All traders struggle when the market goes nuts.
“Nuts” isn’t a technical term. You won’t find it in any stock market glossary. But… you know what it means.
It describes an environment in which stocks go through large swings – both higher and lower – in no consistent or predictable pattern.
There’s really no better way to describe the current market environment than by calling it “nuts.”
The problem most traders have is that we want to be involved in every big move the market makes. It’s hard for us to watch from the sidelines as the S&P 500 rallies (or falls) 50 points in a day. It’s worse to be on the wrong side of the move.
We want to be active. We want to take advantage of the increased volatility.
The problem is… these moves are nuts.
Nobody in their right mind was looking to buy stocks at the end of the day Tuesday. The stock market had reversed from a HUGE move higher and was in the midst of a sharp decline. The S&P 500 lost 48 points on the day.
But, if you didn’t buy into that decline, you missed out on Wednesday morning’s HUGE gap higher – which recovered just about everything it lost on Tuesday.
Then on Thursday, as the S&P was powering higher toward the 2840 level, nobody in their right mind was thinking about shorting stocks. The computers were firmly in “buy” mode. Shorting stocks into that sort of momentum rarely pays off.
Of course, the S&P spent that afternoon falling about 40 points. Traders who didn’t step up to short were left wishing they had.
In this sort of “nuts” environment, traders will do well to remember one thing… You’re not going to catch every trade. And if you try, you’ll likely end up taking losses.
It’s a far better strategy to take a step back. Map out a plan for where you think the market is headed over the next few weeks. Then… ignore the short-term swings and stick to that plan.
The stock market’s job is to shake us out of positions. It’s going to test our thinking. It’s going to make us second-guess our well-thought-out plans.
In short, the market is going to make us nuts.
But, if we step back and look at the bigger picture… if we avoid the temptation to profit on every short-term move… then we can ignore the “nuts” moves. We can stick to our strategy and hopefully profit if/when we’re proven right on the trades.
For example, when the stock market made its big move lower in March, I told subscribers the three initial levels at which I was looking to buy into the S&P 500 – 2950, 2900, and 2850. I used technical analysis to determine those levels well ahead of time. And, as the stock market sold off, I was buying stocks at each of those points.
It almost killed me to do so.
Just like almost everyone else, I was shocked when the S&P crashed below its 20-month exponential moving average (EMA) last month. Almost nobody was expecting the COVID-19 pandemic to wreak such havoc on the markets.
But here’s the thing…
When I set those buy targets, I did so while the S&P 500 was trading well above those levels. There wasn’t any emotion in my decision. I simply thought, “Wouldn’t it be nice if the S&P would pull back to these points and I could use it as a chance to buy stocks?”
Then, as the stock market bounced, I once again used technical analysis to determine the upside levels at which I would look to sell those positions and maybe even establish short trades.
Based on previous similar corrections, I figured the S&P 500 could rally to between 2800 and 3000. So, I started taking profits as the market hit those levels. And I told subscribers to add short exposure as the S&P breached 2850.
In the meantime, there have been all sorts of wild swings back and forth. The market has pushed higher. It has fallen lower. It has done everything possible to shake traders out of their positions.
But, when I set the target for our current short position, I did so based on similar previous conditions. Those conditions suggested that a move above 3000 on the S&P would mean we’re wrong on the trade and we ought to cut our losses at that point. Otherwise, we could look for a move back down to retest the recent higher low on the S&P at about 2620.
So, no matter what sort of wild swings we see in the stock market, I’m only looking to close our current short trade on a move above 3000 or a move towards 2620.
Whatever action we get in the middle of that range is just “nuts.”
We can’t try to profit on every move the market makes in this environment. That’s just too hard.
But, we can set our price targets. We can place trades according to where we project prices to be a few days or weeks from now. We can pinpoint the levels where we’ll admit we’re wrong and take a loss on the trade. And we can identify where we’ll take a profit.
And, we can ignore everything that happens in between.
That’s really the only way to profit when the market goes nuts.
Best regards and good trading,
Jeff Clark
P.S. If you think the worst is over based on the market this past week, I think you’re in for a surprise.
I believe we’re headed for an “aftershock” from the COVID-19 crash, which will take the market even lower than what we saw in March. Those who aren’t prepared could lose everything.
But as a trader, you don’t need to worry. As scary as it seems, with the right mindset and guidance, there are massive profits to be made in this environment.
It’s what I know best. And, I use a specific system to capture gains no matter where the market heads. I recorded a special presentation with all the details, but don’t wait – it’s only available for the next couple days. Click right here to watch it.
Reader Mailbag
Jeff Clark Trader subscribers Brad and Jeff share how they made a profit from recent trade recommendations…
Hey Jeff, I recorded a profit on each of the SMH and the XLK puts you recommended within three trading days. I made a profit trading while using your technical analysis support and resistance levels on the S&P this week, while also using triple ETFs. Thank you so much for all your hard work.
– Brad
I was able to get in on the recent XLF call and was able to sell it in a couple of weeks for a 100% gain. Also, I was able to get in on the recent XLK put and sell it for a 59% gain. All recommendations from Jeff Clark, I appreciate it!
– Jeff
And Al gives us his thoughts on bitcoin from last Monday’s Market Minute…
Jeff, yes, I am bullish on bitcoin (BTC) – very. But having said that, I have to say that I’ve noticed this year that BTC has led the market down several times. If that’s true and holds true now, then given what stock markets look like, the pennant is more likely to break down than up.
We may get one more bottom before the wild blowoff stock market top. During that time, the rise in BTC should be spectacular.
– Al
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].