S&P 500: Why Savvy Traders Saw This Bounce Coming and How They Got Ready for It

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S&P 500: Why Savvy Traders Saw This Bounce Coming and How They Got Ready for It

The rallied 1.1% on Friday after the monthly employment revealed another strong showing in April. So much for Thursday’s huge selloff.

In case anyone missed the memo, this is a back-and-forth market. That means frequent and dramatic reversals, as greedy bears learned the hard way on Friday. Unfortunately for them, Thursday’s big dip was a continuation of this back-and-forth pattern, not the start of something new.

Luckily for readers, I said as much Thursday night following that day’s big bloodbath:

There wasn’t any meat to Thursday’s selling, so I question the sustainability of this move lower. We need headlines that will shatter bulls’ confidence and turn them into fearful bears for this rally to break. I didn’t see anything on Thursday that will convince bulls to start selling their favorite stocks. Until proven otherwise, I will be looking for the next buyable bounce; it will probably be here sooner than most people will be ready for.

We didn’t have to wait more than a few hours for the next buyable bounce. Hopefully, you didn’t miss it.

As for how savvy traders approached Friday’s session when the sellers ******* to show up and prices bounced, that was our signal to buy. As I wrote Thursday evening, this moment was going to arrive far sooner than most people were expecting, which is why savvy traders arrived Friday morning prepared for the unexpected.

For those who bought Friday’s bounce, we can already lift our stops to our entry points, turning this into another low-risk, high-reward trade. If prices retreat next week, we get out at breakeven, no harm, no foult. If the rebound continues, let those profits roll in.

But most importantly, don’t get seduced by the same overconfidence that stung bears on Friday. No matter whose side you are on, this is a back-and-forth market, and that means collecting profits early and often. If you hold too long, those profits will turn into losses.

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