S&P 500: Friday’s Failed Bounce Is Good News
Jani Ziedins | Jul 24, 2023 03:04AM ET
The S&P 500 attempted a midday bounce Friday as it tried to recover some of last Thursday’s stumble following disappointing earnings from Netflix Inc (NASDAQ:NFLX) and Tesla Inc (NASDAQ:TSLA). Unfortunately, the dip buyers failed to show up in meaningful numbers, and the index finished Friday’s session flat.
But this lethargic price action was expected. As I wrote in Thursday afternoon’s free post:
While we can’t read too much into one day’s price action, recent gains across the market leave us vulnerable to some near-term weakness. I’m in no way predicting a top, but it wouldn’t surprise me if the indexes cooled down following this month’s impressive 200-point run to 4,600.
Friday’s 0.03% session didn’t give us much to go on. The half-full crowd points to the stalled selloff. The half-empty side counters with Friday’s failed midday bounce.
Who is right? At this point, either side could be right. Luckily, the market is terrible at keeping secrets and won’t be able to hide its cards for long.
If selling is truly over, prices will bounce nicely on Monday. If there is more selling left in this cool-down, expect another wave to hit us instead. This one is very straightforward regarding trades: buy strength and sell weakness.
For those of us who shorted Thursday’s weakness, keep holding that short with nearby stops. If we get blown out of our positions on Monday, it’s no big deal.
That’s the way trading goes. Thursday’s short was a low-risk/high-reward trade that was worth taking even if it didn’t work. But if the short keeps working Monday, press it and move our stops down to our entry points, turning this into practically a free trade.
For the long-only crowd, wait for the bounce. If it doesn’t happen on Monday, expect a few more days of selling and a much better dip-buying opportunity later in the week.
Start small, get in early, keep a nearby stop, and only add to a trade that’s working.
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