{"id":19677,"date":"2022-05-02T07:30:32","date_gmt":"2022-05-02T11:30:32","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=19677"},"modified":"2022-05-02T07:30:32","modified_gmt":"2022-05-02T11:30:32","slug":"the-rubber-band-always-snaps-back","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/the-rubber-band-always-snaps-back\/","title":{"rendered":"The Rubber Band Always Snaps Back"},"content":{"rendered":"

No matter how far a rubber band stretches, it can always stretch farther. Extreme conditions can always get more extreme.<\/p>\n

For example, we entered last week looking for a bounce<\/a> in the stock market… <\/p>\n

Conditions were stretched to the downside… investor sentiment (a contrary indicator) was more bearish<\/a> than at any time since the COVID meltdown two years ago… the CBOE put\/call
\nratio<\/a> was at its highest level in a year – meaning folks were jumping over each other to buy put options<\/a>.<\/p>\n

And, since the stock market rarely rewards the popular trade, we figured the market was setting up for a rally.<\/p>\n

We were right, then wrong, then right again, and then wrong again…<\/p>\n

In other words, the market was all over the place last week – doing its best to frustrate both bullish<\/a> and bearish participants.<\/p>\n

By the time the closing bell rang on Friday, the S&P 500 was 140 points below where it had started the week.<\/p>\n

Various technical indicators had fallen to more oversold levels, and the proverbial rubber band had stretched even farther to the downside.<\/p>\n

Take a look at this updated chart of the CBOE put\/call ratio…<\/p>\n

\"\"<\/p>\n

(Click here to expand image)<\/a><\/p>\n

This ratio is higher today than it was when we looked at it last week.<\/p>\n

That’s also true of the Volatility Index (VIX)<\/a>, which closed above its upper Bollinger Band<\/a> again on Friday. Take a look…<\/p>\n

\"\"<\/p>\n

(Click here to expand image)<\/a><\/p>\n

The VIX will generate a new, broad stock market buy signal when it closes back inside its Bollinger Bands. That could happen as soon as today (blue arrow).<\/p>\n

The S&P gained over 400 points in three weeks following the last buy signal in early March.<\/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

And the American Association of Individual Investors (AAII) reported the percentage of survey respondents looking for a rally in stocks over the next six months had fallen to 16%. The number of bearish respondents reached 59%.<\/p>\n

That’s the biggest and most bearish spread in the AAII survey since March 2009 (at the depths of the Global Financial Crisis).<\/p>\n

In other words, as stretched to the downside as the stock market’s rubber band was last week, it’s even more stretched today. That’s a reminder that oversold conditions can always get more oversold.<\/p>\n

But, in the entire history of the stock market, the rubber band has never broken. Instead, it has always snapped back.<\/p>\n

Last week’s overstretched conditions didn’t lead to a sustainable rally, but they did lead to a snap-back bounce last Thursday.<\/p>\n

Today, conditions are even more overstretched. So, I’ll repeat what I wrote last Monday…<\/p>\n

It seems like the market is near the end of this decline phase. Traders should be buying into any weakness early this week.<\/p>\n

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

<\/p>\n

Jeff Clark<\/p>\n

Reader Mailbag<\/strong><\/h2>\n

How have you profited from the recent volatility in the markets using options?<\/p>\n

Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

The market is all over the place…<\/p>\n","protected":false},"author":25,"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-19677","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-jeff-clark"],"acf":[],"ai_tts_audio_outdated":false,"ai_tts_legacy_post":false,"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/19677","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\/25"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=19677"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/19677\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=19677"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=19677"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=19677"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=19677"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=19677"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=19677"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=19677"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}