Investing

S&P 500: Why Smart Money Was Betting On A Rebound

The popped 2% Tuesday and the index is back within 1% of all-time highs.

So much for Omicron. But that’s the way this usually goes. :

Trends are far more likely to continue than reverse. That’s because a bull market bounces countless times but dies only once…Bears have been wrong all year, so what are the odds they’re right this time? Yeah, not very good.

While this is really easy to say following two big up days, there was nothing easy about buying Friday’s late bounce and adding more money Monday morning. But from years of experience, personal reluctance is usually a really good sign.

As a rule, if I really want to make a trade, it is probably too early. And f I’m dragging my feet and trying to find an excuse to avoid a trade, that is usually a really good sign.

This was definitely the case last Friday. After stubbing my toe buying the previous bounces, it was hard to not get discouraged. But I’ve been doing this long enough to know these trades only work after most people have given up, so the key is being more stubborn than most.

As long as we have a sensible trading plan that is both nimble (getting in early and getting out early) and manages our risk (starting small), we don’t have a lot to fear from buying these bounces and being wrong.

Without a doubt, I got caught on the wrong side of some of last week’s whipsaws, but if the risk is a dozen points on a partial position last week and the reward is more than 100 points of profit on a full position this week, sign me up! I don’t mind being wrong a few times when it pays this well.

And now that the market’s bounced nicely, there is nothing to do but lift our stops and see where this goes.

Last week I also asked if Meta Platforms, aka Facebook (NASDAQ:), is so bad it’s good?

Well, we got our answer this week and the answer is a resounding yes. FB is up nearly 8% from last Friday’s lows and anyone that bought the bounce is sitting on some healthy profits.

As I wrote last week:

Violating support before bouncing is an even more bullish trading signal than simply bouncing off of support because it shows selling capitulation and that bears have lost control of this trade.

That’s exactly what happened on Friday and Monday and this FB trade is setting up really nicely. Just like our index trade, lift our stops up to our entry point and see where this goes.


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