Why Bulls AND Bears keep losing money

Free After-Hours Analysis: 

The S&P 500 retreated 1.5% Tuesday after Powell threw cold water on last week’s rebound.

I’ve said it before and I will say it again, this is a choppy market and that means the only people making money are the ones locking in profits when they have them.

Both bulls and bears are too busy arguing with each other to make money. Bulls insist every bounce is the start of the next big move higher and bears gloat every time prices fall.

Unfortunately, this approach means both sides are making the exact wrong moves at the exact wrong time. Bulls are buying the highs when they feel the most confident and end up selling the lows a few days later when they get scared. And bears are doing the mirror image, gleefully shorting the lows and then getting spooked and covering after prices blow up in their face.

Buying strength and selling weakness works great in directional markets, but this is not a directional market, so everyone trading that way is getting killed.

Last week I told readers to buy the next bounce in my post titled, “Should we be worried about this test of the recent lows?” But equally important, I also warned readers to take profits quickly because they wouldn’t last.

I will be there to buy the next bounce and the one after that. But because I know this is a low-energy environment, I will be quick to take profits because it won’t be long before those profits are gone.

A bigger directional move is coming, but it is still a way out. Until then, keep taking profits early and often.

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Well, here we are a few days after stocks surged impressively from Thursday’s lows. Unfortunately, a big chunk of those profits have already been erased. This was an extremely profitable trade for everyone that treated it like a trade. For everyone else, they lost even more money reflexively buying Friday’s strength and selling Tuesday’s tumble.

Trading isn’t hard once we shed our bullish and bearish biases and start trading the market instead of our opinions.

As for what comes next, I will keep buying weakness and selling strength until the market tells me it is ready for the next big directional move. Until then, expect this volatile sideways chop to continue.

Powell will continue speaking to Congress on Wednesday, we have the monthly employment report coming Friday morning, and more inflation data next week. Expect these wild whipsaws to continue.

If you are not taking profits when you have them, then you will end up taking losses when the market inevitably swings in the other direction.

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