So did yesterday’s action change the market outlook considerably? Not a whole lot just yet. Here’s Deron Wagner this morning:
So how did yesterday’s action change our view of the broad market looking forward? Primarily, it tells us that all bets are off on the short side of the market unless stocks come right back down to where they started from. While this is unlikely, nothing would surprise us given the market’s erratic action over the past several months. Conversely, it seems a bit premature to blindly go on a buying spree because of one strong day of gains. It would be a different story if the major indices were already sitting at new highs and devoid of overhead supply, but that is not the case. The S&P 500, for example, must still overcome resistance of its prior highs of the past month.
Also in Wagner’s column today, some very good trading advice:
Needless to say, we stopped out of our short positions in (SPY) and (DIA) yesterday. However, we don’t regret entering the trades because, in our opinion, the reasons for entry were completely valid and justified. When analyzing a trade that did not work out very well, the one question we always ask ourselves is, “Knowing what I now know in hindsight, would I still make the same trade if I had the chance to do it all over again?” If the answer to that question is “yes,” then there is never a need to feel bad about a loss. All professional traders will have times when they were just plain wrong, but the way to become a consistently profitable trader is to simply follow your plan in both good times and bad. This means you only need to let the winning trades ride for maximum profitability, while simply being disciplined to stick with the stop losses on your losing trades.
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