It ended up being a 6 day pullback. A tempest in a teapot. Starting from Friday April 4, and ending Friday April 11. We got a little dip last Monday and Tuesday, only to ramp higher off V bottoms intraday. The seasonal weakness ahead of the tax deadline is over. It should be free sailing till the end of the month, and stocks should grind higher, but at a slow place. I don't expect anything like what we saw after the February bottom.
I jumped the gun on the bonds. The strength in bonds was not inherently from within itself, but from outside sources, such as Ukraine and a dropping stock market. As soon as those 2 things were ameliorated, Treasuries took a big hit. I am staying away for now, but will be interested in getting long if we get to 2.9% 10 year yields.
I will not be very active this week. The market has slowed down considerably, and I don't want to waste mental capital fighting for scraps in this low volatility period. While still observing the market action every day, the plan is to mostly keep hands off the trigger and think about the big picture. There should be a good short chance in the beginning of May. In the meantime, just watch and wait.
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Hi MO, during this mini storm as you described, I was frozen, i.e. doing nothing and thinking this is a drawdown that will recover soon. In the next market crash, I can imagine myself being frozen after being conditioned with dip buying for several years.
Could you share your experience how to differentiate real crash from dip buying? FYI, I started trading post 2008 crash.
Or instead of merely holding a core short position, the practical way is to trade around a core short position?
Thx.
I have been through a couple of big bear markets. They didn't happen quickly. They happen AFTER a period of sideways choppy markets. You rarely get a top shaped like a mountain. It is more like a wiggly plateau at the top, followed by the sharper down moves.
Those are generalizations, as you cannot infer too much from a small sample size.
It comes down to basic principles of trading for me. First, the fundamentals have to support the move, i.e. for a short, the market has to be overvalued, overextended, and oversupplied. Second, there needs to be a catalyst for the move. It can be something that is known, but not considered seriously at the moment. For example, the credit bubble in China, or a coming recession. Third, for a short, you want to see sentiment that is complacent and unworried during the downtrend.
I only see one of the three right now, which is overvaluation. The bear catalyst in China will be delayed by probable upcoming pump priming and RRR cut by the PBOC. Crowd is not that complacent now and easily gets bearish on a 5% down move.
I have the rest of the week down, with a wild stick (hammer candlestick) save mid day on Friday. I will show you the pattern after close on Friday. There will be options that pay out 50Xs on Friday. I expect the Russell to take out last week's low with some ease.
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