{"id":18865,"date":"2021-08-26T07:30:09","date_gmt":"2021-08-26T11:30:09","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=18865"},"modified":"2021-08-26T07:30:09","modified_gmt":"2021-08-26T11:30:09","slug":"this-isnt-normal","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/this-isnt-normal\/","title":{"rendered":"This isn\u2019t Normal"},"content":{"rendered":"

The stock market has gone from “overbought” to “oversold” and back to “overbought” – all in about a week.<\/p>\n

What can we say? The “Buy the Dip” crowd did it again.<\/p>\n

As the stock market started to sell off last week, and many folks thought we were finally going to see the long-awaited and highly anticipated correction, the dip buyers stepped up at just the right time.<\/p>\n

And, as we’ve seen numerous times over the past year, the market formed a “V-shaped” recovery and bounced to new all-time highs.<\/p>\n

This isn’t normal…<\/p>\n

Prior to this past year, a V-shaped recovery in stocks was about as rare as a four-leaf clover. But, as we pointed out last month<\/a>, traders have become conditioned to buy any dip – no matter how mild.<\/p>\n

“Stocks only go up,” they cheer. And, they jump in with buy orders on any 1% or 2% pullback.<\/p>\n

Who can blame them? The strategy has worked quite well so far this year.<\/p>\n

But, like most popular strategies, there will come a time when it stops working.<\/p>\n

Folks will step up to buy the dip, and instead of seeing an immediate V-shaped bounce, stocks will keep falling… And then we’ll get a more significant correction.<\/p>\n

When will that happen? I have no idea.<\/p>\n\n\n\n
\n

Free Trading Resources<\/strong><\/p>\n

Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

But, the market does provide clues to let us know when the risk of a correction is rising. One of those clues is the value of the Volatility Index<\/a> (VIX) option prices.<\/p>\n

We’ve often written about the predictive power of VIX options. In fact, just before last week’s 90-point decline in the S&P 500, we warned that the market’s “crystal ball” had turned bearish<\/a>.<\/p>\n

By last Thursday, however, after the market had fallen and the VIX had spiked higher, VIX call<\/a> and put options<\/a> were trading for about the same premiums.<\/a> That was a good clue that the downside was limited, and the market was preparing to bounce off of oversold conditions.<\/p>\n

Now though, the “crystal ball” is flashing bearish<\/a> again. VIX call options expiring next Wednesday are trading for about five times the price of the equivalent put options. That’s also true of the VIX calls expiring in mid-September.<\/p>\n

Traders are willing to pay five<\/em> times more to bet on a higher VIX than on a lower one. And, a higher VIX usually goes along with a falling market.<\/p>\n

Add to this the negative divergence on the index charts, the short-term overbought conditions caused by the recent bounce, and the extremely bullish<\/a> sentiment of the dip buyers (a contrary indicator)… I suspect the next decline may be the one where the “buy the dip” strategy doesn’t pay off so well.<\/p>\n

Best regards and good trading,<\/p>\n

\"signature\"<\/p>\n

Jeff Clark<\/p>\n

<\/p>\n

Reader Mailbag<\/h2>\n

Have you been part of the crowd that\u2019s buying the dip? If so, are you prepared to change your strategy soon?<\/p>\n

Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com<\/a>.<\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Like most popular strategies, this will stop working…<\/p>\n","protected":false},"author":49,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[7],"newsletter-type":[],"ticker":[],"class_list":["post-18865","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-jeff-clark"],"acf":[],"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/18865","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/49"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=18865"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/18865\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=18865"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=18865"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=18865"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=18865"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=18865"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=18865"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=18865"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}