This has been a week for the record books. The oldest bull market in U.S. history died Thursday following the S&P 500’s worst day in over 30 years. As bad as that sounds, this week would have been even worse if it weren’t for Friday’s spectacular 200-point rebound that erased a big chunk of the midweek losses. In the end, the index “only” took a 10% haircut this week and is now 20% under the all-time highs set just a few weeks ago.
“The bull market is dead, long live the bull market.”
The end of one thing becomes the birth of something else. While bears want us to believe this crash is only just getting started, history is not on their side. This Coronavirus selloff bottomed at 27% this week and only a handful of times over the last 150 years has the market fallen even further.
While prices could absolutely continue making new lows next week, we are definitely a lot closer to the end of this move than the start of it. And even more reassuring, markets love symmetry and dramatic crashes typically capitulate in a V-bottom. If things get even uglier next week, it won’t be long before the market ricochets off the oversold bottom and creates the sharp right-hand recovery side of the Vee. (There’s even a good chance Thursday/Friday was the crash and rebound of the Vee capitulation.)
While I cannot tell you when this will be over, the one thing we know for certain is next week will be extremely volatile. That means big moves in both directions. One day’s up will be followed by the next day’s down. No doubt a lot of traders will continue getting cutup by these whipsaws, nimble traders who move confidently and proactively will continue printing money.
The greatest strength we have as individual traders is our nimbleness. We can go from full long to full short in a few mouse clicks. Use this power responsibly and we don’t need to be victims of the market’s gyrations. The only thing we need to know is the market is going to make big moves. During periods like this, we’re not bulls or bears, we’re opportunists. It makes no difference which direction the market goes as long as it goes somewhere in a spectacular way. Simply jump aboard these moves early and keep a close stop. Buy the first signs of a bounce. If that fizzles and undercuts the lows, switch direction and go short. Then buy the next day’s rebound. Follow that by shorting the next day’s fizzle. When that bounces, jump back in on the long side. In markets that move this fast and hard, all we need to do is be there to catch the next big wave. Who cares which direction it goes. And most importantly, just when we’re feeling really good about our profits, lock them in. If we don’t, they will be gone in a few hours.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
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.