The S&P 500 fell 0.9% Monday as last week’s post-Fed sell-off continues.
Headlines haven’t changed in a meaningful way, including last week’s inflation report and the Fed’s rate hikes. Inflation is moderating modestly, and the Fed is slowing the pace of rate hikes. These results align with most investors’ expectations, and we do not see any significant deviations in the fundamental data.
This remains a sentiment-driven trade, and the October and November waves of optimism have given way to this latest bout of second thoughts. 3,800 is the next obvious support level, and now we can see if it holds. Either it does or doesn’t, and that binary outcome is the basis for our next trade.
Monday’s late test of 3,800 support was held. That was our signal to lock in some very juicy profits on our short positions. And for the most adventurous, test the waters with a small buy and a stop under Monday’s intraday lows.
The odds are good, and closing our short positions Monday afternoon could be premature, but with over 200 points of profit in this trade, the risks of holding too long far outweigh the reward of squeezing a few more bucks out of this trade.
Remember, we only make money when we sell our winners; this has been a great trade. No reason to get greedy and keep pressing our luck. As easy as it is to buy back in, there is no reason to get stubborn here. Take those profits and get ready for the next trade.
Adding more to a long position Tuesday morning if the bounce off of 3,800 sticks or switching direction and shorting a break under 3,800. This is as easy as it gets.