The price action that we’ve seen in the stock market the last three weeks, is largely driven based on emotion — and at least initially, wasn’t driven on fundamentals.
At this point, we’ve seen multiple limit down (and up) days, where the market has paused trading due to hitting circuit breakers, meant to curb extreme emotion and computerized trading. We hit limit down twice in the last 24 hours, with it being hit during overnight trade within 15 minutes after the Fed announced the ‘new’ start to QE, along with another emergency interest rate cut. Investors weren’t impressed by these actions, and when trading opened during the cash open, the indexes hit limit down at 7% immediately.
What this means for us…
The market has been inredibly volatile, with volatility hitting levels not seen since 2008, and we entered bear market territory. The S&P is down 1000 points in the last three weeks, to a tune of 30%. For some reason, the media isn’t calling this a crash, though I call it one.
Even in the tech bubble of 2000, and the financial crisis of 2008, equity prices fell over a span of months, with the rout lasting 1.5 years in each instance. This move has occurred over a three week time span, wiping out years worth of gains, depending on the chart, and there’s still no end in sight. In good news, this price movement equals tons of opportunity with intraday setups galore, especially in the futures markets.
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All that being said, what do you think they’re going to name the crash of 2020?
The CoronaCrash of 2020? I guess we’ll find out.
But, speculation aside, there are very real questions to be asked and answered here. Speculation over the coronavirus is likely going to continue putting everyone into a tizzy. In reality, nobody knows how long it’ll last, which only further impacts the emotional swings in the market. I’m the first to say, I don’t have a crystal ball.
But, what I do have, is experience. And, it’s with this experience that I answer the following questions.
Investors and traders everywhere are asking the same questions. My social media inboxes and message folders are filling up, along with emails and notifications from members.
The number one question I’m getting is, “What do we do?”
In this market — cash and short term trades are king.
I haven’t adjusted my long term accounts, as number one, pulling money out during a crash is the best way to ensure you lock in your losses. Number two, because I’m young, and I plan to double down on equities near the end of this route instead of pulling them out. And, number three, I have considerably changed my trading style, completely shifting away from looking for short squeezes on equities, daily trends with consolidation, and butterflies. I’m now focusing intraday, trading primarily emotional moves and momentum breaks — while waiting for my moment to add to long equities in my long-term accounts.
Of course, after that, it’s:
“How much lower can it go?”
Currently, I don’t view this correct as near the bottom. Tops and bottoms are difficult to call to the exact level, though there are pretty key indicators that I see, at each.
For a bottom, typically you want to see lows holding — not breaking, like they did today. We’ve continued to see lower lows in the indexes for the last three days, and haven’t seen more than one positive day in a row. Typically near a low, you’d see support hold, higher highs made, and relative strength equities like Microsoft, Apple, and Adobe would begin trading higher.
MSFT was down 14.74% today — displaying a complete vote of non-confidence and an ultimate dumping of what I’d consider one of the strongest stocks and companies in the stock market. This isn’t indicative of a bottom being near, and in fact, it’s indicative of high flying equities like MSFT being dumped at a very high rate — which will only lead to more fear, and selling, rather than less.
“When can I start buying stocks?”
This all depends on what you want to do with them. For me, I’m buying stocks for my son, who’s six. I expect them to mature for 15 years, minimum. On this type of timeframe, it doesn’t matter as much if they’re down 30% on entry, and end up going down 40-50%, before going back up.
However, if you’re near retirement, and don’t want to sit through further downside, and want to time a bottom more closely, holding through 10-15% more downside isn’t going to feel good.
There’s also an averaging in strategy, where you constantly buy stocks, ETFs and index products regardless of what the market’s doing. If it’s up, down, sideways — the goal is just to continually add in the stock market. If this is the strategy you’re using, that’s also completely different than “trying to buy stocks on sale.”
With a current move of 30% lower in the S&P, I do think it’s time to start looking for bargains, but that’s because I’m holding them on a long-term time frame, I’m an active investor and trader, and I understand they’ll likely continue going lower with volatility for the near-term.
“What stocks should I buy?”
I’m currently working on a fresh remake of “Top 20 Stocks to Buy.” For the most part, before and after the coronavirus entered our lives, these are going to stay the same, but, I do think there will be additional opportunity in stocks and industry groups hit by the impact of this virus, that previously weren’t hit before.
P.S. I’ll be talking about my new top stocks list in the next newsletter, so stay tuned!
For now, I’m primarily focused on trading futures. Why? With low liquidity, wild swings, emotional moves, and incredibly high volatility… futures provide the best in and out opportunity I see.