If you bought stocks into weakness on Monday, you should be selling into strength today.
On Monday, the stock market was poised for a bounce. The Volatility Index (VIX) generated a “buy” signal at the close on Friday by dropping back inside its Bollinger Bands. And the S&P 500 was more than 40 points below its 9-day exponential moving average – where a 30-point spread is considered extreme.
So, when the S&P 500 futures were trading lower on Monday morning, I told you I was going to be buying stocks and encouraged you to do the same.
Yesterday, I sold everything I bought on Monday.
The market’s proverbial rubber band has snapped back. Stocks are no longer oversold. And with a 30-point rally off Monday’s lows, the “easy” money has been made on this bounce.
The S&P 500 is now bumping into resistance and, at this point, the downside risk outweighs the potential reward.
Here’s an updated look at the S&P 500…
This chart has formed a recent series of lower highs and lower lows. By definition, that’s a downtrend.
If you’re going to make money by buying stocks in a downtrending market, then you need to buy when conditions are extremely oversold – which we did on Monday – and then sell when the market runs back up towards logical resistance areas. That’s why you should be selling right now.
The S&P has multiple layers of resistance here in the 2450 area. There’s the 9-day EMA at 2447. There’s the 50-day moving average at 2451. And there’s the downtrending resistance line connecting the lower highs at about 2455.
The index is going to have a tough time overcoming all that resistance on its first attempt. So, the upside potential is limited from here.
It’s probably more likely that resistance holds and the S&P turns lower and starts to fall again. If that happens, then stocks are likely to give up all of the gains they’ve made since Monday. The S&P could retest Monday’s low, or perhaps make an even lower low before finding support.
Traders who bought stocks with me on Monday should take the quick gains off the table now.
Best regards and good trading,
P.S. If you traded alongside me and bought stocks on Monday, I’d love to hear about the gains you made. Email me right here with your success stories—or if you have any questions or suggestions for the Market Minute or Delta Report.
Some great reports on winning trades from Delta Report subscribers in today’s mailbag…
Good call on SPY. Know the setup was great but sometimes even that does not work. Props to you.
Hey Jeff, love your conservative approach. You have made me lots of money.
Greetings Jeff. Let me echo what so many subscribers have already said about how educational and profitable your service has been thus far. I actually look forward to reading the Market Minute every morning expecting to learn something, and I’m never disappointed.