One and Done

After yesterdays 'swoon', prices are in recovery mode this morning.   Let's face it though, despite some of the nasty pull backs in tech it wasn't a miserable crash or the long awaited correction.  It was just another instance of luring in the bears yet again, before the market heads to new highs.

After yesterdays 'blood bath' saw the S&P500 and DJIA  close almost even on the day this  market is still executing the plot from the very same book.

Four months ago I was talking about the market after it had collapsed the previous day.

Friday Focus: One and Done


We know how that ended.... record highs.  Downside just isnt what it used to be......

I have the text from that May post below.

Let's look how the overall market is faring amid the recent retreat from record highs.

Tech clearly is weaker than the rest.  It broke trendline support yesterday, also momentum has turned south.  But don't count it out just yet.

We have financials strong, and ready to possibly break into uncharted territory.  $JPM just got a downgrade this morning.  But I think $JPM is headed for triple digits in the short to medium term and financials are going to break to new all time highs.  This will help lift the rest of the market, including tech, to another set of highs.

Small caps are also on the cusp of a breakout.  $IWM painted a brand new all time high and looks poised for another one of those strong rallies:

and finally the S&P500:

Price action has slowed for the $SPY.  Despite yesterdays decline it rests 1% from new record highs.

I don't think the move from the 2009 lows is over yet, and the recent sideways action and muted volatility is just consolidation.   A prelude to the rally to come.

Downside remains contained, short lived, and great buying opportunities.  The Corporate share buyback machines don't care what's going on in Korea, or anywhere else for that matter.      And that is just one of the reasons why downside action is usually one day and done.

Here is what I wrote over four months ago:

The stock market's continuous climb to record highs has not come without moves to the downside.   Wednesday's 1.5%+ slide is just another big red candle among a host of thousands of candles when placed side by side represent a historic bull market after the financial crisis bottom in 2009.  Downside happens.

However upside has occurred far more frequently over the same time span.

And the last two years in particular the downside market moves have come even less frequently.    This week on Tuesday we hit record highs, and one day later the market is in a free fall.

Just like that.  Those trading for downside every day for the last few months were finally right.  But then yesterday, one day later, the market reverses course and heads higher.  The downside sees zero follow though.

And that is what makes trading for that inevitable pull back nearly impossible.  And even if you do get the timing of it right, there is no continuation.   All those bearish blogs and tweets you read on a daily basis  can be informative, but they are terrible at telling you where the market is headed.

Bear markets rock.  I'll be more than happy trading for downside when the time comes.  2008 and 2009 two of the best years to be trading options.  Downside action had a purpose.  It wasn't to reset oversold conditions, or sober up the bulls.  It was hedge funds liquidating.  It was margin calls. ... not the orderly pull back we saw on Wednesday.

One and done is the downside action these days.   Until that changes it makes little sense to trade for something that  doesn't happen too often.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

More Posts by UPB: View All | Private Twitter Feed: Access Now! (For Diamond Members)

Leave a Reply