Read this before you buy another stock
Crux note: Yesterday, the S&P 500 rallied more than 1.5%. But Stansberry’s resident technical analysis and trading expert Jeff Clark told his readers to temper their expectations going forward. He shared this timely note with his subscribers yesterday, but his insight is still valuable if you’re thinking of adding to your portfolio after today’s dip…
From Jeff Clark, Editor, Stansberry Short Report:
Take note of your emotions right now… Because, this is what a bear market rally feels like. And, we’ll probably see a lot of them this year.
To profit off of bear market rallies, you have to be willing to buy when conditions get oversold – like we saw last Thursday. It’s tough to do, because it usually happens at a time when the market looks like it’s going to fall off a cliff, and when everybody else you know is talking about shorting stocks.
But, if you don’t buy in anticipation of an oversold rally, the bear is not likely to let you in easily. The market usually gaps higher (like it did on Friday), leaving everyone in the dust.
The initial move is usually quite strong. Indeed, almost all of the largest, single day gains in the market have occurred during bear markets.
As conditions move from oversold to overbought – that’s when you want to start taking profits. This will be easy. You’ve made money while most other traders missed the boat. And, you’ll happily take the gains off the table.
And, the market will continue higher. That’s when your emotions will cause a problem.
You’ll kick yourself for not holding out for even larger gains. You’ll start listening to other traders who, having missed the chance to buy at the bottom and having been buried on their short trades, are now proclaiming the correction is over and it’s time to buy. And, you’ll start chasing stocks that have already popped 10-15% higher in just a few days.
That’s usually just about when the bounce ends and the bear makes another appearance.
We are approaching that point right now.
The S&P 500 is now up more than 6% in just three trading days. All the TV talking heads who were so overwhelmingly depressed last Thursday are now giddy with excitement.
As I mentioned earlier, if this rally holds up into the close, then the daily technical indicators will be extremely overbought. That’s a dangerous setup in a bear market.
It certainly “feels” uncomfortable to not have any more long side trades to profit off a continued bounce. And, it “feels” uncomfortable to be adding short scalp trades.
That is, however, how it always feels nearing the end of a bear market rally.
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