The stock market loves symmetry and following a brutal few weeks, the S&P 500 was finally ready to bounce back with a vengeance.
The index climbed 1.9% on Monday, adding to Friday’s 2.4% pop, and now finds itself 7% above last Monday’s intraday lows. Blink and you missed the index reclaiming HALF of the January correction over just a few sessions!
But this was always going to be the case. Emotional markets make oversized moves—in both directions. +4% pop one day, followed a few days later by +2.5% and +1.9%.
While it is hard to call a -12% tumble from fun, rarely is it this easy to make a quick buck in the market.
As I explained to readers last week, the key to profiting from these opportunities is ensuring we are always standing in the right place at the right time. (That means both knowing when to get in and when to get out!)
While some people try to guess which bounce will be the real bounce, I’m too nimble of a trader to put up with such foolishness. Instead, I treat EVERY bounce as it if is the real bounce until it proves otherwise. Start small, get in early, keep a nearby stop, and only add to a position that is working.
Following those simple rules, I avoid the dips and am always there to capitalize on the bounces.
Sometimes I chase my tail during a false start, but you can bet I don’t mind a little extra effort when it eventually pays off like this.
Now, don’t get me wrong. January’s correction is far from over and we won’t be heading back to the highs anytime soon. But I’m sitting on a large cushion of profits while the “day-late and dollar-short” crowd is second-guessing this bounce. Which group would you rather be a part of?
Maybe this bounce fizzles and retreats, but that won’t be a problem because my trailing stops are already well above my entry points. And if I get dumped out, no big deal, I collect my profits and get to do this all over again the next time the market bounces.
Bring it on!
Apple (NASDAQ:AAPL) turned strength into strength as it added 2.6% to Friday’s 7% pop. But this is the way it usually works out with the best-of-the-best stocks and companies.
Always use a trailing stop to protect our profits, but never be afraid of getting back in just because our stops got us out. AAPL has been one of the best stocks of the last decade and odds are minuscule that it was going to suddenly forget how to make money.
Sell dips, buy bounces, and repeat.