The S&P 500 tumbled 1.1% on Monday and gained 1.8% on Tuesday. So much for all the fear-mongering and panicked selling.
But this outcome was largely expected. As I wrote after Monday's session:
The final weeks of the year are vulnerable to increased volatility because big money’s steadying hand already left for vacation. That puts retail traders in control through New Year’s. But lucky for us, these impulsive traders don’t have much money and they run out of ammunition quickly. While they can drive dramatic swings like Monday’s open, they struggle to sustain these moves and they tend to bounce back fairly quickly.
Barely twenty-four hours later and the market already erased all of Monday’s losses. After impulsive retail traders ran out of things to sell, prices bounced. Funny how that works.
As for how I’m trading this, as I wrote last week, I sold a good portion of my trading positions when the first wave of selling undercut my trailing stops. But as soon as I’m out, the first thing I’m doing is looking to get back in. Again, from Monday evening’s post:
Like any good trader, I don’t know when to give up. When the index bounced above Monday’s opening levels and again when it closed fairly robustly, I went ahead and bought more partial positions. And if stocks open well Tuesday morning, I’ll add even more.
Trading around these whipsaws can feel like a waste of time, but it is dirt cheap insurance protecting us against a much larger selloff. While I was fairly certain this latest dip would bounce, I’m not willing to bet my trading account on it. Selling and buying back in is so easy, there is no reason not to do it. Sometimes I even manage to pocket a few bucks buying back in at lower levels.
No one is getting rich arbitraging a handful of points like this, but protection against a larger selloff and actually making a few bucks in the process? It’s hard to beat that risk/reward.
Bitcoin has been mirroring the equity market and this cryptocurrency rallied nicely on Tuesday too. But as I’ve been saying for a while, I’m not interested in this until it gets back above $50k support.
For those that have been reading these posts for a while, remember I was saying the exact same thing about $60k back in November. Now that we’re $10k lower, traders that heeded that advice are glad they did.
As I often say, it is better to be a little late than a lot early. Bitcoin will probably get above $50k. But it might need to go through the $30k’s first. There is no reason to ride through that dip if we don’t have to.