Gap open: Check.
Gap faded: Check.
A funny thing today was the repeat of the above when the Fed announced.
Every bear market is different, but one thing remains the same: hardly anyone makes money in them, not even the bears. I believe the reason downtrends are so difficult in relation to uptrends is that the prevailing force in downtrends is fear. The nature of fear is that it comes quickly, consumes all, then disappears as air. After the market closed yesterday, participants stewed in fear and at the open sold holdings willy-nilly. Suddenly the fear ran out, and just like that we had a rally. This is in contrast to bull markets where greed and happiness rule, and our underlying sense of confidence in the market's advance makes pullbacks more orderly.
I sold a half position in SDS after hours last night, but if I had waited until pre-market I would've made almost $3/share more. If I had waited until today's close I would've given up more than that amount. It's nearly impossible to maximize your profit in such a volatile environment, and easy to lose everything to whipsaws. Forget about letting your profits run; focus instead on cutting your losses short!
In yesterday's post I thought we would see a rally unfold, but the speed and depth of today's rally is astonishing. Could a bottom be in? There are bullish divergences in practically every indicator: RSI, OBV, MACD, etc. We had a high-volume flush-out that had the feel of capitulation, as worn-out participants threw in the towel. However, we remain in a big-picture downtrend, and that is what we have to go by. I suggested yesterday buying a pullback in SDS, but I'm less gung-ho after today's extreme action. Depending on price action, it might be worth a small bet after the open tomorrow, risking to 65.31. Yes, I have moved the stop back to our original sell-stop. If you don't like that idea, you may still use 67.39, but only if price violates that level and stays there for, say, half an hour or more. The way this market moves, temporary violations often catalyze the counter-move, and I don't think it's out of the question for the S&P to make a run for its 50-day before going on to lower lows. As I have been saying practically every day this month, don't risk too much, and take as much off the table as you need to in order to feel comfortable with what you stand to lose. This is not the time to be a hero; it will only embolden you to take on bigger risks if you happen to be right, and that is how traders go bye-bye.
| Current Holdings | ||||||
|---|---|---|---|---|---|---|
| Ticker | Basis | Closing Price |
Perf. | Sell-Stop | Additional Exit Guideline | Chart |
| SDS | 67.81 | 71.16 | +4.9% | 65.31 | Consider selling on a close below, or a 30-minute violation of, the 67.39 level. | Chart |
With today's huge swings in price, there are practically no charts that have the setup I look for. The one I have for you trades low volume, so be careful.
| Ticker | Entry | Exit A | Exit C | Chart |
|---|---|---|---|---|
| TVL (LIN TV) | 6.06 | 5.63 | 5.21 | Chart |
Please refer to "How To Trade The Ideas" (right-hand side) to read this table.
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