Five minutes into the trading day on Monday, it was obvious my trading plan for the week wasn’t going to play out.
I was looking for the S&P 500 to rally up towards the 2800 level earlier this week, and I was planning to use that rally as an opportunity to establish short positions in anticipation of a move back down towards the February lows.
We didn’t get that rally. Instead, stocks gapped lower and they continued to decline throughout the session. By the end of the day, the S&P 500 had lost 40 points. And my trading plan for the week was rendered useless.
But… and this is the critical point for traders to understand… the adverse move didn’t cost us any money. At least, it shouldn’t have.
I was looking to short stocks as the S&P approached 2800. But it didn’t happen. So, there was no trade.
But I heard from a couple of readers who were angry because they lost money as a result of Monday’s essay. Apparently, they bought stocks early on Monday in anticipation of the S&P 500 rallying towards 2800.
Of course, nowhere in Monday’s essay did I even suggest, let alone recommend, buying stocks in anticipation of a rally. My plan was to short stocks on a rally – which did not happen. But, in this current environment – where the S&P 500 can move as much as 45 points in a day – lots of folks feel a compelling urge to try to capitalize on every move. So they interpreted my comments as a reason to take a bullish position.
I’m telling you this as respectfully and as humbly as I possibly can, but also with absolute, 100% confidence… If you try to trade every move in the market, you will eventually go broke.
Successful trading involves waiting for the odds of a trade to be in your favor before you take it. For me, in general that means waiting for the S&P 500 to hit support or resistance levels and for the technical indicators I follow to be in oversold or overbought condition when that happens.
On Friday, the S&P 500 closed at 2752 – right on the support of its 50-day moving average, 9-day exponential moving average, and the support line of the rising wedge pattern.
But most of the technical indicators I follow were in neutral territory. So, while I suspected the market might bounce off of support, I wasn’t going to bet on that outcome since – without oversold conditions – the odds of a bounce were about even.
The S&P 500 closed at 2712 yesterday. That’s down 40 points for the week – which is a loss of 1.5%. If you bet on a rally, then yes, you lost money. And if you used options to bet on a drop, then you probably lost money too, since the decline hasn’t been enough to overcome the time decay of the past four days.
So, the market is doing exactly what it does best. It is frustrating the heck out of most of its participants.
I get emails every day from folks asking, “Why aren’t you recommending more trades in this volatile environment?”
Keep in mind – I’m getting these emails even though we’re only 12 weeks into 2018 and I’ve already made 20 trade recommendations. And the vast majority of those trades (83%) have been profitable.
But I get it. When the market is moving all over the place, folks feel like they’re missing out on profits if they’re not trading every move.
The truth is… by not trading every possible move, you’re likely saving yourself from losses.
The only way I know for sure how to profit on the broad stock market in volatile times is to wait to buy the S&P as it tests support while the technical conditions are oversold, or wait to sell the S&P as it hits resistance and the technical conditions are overbought.
It doesn’t happen often – maybe only once or twice each month. But those conditions almost always present a profitable trading opportunity.
Best regards and good trading,
Jeff Clark
Reader Mailbag
Things have really ratcheted up in the mailbag this week. And considering the previous volume, we didn’t even think that was possible…
Jeff, I think you are doing a great job, please keep up all your great work! You are honest and you care about people, no one can ask for more than that! Thank you so much for all your help in understanding markets, you are great.
– Dina
I’ve been reading your articles for so many years. Doesn’t matter where you move to. Thank you.
– Sukhdev
Jeff, I’ve been reading your daily Market Minute for a few months, and I have been impressed. Frankly, you seem to be really good. An excellent trader. I’m strongly considering signing up for your Delta Report. Where would you think gold will be, say, by the end of the year? Could you give us your best guess? Approximately? Thanks.
– William
This is a pattern you probably have noticed, at least for this year, other than Feb 2, every Friday has been an UP day. I speculate that feds watch the stock markets from Monday to Thursday, knowing many folks use weekly closing price for their TA. On Friday, when there’s no Treasury auction, feds deposit money into primary dealers’ account and instruct them to buy stocks. Except for 2 weeks ago, that maneuver manages to push S&P 500 over 50-day moving average on almost all Fridays so far.
– Stephen
Hi Jeff. I was a subscriber when you were at your previous publisher, and was disappointed when you left. When I came across your Delta Direct in November of 2017, I immediately signed on for life. My success rate with your recommendations is 13 of 14 in less than 4 months. With an average outlay of about $6,000 on stock trades and about $500 on each options trade, I’ve recouped half my lifetime membership cost. I so look forward to having you on my side when the bull market ends. Thanks.
– John
Just a quick note to let you know how much I appreciate what you do and how much I’ve learned from you over the past few years. I was already familiar with technical analysis when I subscribed to your service. However, you have helped me to take that analysis to the next level and I feel much more confident in my market and stock analysis as a result.
I have decided not to renew my subscription as I cannot justify any additional capital expenditures for trading services. I cannot keep up with my current subscriptions as there is just too much material for me to read in a timely fashion. Thank you for all that you’ve taught me and I wish you the best in all of your future endeavors.
– Mark
Hi Jeff, I’ve been a subscriber since you were with your previous publisher and find your service exactly what I was looking for as an addendum to my investment needs. Having grown up in a free market (Capitalist) system, I prefer the way your advice is dispensed; that is, in a manner which offers your best advice supported by appropriate rationale so that “I” can decide whether or not to pursue a particular recommendation.
I would guess that some of your subscribers are younger well-heeled and well-educated people which are somewhat impatient and ready for their gratification – right now!
You’ve done an excellent job of laying out your track record with appropriate illumination of the annualized ROI. It’s up to me to decide whether or not I want to follow your advice which is exactly what I subscribed for. Even like the “Snowflakes,” I’m a little impatient in that at my age (76), I have less time to accumulate my fortunes than youngsters do and your trading vehicle provides me that opportunity with reasonable and measured risk exposure. Keep on keeping on.
P.S. I like that you’re practicing good father principles by bringing your kids on board with you.
– Carl
And some continued thoughts on last week’s response piece, “This Comment Hit Me Hard”…
You took it well! Salute!
– Jean
Jeff, I have been an enthusiastic subscriber for years. I just don’t have time during the day to follow the trends, stats, and nuances, so I value your advice. My finance profs at MIT in the early ‘80s included Fischer Black and Robert Merton. But alas, my education falls way short of your real-world experience. So I value what you say.
That said, I have a suggestion: don’t publish the complainers. If you do it publicly, it has the net appearance of being overly sensitive and detracts from the strength of your record. A quarterly piece on your trades is all you need. If we aren’t following your advice, shame on us. That’s all you need to say.
For those knuckleheads that think anyone is able to win 100% of the time, they aren’t worth the time to read their complaints. I would suggest that you send their money back. And publish another round of actual results to the folks that stick with you. You don’t need the noise.
The latest rant from Mark shows that he doesn’t understand the nature of the markets and what value you bring. But hearing your rejoinder makes me feel that you may not be sure of yourself, or that you want the last word, neither of which dignifies your talent. Hang in there, us sensible investors respect what you do and honor your efforts.
– Gary
On the one hand you frequently say you “love” getting negative feedback. On the other hand, every time someone shares their frustration, you ridicule them, and include selected letters from your “mailbag” shilling for your service, and calling people “uneducated” that haven’t profited in lines with your claim.
For example: today your mailbag includes a reader stating: “Some are too uneducated about trading in general to recognize sound advice.” And another writes in: “Tell Mark to put HIS money where his MOUTH is and increase his LOT size.” Sounds like the guy recommending bigger position size doesn’t understand bigger position is not a way to change loss into gain.
Less shill, and more reality check, might increase your overall credibility, if credibility is important to you.
– Alan
Good morning Jeff, Just a quick note to let you that when I first read the complaint it seemed clear to me there was more than complaining going on. I liked your response, I thought it was very fair. Fairness in this corrupted-on-nearly-every-front world of today we live in is a real breath of fresh, pristine mountain air.
Your writing has been on my radar screen for close to a year now and when I can afford your subscription and afford to take full advantage of it I will do so as one part of a non-job income-producing strategy I’m slowly putting together. I for one honestly do appreciate at a real level the thought, care, and honesty you put into your work. Keep staying true to the truth.
– David
Thank to everyone for sending in your thoughts, questions, and stories. As always, keep them coming right here.
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Last Night’s Crypto Q&A
Did you catch last night’s live Q&A with cryptocurrency expert Teeka Tiwari?
He answered readers’ burning questions about what’s next for this new asset class… what regulations mean for the space… and the best ways to take advantage of the recent correction.
If you missed it, don’t worry. Teeka’s agreed to keep a replay of the Q&A online for a short time. So be sure to watch it right here before it goes offline.