S&P 500: Path of Least Resistance Is Higher, Not Lower
2023.08.29 03:44
The added a respectable 0.6% on Monday, extending Friday’s 0.7% bounce, and the index is setting up for another run at 4,450 resistance.
S&P 500 Index Daily Chart
Lucky for readers, we saw this rebound coming last week, and I yesterday:
The market’s natural inclination is to go up, and breakdowns are breathtakingly fast. Combine those two concepts, and Friday’s rebound definitely favors the bulls. If we were going to break down, prices would have taken another tumble on Friday.
It doesn’t take much to trigger the next wave of selling, but so far, this [rebound] is acting well enough to keep giving it the benefit of the doubt.
At this point, I’m cautiously optimistic [last] Thursday’s tumble was the fluke, not [September 18th’s] rebound. For the time being, I’m a buyer of Friday’s bounce, with stops not far behind.
If the bounce continues on Monday, I let those profits come to me. If the selling resumes, I get out for a minor loss and try again next time. Lots of upside and limited downside. What’s not to like about this trade?
As expected, the index rallied on Monday, and I was able to move my stops up to my entry point, turning this into a low-risk trade.
If the selling resumes on Tuesday, I get out near my entry points, no big deal. If the bounce continues, I let all of those 3x ETF profits come to me.
Low-risk/high-reward trades are what we dream of. But these setups are only possible when we have the courage to jump aboard a rebound early.
As for what comes next, I like what I see. No one is talking about the Chinese economy anymore. If the market doesn’t care, then we don’t care.
Powell’s last Friday couldn’t bring out the sellers either. We violated 4,400 support multiple times over the last two weeks without triggering another follow-on wave of defensive selling, telling us there is not much supply left under our feet.
A market that refuses to go down will eventually go up, and that’s the way this trade is coming together. Stick with what is working and keep lifting our stops.
