“Nice trade Jeff,” a subscriber wrote to me yesterday. “But even you have to admit you got lucky on this one.”
The subscriber was referring to a trade I recommended on Friday to Delta Report subscribers [members can catch up right here]. We bought put options on the semiconductor sector on Friday morning.
We closed the position yesterday for a 73% gain.
And yes, I admit, there was some luck involved. That’s true of any trade anyone makes.
Think about it… if being right or wrong are the only two outcomes, then every decision is basically a 50/50 proposition. Luck has to play some role.
But, being a successful trader has less to do with being right or wrong, and more to do with understanding the probability of an outcome. Let me explain…
The stock market has enjoyed a stunning bounce over the past month. The S&P 500 rallied from about 2200 on March 23 to nearly 2875 last Friday. That’s a remarkable gain. It was enough to convince a lot of analysts that the bull market was back, and the market was headed to new all-time highs.
I have a less optimistic view.
But, who knows? Maybe they’re right. Maybe I am. No one knows for sure.
But, I do know probability. And, on Friday the probability of further gains was low. The probability of, at least, a short-term pullback in the stock market was high.
The S&P 500 closed Friday at 2875. That was right on the 20-month exponential moving average (EMA) we figured would be the upside target of any oversold bounce. That was an obvious resistance level. And, the index was not likely to bust through that resistance on the first attempt.
2875 was also the spot of the 50-day moving average (MA – the blue line) on the daily chart of the S&P 500. Here’s that chart…
Here again, the 50-day MA on the daily chart is at an obvious resistance level. The S&P 500 wasn’t likely to just run right through it on the first attempt.
Add to this setup all the overbought conditions we looked at last week – like the bullish percent index at a ten-year high, with the McClellan Oscillators in extremely overbought territory – and you have a situation that offers a high probability for at least a short-term pullback in the market.
So, on Friday, I recommended a put option trade to subscribers. And, sure, we “got lucky.”
As I wrote earlier, no one knows for sure what the market will do tomorrow, or next week, or next month. So, there’s a little bit of luck involved with all of our decisions.
But, if you understand probability, you can avoid the temptation to buy stocks in an overbought market that’s bumping into resistance. And, you can profit on the downside instead.
We’ll likely have lots of chances to do that in the months ahead.
Best regards and good trading,
Jeff Clark
P.S. For the past few weeks, I’ve been warning about the third phase of the bear market… and how it’s not going to be pretty. The “aftershock” that’s coming could take us much lower than the dip we saw in March.
And based on the trading action so far this week, I believe we’re already seeing signs that the aftershock is here.
But for traders, there will be many opportunities to trade as this all plays out… You just need the right guidance to place winning trades in such an uncertain environment.
Trading market crashes is my specialty. And, I use a specific method to capture gains no matter which way the market heads. To learn more, watch my brand-new presentation on the subject for all the details.
Reader Mailbag
In today’s mailbag, subscribers Savio, Randy, and Steve share their appreciation…
Hi Jeff, I’m one of your Dubai-based subscribers, and every day I wait around until midnight for your updates… you have been my guide. Along with you, I have made more winners than losers. You are a true-hearted man. You make a call only when 99% of the dots connect… Please keep up the super quality.
I hope your lovely family and pets are finding quality time, too. I read your morning update today… I’m with all that you do, Jeff. I hope this heartfelt message gets to you.
– Savio
I just want to say how much I love the examples of Jeff Clark Trader for options trading. I already got approved for level two options. The training videos (members can access them here) are very easy to follow.
– Randy
Excellent stuff Jeff. Fairly easy to understand.
– Steve
A Jeff Clark Trader subscriber shares his opinion from last week’s Market Minute feedback…
Hi Jeff, in a recent feedback section, one of your readers shared the following:
“I’m not sure this is a free market any longer, but a managed and regulated market. The market’s not free to respond in a normal fashion the way it once did. I think it’s a very dangerous thing that’s happening. I suspect the Fed is buying the market and keeping it propped up to give us the illusion that all is well, and have people keep their money in the market…”
I share this reader’s notion. My suspicions piqued back in March during the Friday afternoon briefing in the Rose Garden, where 45 timed his remarks to begin 15-minutes prior to market close. By the end of the briefing, the market soared, closing up 10% or so. Exceedingly proud of his influence, President Trump sent his chum Lou Dobb’s a signed chart of the record day.
Yes, there was some short covering that contributed to the parabolic move. But it all felt so orchestrated. The feds weren’t in there buying equities but, in my opinion, they provided the liquidity to make the move possible. And they let the key participants know, signaling a very clear green light that it was time to buy, buy, buy! What are your thoughts? I think readers would like to get your take, so please delve into the topic.
Lastly, let me thank you for your recent market insights. Back in March, when the market was tanking, I was somewhat miffed by your lack of option plays. Now I get it. You work to identify the right risk-reward setups–ones where you’d put money to work–and they must not have been available. Your discipline in this turbulent market is commendable.
– Frank
And finally, subscribers Sam and Reiner share their thoughts on bitcoin in response to Jeff’s essay on Monday…
You are not taking any consideration, or at least any mention, of bitcoin’s upcoming halving this coming May 29th, or what the Saudi Arabian’s have done so far to the American oil businesses, which has already started to devalue the American dollar.
But, more importantly, the much harder-hitting crowned Prince Mohammed Ben Salman has claimed to be waging against the U.S. and the complete desolation of its oil companies. They intend to use their oil as a weapon to further cut the price of oil, while crippling the American economy even further in this post-Coronavirus setback, that has hit it so badly that the Saudi’s are taking full advantage of America’s vulnerability.
Behind the scenes, so many countries like Germany, and many major banks worldwide such as Deutsche Bank and HSBC, have already switched their major customer dealings into bitcoin. Now as the dollar has been falling in its value quite rapidly, gold would be a more secure investment that protects investors wealth.
But bitcoin is the only main digital form-like USD currency that can be traded and used for today’s business transactions, unlike gold, and let’s see what happens after May 20th. Furthermore, your comments and hesitation about bitcoin rebounding contradict the expert positive ideas and forecasts of Teeka Tiwari, the absolute top expert in bitcoin anywhere.
– Sam
Hi Jeff, I’m “bullish on bitcoin” – every time I make a trade, I immediately store my cash in my bitcoin trading account. Sometimes I have more for the next trade and very seldom have less… I find my bitcoin account very liquid and a good investment for “online” liquid holdings.
– Reiner
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].