The S&P 500 skidded on Monday for the fifth session in a row and the eighth time out of the last ten.
Needless to say, it’s been a rough couple of weeks as the index shed nearly 500 points and is now challenging the summer lows.
Economic headlines remain mostly the same and nothing shocking or even unexpected happened over the last two weeks. Instead, sentiment simply swung from half-full to half-empty as investors looked down and developed a fear of heights. There is nothing more complicated about it than that. Owners lost their nerve and sold because they got scared.
But now that the market is retesting the 2022 lows, the most important thing to remember is that risk is actually at the lowest levels of the year. It sure doesn’t feel that way as waves of panic selling hit the market, but risk is a function of height and these are the lowest prices all year.
Undoubtedly prices can fall further, but this latest 500-point retreat can no longer hurt us because it already happened and we don’t need to be afraid of it.
We always give the edge to momentum and the trend, which is clearly lower. But at some point we are going to run out of sellers and the market is going to bounce because it always does.
We could tumble in one last dramatic violation of support before this latest round of selling capitulates. But bounce off of the lows or violate them, either way, the end will be here soon. If not Tuesday or Wednesday, then later this week or early next week.
I’m currently short the market, but I’m paranoid and standing next to the exits When this finally bounces, it will be hard and fast and I don’t want to give back all of these nice profits.
And more than just short profits, when this bounces, I want to switch direction and grab ahold of the next rally. Remember, the biggest and fastest rallies occur during bear markets. (Start small, get in early, keep a nearby stop, and only add to a trade that’s working.)
Stocks look horrible and they feel even worse, but that tells us this wave of selling is getting close to exhausting itself and the bounce is just around the corner.
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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.