S&P 500: Why Savvy Bulls Are Cheering For A Bigger Pullback
Jani Ziedins | Jan 19, 2022 12:13AM ET
Tuesday was another painful session for the S&P 500 as the index shed 1.8% and failed to hold 4,600 support.
Low keeps getting lower and that’s never a good sign. While Tuesday’s selling didn’t spiral out of control after undercutting last week’s intraday lows, that’s a silver lining at best.
Emotional selloffs rarely kiss support and bounce cleanly. Get this close and a more painful violation is all but inevitable. While there are no guarantees in this business, the risk/reward is definitely stacked against us. As the prudent saying goes, “never try to catch a falling knife.”
I came into Tuesday’s session holding a small position I bought following Friday’s late bounce. I liked Friday’s setup and more often than not, those things work. But “most of the time” is not the same as always, so that’s why I only started with a partial position.
When the market gapped lower Tuesday morning, I took my lumps and got out. But doing it with a partial position wasn’t all that bad. Slippage like this is simply the cost of doing business in the market.
While critics will laugh at my “wrong” trade, in this case, being wrong is actually creating an even more profitable trading opportunity. Now that my trading account is 100% in cash, the lower this goes, the more money I make buying the inevitable bounce. So burn the house down for all I care. All I know is I will be there with a pile of cash to pick up the pieces. When the crowd is busy abandoning ship at the bottom of this dip and selling their favorite stocks at deep discounts, their loss will turn into my gain.
If the market bounces Wednesday, I will be there to buy it. If the bounce doesn’t come until next week, no big deal, I can wait.
Start small, get in early, keep a nearby stop, and only add to a position that is working. If the next bounce keeps going, great, I add more. If it turns into another false start, no big deal, I pull the plug at my stops and wait for the next one.
The most important thing is I keep at it. All of these small, partial position losses will be wiped out when I’m standing in the right place at the right time and catch the next big wave.
And the most important thing is you can do it too!
A handful of weeks ago GameStop (NYSE:GME) was challenging $250, now it is barely hanging on to $100.
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When moment stocks fall, they fall hard. Unfortunately, there is no indication GME is anywhere near a bottom. It is down 80% from all-time highs and it is acting like it could fall another 80% from here.
If Christmas and NFTs couldn’t save this stock, I don’t know what is left to turn this around.
But remember, as bad as this looks, it can always get worse. There is no rational reason to ride this one all the way into the dirt. And you know what? If it bounces, you can always buy back in. A more nimble approach like that definitely beats hoping and praying for a turnaround.
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