The Talking Heads Can’t Make Up Their Mind

The talking heads have flip-flopped again.

Last week, just about all the folks spouting opinions on financial television were bearish.

It was the usual chatter:

The market was falling. It’s October, a month that’s known to be difficult for stocks. Earnings season was expected to be weak.

So the talking heads told us to sell.

There were exceptions, of course. A few analysts dared to suggest the stock market was starting to look attractive. Those analysts were promptly mocked and ridiculed.

“SELL,” everyone said as the S&P 500 fell as low as 4219 last Friday morning.

Yesterday, the index approached 4400. And the talking heads are now telling us to buy.

They were quick to change the narrative:

We’re in the timeframe for a seasonal, year-end rally. The earnings season looks better than first thought. The Fed is done raising rates.

So, the talking heads all shout “BUY,” as the market trades 4% higher than when they told us to sell.

Of course, there’s nothing wrong with changing your mind. When the facts change, our opinions should change as well.

But these talking heads seem to have forgotten the most important, and simplest rule of investing in stocks: “Buy low and sell high.”

As traders, we can expand that rule to read, “Buy into oversold conditions and sell into overbought conditions.”

So, last Thursday as the stock market was hitting new lows for its decline phase – and as the talking heads were advising to sell – we suggested traders should fight their emotions and buy into the oversold conditions.

However, on Tuesday we warned that the first bounce off the lows would probably be short-lived.

Maybe now, as the talking heads have flip-flopped and are advising to buy stocks, it’s a good time for short-term traders to sell.

Take a look at this updated chart of the S&P 500…

The S&P 500 has run up toward its 50-day moving average (MA) line near 4400. This is an obvious resistance level. The index is unlikely to break through that resistance on the first attempt.

So, you can expect some sort of pullback here.

Traders who bought stocks last week in anticipation of a short-term bounce should consider taking profits right here, as the S&P runs toward its 50-day MA.

And traders looking to put money to work in anticipation of a year-end rally should buy into any decline toward last week’s lows.

You’ll know when we get there because the talking heads will likely be telling you to sell.

Best regards and good trading,

Jeff Clark

Do you follow the talking heads?

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