Should we be buying or shorting these levels?

By Jani Ziedins | End of Day Analysis

Mar 23

Free After-Hours Analysis

The S&P 500 tumbled another 3% Monday and set fresh lows for this selloff. Overnight futures were limit down, holding 5% losses for most of the night after the Congress failed to agree on a bailout package Sunday night. But spirits lifted shortly before Monday’s open after the Fed said they were prepared to buy “unlimited” Treasuries and mortgage-backed securities. Unfortunately, further gridlock on Capitol Hill rained on the Fed’s parade and is why stocks ultimately closed lower on Monday.

Higher, lower, or finding a bottom? That’s the question on everyone’s mind. Plenty of bulls are claiming this is a buyable dip while countless bears are screaming this is still the shorting opportunity of a lifetime. Who is right? At this point, both sides are doing nothing but blindly guessing in the dark. But they certainly don’t lack conviction in the accuracy of their blind guesses!

This is far and away the most uncertain time in anyone’s living memory, yet that uncertainty isn’t preventing anyone from telling us what they are convinced will happen next. I wish I had an answer for you, but no amount of fundamental, technical, or historical analysis will give us the answer. This situation is unique and it needs to be treated as such.

But just because this Coronavirus crash is unique doesn’t mean it will end any differently than any of the other “unique” crisis the market navigated. Assuming society doesn’t collapse, this is a buyable dip and is no different than any other crisis in market history. The only question is how low we go before bouncing.

Markets have fallen nearly 35% in a month. Could they fall 45%? Sure. But 6 months from now, how many people will be bragging about selling stocks when they were down 35%? Or is it more likely people will be bragging about buying stocks when they were down 35%?

The time to sell was four weeks ago when these waves of panic first hit the market, not now that the majority of the damage has already occurred. While prices could fall even further over the next few days and weeks, twelve months from now, no one will regret buying stocks at the lowest levels since 2016.

Once you admit you cannot pick the bottom, it simply becomes a choice between buying too early or too late. Either approach works well as long as it is consistent with a well thought out trading plan that includes risk management appropriate for this situation. (ie starting small, only buying sensible entry points, and keeping a valid stop nearby.) Don’t fall for the bull or bear arguments, be a pragmatic opportunist and the profits will come to you.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM


About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.