The back half of 2018 could be the best time to be a trader in years…
As I mentioned on Friday, volatility is back. After an entire year of low volatility and one-way price action, the stock market has been swinging wildly so far in 2018. The Volatility Index (VIX) is 50% higher today than where it was at the start of the year.
And that’s a good thing. That’s because higher volatility leads to more extreme conditions. And more extreme conditions means more opportunities to profit.
You see, I prefer to trade using a “reversion to the mean” philosophy. I look for extremely overbought or oversold situations and then attempt to profit as conditions revert back to neutral.
Think of it as a “rubber band” style of trading. I look for situations where the rubber band is stretched just about as far as possible. Then I bet on it snapping back.
Now, understand that extreme conditions can always get even more extreme. The rubber band can always stretch a lot farther than you think. But in my 35 years of trading, the rubber band has always snapped back.
Think back to the parabolic rally we saw in the stock market in January. The stock market was already overbought just eight trading days into the new year.
To me, the situation looked dangerous. So I advised folks to resist the urge to add new positions until we got some downside action to relieve the overbought condition. The S&P 500 was trading around 2800 at the time.
But the rubber band kept stretching… The stock market kept pressing higher all the way through the rest of the month. It finally peaked above 2870 on January 29.
That day, I wrote this in the Market Minute…
The S&P 500 has gone vertical. While we can’t possibly know exactly when the rally will end, the slope of the parabola suggests we’re approaching the exhaustion phase.
Also, key technical indicators, like the MACD momentum indicator, closed Friday at the most overbought levels in the 35 years I’ve been involved with the financial markets. Maybe they’re the most overbought levels ever.
This is a dangerous environment in which to put new money to work. We can’t know for sure. But it seems to me traders should get a shot at investing at lower prices sometime within the next three months.
That’s when the rubber band finally snapped back.
It took only about a week for conditions to go from extremely overbought to extremely oversold. That’s when I started buying.
I was early. The rubber band continued to stretch to the downside. But, like I said earlier, it always snaps back.
Here’s what I wrote in the Market Minute on February 9…
The stock market is now back down to where it was the last time I was interested in putting money to work. The selling pressure has shaken out a lot of the “weak hands.”
Just to be clear… I don’t expect the market to reverse all of a sudden and immediately rally back to new highs. Rather, the market is likely to chop around in a wide trading range for the next several weeks.
But much of the immediate risk has been wrung out of the market. So, for traders who have cash, now is the time to take advantage of the move and buy at depressed prices while everyone else is selling.
It’s hard to do, no doubt. It can be gut-wrenching to step up and buy when everyone else is selling.
But it’s those gut-wrenching trades that tend to work out the best.
So, here’s my point to all of this…
We’ve already seen a HUGE increase in volatility so far in 2018. This condition is likely to continue for the rest of the year – at least.
This is an opportunity for traders to make a lot of money as the proverbial rubber band stretches and then snaps back multiple times.
Best regards and good trading,
Jeff Clark
P.S. Next Wednesday at 8 p.m. ET, I’m holding a one-night-only online training event to ensure you’re prepared for the volatility ahead.
There we’ll discuss one of my most reliable trading indicators for volatile markets. And I’ll tell you how it could increase your returns by over 1,000% – even in unpredictable times. I’ll also send you a copy of a special report full of my most prized trading tools, just for dropping by.
You don’t want to miss this one… Reserve your spot for Wednesday’s event right here.
Reader Mailbag
Today, an experiment from a Delta Report subscriber…
At the start of this year, I started tracking my portfolio by Jeff Clark’s recommendations versus the recommended stocks/options that I chose from several newsletters from a major stock advice publisher. I was only able to invest about 20% of my stock funds on average on Jeff’s recommendations. The rest of the account was mostly in the other major publisher’s recommendations. Note that I had purchased almost all of the other publisher’s recommendations months or even a year or more ago.
Over the past four months, I made over 10% on my money – which is over 30% annually – on Jeff’s recommendations, even though the S&P was down a quarter of a percent. Additionally, I was not able to leverage my money on puts as he recommends – then the results would be even more impressive. The other publisher’s recommendations lost 3% on the money and 10% annually during the same period. It would have been worse if I had not sold several of the other publisher’s recommendations in the past two months. Almost all of them have lost more money since I sold them. Note that the other publisher did not recommend the selling. I sold them based on Jeff’s information. So, actually, the other publisher did even worse.
Anyone can make money when stocks are going up… but to make over 30% in a slightly down market shows how remarkable Jeff Clark’s Delta Report is, and that it beats the pants off the competition.
– Ron
Thank you, as always, for your thoughtful insights. Keep them coming right here.