Here’s Why Most Folks Struggle to Make Money in the Market

No doubt about it… Yesterday’s stock market action was UGLY.

But, it is also quite constructive for establishing a bottom for this decline phase. Here’s an updated chart of the S&P500, as of mid-day yesterday…

On Tuesday, I mentioned that failed NYSI buy signals often lead to more selling pressure.

But, they also lead to more significant buying opportunities, and a second NYSI buy signal.

Often, within one month of a failed buy signal, the market is higher. And, the largest profits are earned by those folks who buy into the decline PRIOR to the second buy signal.

Yesterday, we saw that “more selling pressure.” And, it looks to me like the action is creating a more significant buying opportunity.

The Makings for a Bottom

The S&P 500 is approaching the 5400 support level. It has made a lower low for this decline phase. But, the momentum indicators at the bottom of the chart are holding above their March lows. This “positive divergence” is an early warning sign of an impending reversal.

The VIX options are also suggesting a lower VIX is more probable in the days ahead than a higher VIX. VIX put options expiring next Wednesday, and the following week, are significantly more expensive than the equivalent call options.

This condition often foreshadows a lower VIX in the days ahead. And, a lower VIX usually goes along with a higher stock market.

So, we have the makings for a bottom.

The closer we get to 5400, the better the risk/reward setup for bullish trades.

Yes… it takes a great deal of intestinal fortitude to buy stocks into a rapidly declining market. Everyone else is panicking. So, the natural instinct is to panic along with them.

That’s also why most folks struggle to make money in the stock market.

Traders who have been waiting for a decent pullback in order to put money to work now have a chance to do so.

The stock market will likely be higher in the weeks ahead.

Best regards and good trading,

Jeff Clark
Editor, Market Minute