Trading Like It’s 2018?

Hey 5-Star Trader,

We are experiencing another whirlwind week as we continue to see bearish sentiment in the market. When will things turn around? It’s hard to say. However, one main factor that I’m looking at right now are January lows.

What Happened In January?

At the tail end of last year, the market caught a small rally. All was looking well as we headed into 2022, and I think we were hoping to get a strong January bull run. But, by the end of the month, it was clear that would not be the case. Instead, we got a complete reversal into a downward trend.

What initially started as jitters over rising interest rates has truly turned into bearish sentiment. In the past few years we have been living in a “buy the dip” type of market, but it is clear such strategy will not work in these conditions. Most “dips” we’ve seen recently do not recover quickly, but instead turn into a landslide lower!

Now we are sitting in the middle of a heavily influenced news cycle which is creating even more panic among traders. But have we seen this before?

What Does History Tell Us?

In order to better understand conditions today, I went back in time to see if I could find any similarities in behavior. What I discovered is that the technicals look comparable to what we saw in 2008 or 2018.

Take a look at this Nasdaq (NQ) chart from 2018 (pictured below).


Featured is the NQ, which I ran through my Hot Zone Indicator. This is what allowed me to see the historical data from 2018.

As you can see, this move started topping out in September and we began trading lower into earnings. Then, once earnings reports were released, it was essentially the final straw before the market was sent careening to the downside. It wasn’t until the Federal Reserve (Fed) stepped in and made some adjustments before the market was ready to correct itself once again.

This aggressive move to the downside seems eerily similar to what we are seeing today. But it is different regarding how much the Fed will be willing to help. This year, the Fed has made a very strong point to say that they’re independent. No longer do they plan to manipulate the markets or print money.

What Now?

I am still taking on new options trades despite current market conditions, but my strategies have shifted significantly. I’m also favoring buying stocks for the time being, as I think long-term investing when the markets are down makes sense. 

The market ebbs and flows, so rest assured it will correct! But for the time being, stay cautious!

-Danielle =)

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