Our Short Trade Is Working, but Don’t Get Greedy
2024.01.05 03:58
The shed another 0.3% on Thursday, making this four down sessions in a row.
Financial headlines haven’t changed in a meaningful way since last week’s Santa Clause rally peaked, but no matter how good things seem, there always comes a point when we run out of new money to keep pushing prices even higher.
It is starting to feel like October’s massive rebound finally reached that point of diminishing demand. Now, don’t get me wrong, I’m not one of these cynics predicting a huge crash or anything like that.
But I’ve been doing this long enough to know stocks move in waves. Every bit of up is eventually followed by a bit of down. The only question is how much down we get.
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At this point, the pullback deserves the benefit of the doubt.
Anyone who shorted Tuesday or Wednesday morning is sitting on small but comfortable profits, and they can lower their stops to somewhere between Tuesday’s intraday highs and their entry points, greatly reducing their risk.
Given Thursday’s declines, shorts should move their stops down to their entry points, making this a low-risk trade. This close under 4,700 support suggests we have more near-term weakness coming our way.
As I wrote above, I’m not at all bearish. This week’s step back is nothing more than supply and demand rebalancing from last week’s overbought levels.
At this point, 4,600 support is very much in play. We might not get back to this level, but my trading account is currently positioned to profit from more near-term weaknesses.
This won’t be a straightforward trade because it never is, but expect more down than up and keep giving this short trade the benefit of the doubt.
