Date: 5/24/2022
Author: Chris Hood
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Last week I wrote about the dire outlook on the market for the foreseeable future.
But after the sharp rally yesterday, I can hear all the doubters.
“This Chris guy has no idea what he’s talking about. I’m going long to ride the rebound to the moon!”
If you have long positions on SPY or QQQ, they did likely recover a bit. And it’s just this kind of “head fake” rally that suckers many in only to wipe them out.
Let me explain.
On the daily, weekly, and monthly charts, SPY and QQQ are trending down.
Open up your trading platform charts and see for yourself.
We’re below the 50, 100, and 200 MAs on the daily. We’ve lost the support of the 50 and 100 MAs on the weekly. And we’re even below the 21 MA on the MONTHLY chart.
That, my friends, is about as bearish as it gets.
As far as the indexes go, the only sector getting any institutional support seems to be energy (XLE). And though healthcare (XLV) and communications (XLC) are showing signs of life, it’s a bit too early for any sizable long positions.
Big money is moving into energy, cash, and commodities.
I’m not a fundamentalist; I just trade the charts.
However, if you MUST have a reason for the market downtrend, there are enough problems in the world right now that you can pick your favorites.
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Is it the war in Ukraine or the supply chain problems?
Or maybe it’s the rampant inflation from the Fed’s misguided quantitative easing policies, rising interest rates, continued COVID lockdowns, or the emerging monkeypox virus.
I don’t know, and quite honestly, it doesn’t matter.
I trade the charts and use my tools. So if any of you can show me anything bullish about SPY right now, I’d love to know about it.
Will there be up days and rallies during a bear market?
Absolutely.
Equities never move in a straight line, up or down.
This means it’s possible to short a rising market, taking advantage of pullbacks for quick trades. Though that’s not my favorite way to trade, but some are excellent at it.
Similarly, you can trade bullishly as the market falls by adjusting your time frames.
My subscribers and I have been doing quite well recently using rapid, non-standard time frame charts such as 35 and 65 min.
But if you aren’t trading on shorter time frames, a single daily candle isn’t very helpful.
For those holding calls with 90+ days until expiration, a single green daily candle means nothing in a daily, weekly, and monthly downtrend.
Remember the movie Titanic?
People adding long-dated bullish trades are using some insane logic. It’s like calmly listening to violinist William Hartley and his band play beautiful hymns as the vessel goes down.
It’s not the time to sit back and enjoy the music.
GET YOUR ASS ON THE LIFE RAFT NOW.
If you missed last Thursday’s article, please read it.
I care about you and your money. Please don’t make rookie mistakes and lose it all. Seeing traders throw away hard-earned capital makes me sick to my stomach.
Now for the disclaimer.
I can’t predict the future – no one can. There’s no crystal ball for market direction.
It’s entirely possible for the market could reverse, but strong trends almost never make an about face overnight.
When the market reverses, your indicators should give you ample warning. This is why having exit triggers is essential for any trade.
But I cannot imagine any skilled trader finding something to be bullish about on SPY over the next couple of weeks. It just isn’t there.
Just remember, we’re in a bear market right now. So focus on the short side.
Unless you’re day trading, you need to be a bear to survive.
So get out there and do bearish things.
Cheers,
Chris Hood
PS – I know many of you out there are panicking over the market. Most new traders have never seen a bear market. Hop on board with our AlphaHunters and let me show you how to stay safe and make money no matter what the market does. Click here to find out more.
