The financial world looks a whole lot different today than it did Monday morning.
By mid-day yesterday the S&P 500 was up 250 points so far this week. That’s a 10% move! In two days!
But, it’s just a bear market rally.
Remember… the purpose of a bear market rally is to inflict pain on traders who got too aggressive with short positions, and to coax die-hard bulls back into the market just in time for the bear to take another swipe at them.
On Monday, I suggested an oversold bounce could propel the S&P 500 back up into the 2770–3010 range. Well… we got within spitting distance of that range yesterday.
Most technical conditions aren’t quite yet in “extremely overbought” territory. So, the market may still have some room to run higher. But, traders should think twice before chasing this move. The downside risk now outweighs the potential upside reward.
It was a different story on Monday morning. But that was two days and 250 S&P 500 points ago. Now, the market is nearing our upside target range. And, there’s this potential warning sign from the Volatility Index (VIX)…
The VIX closed yesterday just above its lower Bollinger Band (BB – the solid blue line). Just a small decline from here and the VIX will close below its lower BB, thereby setting the stage for a broad stock market sell signal when the VIX closes back inside the bands.
We’re still two or three days away from that happening. So, as I wrote earlier, there’s still room for the market to move even higher.
But the risk is increasing.
The “oversold bounce” phase of this bear market is unfolding a lot faster than I expected it to. I thought it might take at least a few weeks for the market to recover half the losses from the panic decline stage. Instead, it looks like the S&P will reach our target this week.
Best regards and good trading,
P.S. With the markets making regular moves of 3%-plus in either direction, a lot of investors and traders are at a loss on how to react. Many haven’t even been in this type of market before…
So, starting this Monday, I’m kicking off my brand-new Crash Course for members of Jeff Clark Alliance. In 10 live, weekly training sessions before market open, I’ll share the biggest trading ideas on my radar… give some lessons on technical analysis… and field questions from folks watching the livestream.
If you’re interested in taking my Crash Course, but aren’t yet an Alliance member, don’t worry. I insisted that we include a 3-week “trial period” for members of all my paid services.
And if you’re not a member of any paid service, the easiest way to access the course is with my options advisory, Jeff Clark Trader, at just $19 per year. And, it comes with a ton of training resources and monthly options recommendations.
This is an exciting time if you have the right tools and guidance. Click here to learn more about a Jeff Clark Trader subscription, and get involved.
Today in the mailbag, we hear from several subscribers in response to Jeff’s essay on “illusions” from last Wednesday…
This is probably one of the most valuable pieces I’ve read in a long time. A lot of pieces fit into the puzzle while reading it. And it doesn’t just apply to traders and investors. It would include, among others, fans of George Orwell’s work. And the timing! It’s just how they do things.
First, introduce a plan they want to make permanent. You know, the laughter and ridicule phase (thank you, Bernie!). Then people talk more and more about it. Then it becomes the way things are done. Like income tax, for example…
Who are ‘they’ who benefit from it? The people hungry for power. The pigs on the farm. Big Brother. The ones who would reap what others have sown. Of course, one must wonder about your timing. Was this an April Fool’s Day prank? Thank you for having the courage to state your thoughts right out there where a lot of people would read it.
Hi Jeff, first off, I want to thank you for your insightful analysis and your use of charts to
try to explain current (and past) market fluctuations. And then using these to explain to your readers how you make your decisions to trade or not trade an option/stock. It has taught me a lot about how to be a better trader. One of the hardest lessons to learn is risk vs. reward.
As far as the current situation, I’ve believed something else has been going on for a while now. I’ve worked in the health sector for 37+ years and have never seen the government respond in this way to any of the previous health challenges our nation has faced. The numbers cited currently just don’t add up.
I have a chart from the CDC that shows the past eight years of influenza in the US. Look at the cases and deaths each year. NOTHING was done during any of these to force social distancing, stay home from jobs, etc. Please do not infer that I don’t care about any of the lives lost… But bacteria and viruses have been part of mankind for millennia.
That’s not going to change. We have persevered and strengthened our immunities as a result. So, I agree with you, WHAT IS REALLY GOING ON?
We also received a few comments on Jeff’s grandfather’s advice from last Friday…
Hi Jeff, thank you for sharing your poignant memories of your grandfather’s wisdom, and passed on to your sons, at this critical time. Your memories brought tears to my eyes as they reminded me of my own father’s similar perspective about self-reliance, humility, and honest work.
Perhaps this awful, global pandemic was necessary. It’s teaching us all that for life on Earth to thrive, the world must stop the relentless and mindless activity on all levels, giving us all the opportunity to recognize that careless self-centeredness will only lead the world to ruin… And that we need to reconnect with humane, eternal principles based on care, solidarity, family values, and personal responsibility.
Hi Jeff, I wanted to thank you for another wonderful story today. I certainly appreciate the technical analysis you do so well, but the stories you write about your family are terrific.
Whether it’s about your grandfather, the family in Italy a few years ago, your son being worried about you, or your interactions with your mom regarding the gold market, your family tales are absolutely your best. Please keep them coming!
Is it strange that the stock market went up when the unemployment report today says 6.6 million new jobless claims? This wasn’t already priced into the market, was it?
Hi Jeff, I am SO thankful for you and the knowledge you share with us every morning. I have been trying to trade for years, and now that I NEED to trade for a living, I am grateful that you have imparted knowledge and tools to those who follow you, to be able to navigate these crazy times.
I so appreciate your sense of humor and keeping it real every day. Thank you for your faithfulness to
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].