Good evening StockBandits!
It’s nice to be back from a week of vacation, thank you for all the nice emails you sent in response to my taking a break. We made some great family memories and I’m feeling refreshed and ready to attack this market again.
Speaking of the market, what a week it has been. Last week we saw the major averages break down in a big way, producing some significant damage on both a technical and a psychological basis. Key support levels were taken out, and the selling pressure since then has only accelerated.
The charts have nearly all deteriorated when it comes to individual stocks, with some of them now likely to need months to rebuild. Thursday’s 500-point rout grabbed the headlines, but today’s action was much the same as the DJIA got down 600 points before attempting to bounce late in the session. As I’ve noted many times before, Main Street is most familiar with that index, and the declines we’ve been seeing don’t inspire confidence.
There’s a sentiment element which can play a role in the short-term price action, and we’re certainly at a point where a big snapback rally wouldn’t surprise anyone. However, it won’t be for the faint of heart, because it’s likely to be of the flash-in-the-pan variety. That means it may not last long, and it could quite easily be followed by more selling.
Whether we take out today’s low remains to be seen, but I wouldn’t count out the possibility of this market creating a short-term, wide, low-level trading range in this area. We’ve seen tremendous damage to the downside, and the easy money for those on the short side has most likely been made on this particular move. At the same time, the buyers lack trust in this tape, which is to say that the upside could see only limited progress before the bears reload shorts. With that said, don’t count out plenty of ongoing volatility but some overall indecision in these next couple of weeks.
Today, even after the indexes were down between 5-7% intraday, we saw an afternoon bounce attempt fail to stick. It was followed by more selling pressure into the close, leaving the indexes at their lows of the day by the closing bell. With the market so deeply oversold here, many are looking for a bounce which still has yet to begin.
It could be that tomorrow’s FOMC meeting can deliver a reason for buying/short-covering for a quick relief bounce, but overall the trend remains sharply down and it’s going to take more than an oversold bounce (once we get it) to change that. Stated otherwise, even though this market may put together a bounce, continued caution is still very much warranted after the technical and psychological damage we’ve seen in the past couple of weeks.
I’ll cover my game plan for tomorrow in the video, and as always, feel free to share your own thoughts, trade ideas, and questions down below in the comments section.
Here is tonight’s video:
The Bandit Broadcast Video – Click to Watch!
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Video Stocks Discussed: SPY, QQQ, IWM
Swing Trading Candidates:
NONE TONIGHT – 100% Cash (and happy about it)
The Hit List is a separate post which contains discussion on open positions and swing trade stops and targets, so be sure to check it for further details on swing trades.
I would only note, as I often have, that on a large down like this, particular after the last couple of weeks, we can expect selling due to Margin Calls. That can make for a roller coaster.
Welcome back. Your stomach is probably the better for not having traded, but YOU probably would have done very well.
Hey Jon, thanks! It’s good to be back, and there has been zero acid reflux for me of late, which some cannot say after this tank-fest! No idea if I’d have done well or not, it’s been a real mess no doubt about it.
You bring forth an excellent point (again) regarding margin calls. Few would want to sell after a decline of this magnitude, but forced liquidations are definitely taking place right now, causing those on margin with positions deep underwater to add to the weakness. That’s one reason selloffs can sometimes carry much farther and become more stretched than market rallies.