The bears took a hit yesterday.
Anyone who shorted stocks into the decline on Tuesday morning, or who held short even as the market started to recover on Tuesday afternoon, was just asking for a lesson.
The right time to go short was on Monday when the S&P bumped into the 2450 level. Then, with the big gap lower on Tuesday, traders could have covered their shorts for a decent short-term profit.
When the S&P 500 found support at the 2430 level on Tuesday and started to recover, anyone who was short heading into that move should have taken profits on the trade as the market started to reverse.
Yesterday, as stocks traded higher, you could almost hear the soft thud of the bears’ towels hitting the mat. The bears covered their trades as the market pressed higher.
But… this is exactly where bearish traders ought to be looking to short stocks again.
The S&P 500 rallied yesterday all the way up to the 2460 level. That’s just about where I told my subscribers to be looking to short the market. The chart of the index now has a series of lower highs and lower lows. And this recent run higher has now bumped into the resistance line of that pattern.
Here’s the chart…
Until the S&P 500 can break above the 2475 level achieved earlier in August, the bears get the benefit of the doubt.
Bearish traders can short the S&P 500 right here at about 2460-ish, and keep a stop at 2475-ish. That will limit any potential loss if the market moves higher from here.
But, if the S&P 500 moves lower, then it’s likely to retest last week’s low of 2417 – and maybe drop a bit lower towards the 2400 level before finding support.
So, traders who are willing to short the S&P 500 here near 2460 are risking maybe 15 points on the upside versus a potential profit of 60 points on the downside.
That seems like a pretty good bet to me – especially as we enter the seasonally weak period of September.
Best regards and good trading,
Jeff Clark
P.S. Did you profit from the short opportunity on Tuesday? Are you planning to sell stocks short again today? Let me know – along with any other ideas, suggestions, or concerns – right here.
Reader Mailbag
Today, some kind words from Market Minute readers…
Thanks for the information you provide, I learn so much from you each and every day in your Market Minute.
– Alan
Hi Jeff, so far you’re on target with gold and your technical analysis. Like me, most of your free email receivers will soon be part of the paid subscription. Thank you for your information and insight as I can tell and feel that you have been in this business for a while. Have a prosperous and blessed day.
– George
And one reader’s thoughts on gold, timing, and holding stocks for the long haul…
I'm a gold bug, too. But I got hosed a few years ago after gold's last major spike. I purchased gold and silver for all of the right reasons at the time, but I bought my metals when they were a popular buy. So, financially speaking, my timing sucked.
I should have purchased them after gold and silver had found their bottom, long after most people had jumped ship. I've learned the hard way that successful investing requires good timing and patience.
In my case, I've been speculating in stocks that hit bottom but have future potential, such as uranium stocks, companies that will support the growing marijuana industry, and gold mining stocks. Right now I'm having great success with Sabina Gold & Silver (SBB) and Cameco (CCJ). The rest of my portfolio is performing poorly, but I'm of the mind that I'm investing for the long-term (possibly for years), not for next week.
If I cry over the dips then I'll never be able to reap any of the rewards. I can't afford to be a basket case. Thank you for all of your hard work.
– Chris