Managing Risk with Trailing Stop Losses

Capital Protection and Structured Entries - Strategic Stock Market Update

The stock market is bouncing this week with the SPX up +1.3%, the NDX up +1.1%, and small caps are roaring with the IWM up +3.9%. The environment is still choppy, every single day has lacked conviction, but as the weekly compass highlighted last Saturday, conditions were very oversold:

As mentioned last Saturday: “We are monitoring for a potential “Dead Cat Bounce” or a full structural reversal. Given that the S&P 500 is at its final modeled support for the month (6,553), and the last two hours of Friday showed a reversal “print,” the technical setup for an early-week rally is in place”.

Yes, during times of war, uncertainty is significant and managing rapid moves becomes much more difficult. For that reason, with prudence and transparency that the market could affect setups, I highlighted in the setups Blueprint good chances for a bullish reversal in several stocks last Saturday. So far this week, they have rallied as follows: PLTR (+2.8%), JPM (+3.1%), AAPL (+1.9%), SMH (+3.7%), and AMD (+9.4%). I expected bearish continuation in AMZN and META, but AMZN is rallying +3.1% so far. XOM hit its bearish weekly target before reversing to continue its rally.

Today I will be focused on market conditions and in a guide about stop losses, since a couple of subscribers have asked me questions about it. I’m glad there are questions about it, it means that there is a strong interest on capital protection.

Stock Market Conditions

I’ll use today a narrative combining different indicators and charts for the SPX, then we will study stop losses and how to “trail” them using our Support and Resistance levels. Let’s begin:

Five Charts that Suggest a Bottom in Near for the S&P500: