Stock Markets Analysis & Opinion

S&P 500: Time to Lock in Profits?


The S&P 500 retreated half a percent Tuesday morning before recovering almost all of those early losses, finishing the session down a trivial amount.

Stocks retreat quickly from unsustainable levels, so the longer we hold Monday’s 4k breakout, the more real it becomes. We tested support early Tuesday, and the market passed that first exam with flying colors.

While one or two days don’t make a breakout, every sustained breakout starts with those first two days. Now, headlines remain benign, continuing the less-bad-than-feared rebound from the October lows.

As always, everything could get flipped on its head at a moment’s notice, but so far, things look good.

S&P 500 Index, Daily Chart

Greedy when other people are fearful and fearful when other people are greedy. That simple strategy works more often than not, and now that the market is at multi-month highs, we have to tread carefully.

4k is a critical level, and it is holding steady so far. But as I wrote previously, this market is choppy and sideways than up or down. And that means we should expect lots of back and forth even if the higher trend remains intact.

At this point, it makes sense to lock in some of our nice profits because we don’t make money until we sell our winners. But at the same time, the market is still behaving well, so it is equally worth holding on to some of our positions.

With one foot in and one foot out of the market, we will be in good shape no matter what happens next. If the market gets rejected 4k yet again, we pull the plug at our recently lifted trailing stops.

But on the other hand, if the breakout continues, we benefit through what we are still holding, and then we put the accelerator down by buying back what we sold.

This is the highly desirable “no lose” position. We are here because we had the courage to buy when everyone else was busy forecasting the market’s imminent demise.


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