Well, that didn’t take long. Friday’s break above 5,100 is already history, as the S&P 500 rally stalled and retreated 1% on Tuesday.
Easy come, easy go. As I told readers previously, I bought Friday’s rally above 5,100, not because I thought stocks were going to take off, but because I could enter that trade in a low-risk way:
By acting early and decisively [on Friday], I was able to buy not long after the market retook 5,100, and I could place a stop just under this level. When the rally kept going, I was able to lift my stops to my entry points, creating yet another low-risk/high-reward trade.
Maybe this latest buy gets stopped out at breakeven in a few days. No harm, no foul. But if the buying keeps pushing the index toward 5,200, then I will let those profits roll in. It’s like a free lottery ticket. Only a fool would turn his nose up at it.
Well, as luck would have it, I got stopped out early Tuesday morning for breakeven, and I watched the rest of the day’s carnage from the safety of the sidelines.
While this breakout trade didn’t work, it didn’t cost me anything, so can we really call this trade a mistake? If it worked, I made money, if it didn’t, I got all of my money back. If only all of my bad trades could be this painless.
As for what comes next, this market remains stuck in a choppy, sideways consolidation near 5,100. Until further notice, expect these dips to bounce and for the bounces to dip. One day’s up becomes the next day’s down. Anyone predicting Tuesday is the start of the next big selloff will soon find himself just as disappointed as last week’s breakout buyers.