were bad; in fact, Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) earnings were actually good.
Unfortunately, stocks have gotten so expensive that good is no longer good enough, and anything short of great leads to disappointment.
As I wrote Monday, I bought the 4,900 breakout, so this wave of selling wasn’t great for my position. Luckily, I bought it early Monday and had a nice profit cushion protecting my backside. As I wrote readers Monday evening:
I have no idea how long this rally will last, but given Monday afternoon’s nice gains, my stops have already been lifted to my entry points, turning this into a low-risk trade.
If this turns out to be a climax top and prices crash next week, no big deal. I pull the plug at my stops and follow the market in the other direction. But until that actually happens, I’m riding Monday’s wave higher.
Sure, I will be the first to admit buying Monday’s breakout was a mistake. But since I entered that trade early and lifted my stops to my entry points, this mistake didn’t cost me anything.
It’s like a free lottery ticket. If it works, great. If it doesn’t, no big deal, I get out near breakeven and try again next time.
If a person can’t handle being wrong, this is definitely the wrong game to be playing. For the rest of us, we come at this with a proactive trading plan that protects us when things don’t work out.
And to be honest, I don’t even like calling Monday’s buy a mistake because it was a good trade, and I’d do it again every chance I get. Sure, it didn’t work this time. But do it often enough, and several of those trades will bring in nice profits.
Coincidentally enough, this is exactly what I did at the 4,400, 4,600, and 4,800 breakouts. Batting 0.750 isn’t bad. If that’s what being wrong looks like, I’m happy to be wrong.
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