Here’s The Only Way To Trade Market Bubbles

Yesterday's Weak Close Was Nothing To Worry About


S&P 500 Daily Chart

This market is on fire. The has been up 9 out of the last 10 sessions. Yesterday’s 1.5% pop is the biggest gain in more than two months, meaning the rate of gains is accelerating, not slowing down. But the real star of the show is tech and momentum stocks with double-digit gains becoming the norm.

While a lot of people are nervous because it feels like this market is getting frothy, and I’m one of them, the thing to remember is bubbles last longer and go further than even the most bullish cheerleaders thought possible. I wouldn’t feel comfortable buying stocks at these ridiculously extended levels, but I sure am glad I’m holding positions with huge profits and I continuing to participate in this runup. And for the time being, I have no interest in selling. I’m following this rally higher with a trailing stop. I have no idea how much further it will go, but I definitely want to be apart of it.

The greatest strength we have as independent traders is the nimbleness of our size. We do in seconds what it takes institutions weeks and months to accomplish. This market is getting absurdly expensive, but we are nimble enough to ride this wave higher and be able to get out right after it rolls over. We don’t need to predict the future if we are fast enough (and disciplined enough!) to react to the market in real-time.

The great thing about euphoric accelerations is they tend to be one-way moves, meaning we can easily follow this rally higher with a trailing stop. Keep it 50-100 points behind the market and we should safely navigate any near-term whipsaws.

And you know what? If we get stopped out prematurely, there is no rule prohibiting us from getting back in. If a false alarm squeezes us out, no problem, just jump back in when prices recover.

Stick to the above plan and see how much further this frothiness takes us. No doubt the top is still a good distance above us.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



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Jani Ziedins


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