April was a big bad month for many investors. Free stock trading doesn’t feel free when one is on the wrong side of a train wreck market. Momentum begets momentum until it doesn’t. Given multiple indications, we may get a countertrend move at this point in this bear market. The sentiment is lopsided, too bearish, and argues for a continued bounce of 3-5% more in the S&P 500, maybe more, before further price deterioration. Remember, short-covering rallies can move swiftly and violently to the upside in bear markets and dissipate just as swiftly. It is not unusual to see the poorest relative strength plays move the most percentage-wise to the upside in a short-covering rally.
This week we saw a two-day meeting of the FOMC and a rate decision, and more discussions of the portfolio runoff. In our decades in the business, we have noted that the fixed income market moves ahead of the Fed. Recently, it has been doing just that. Once the FOMC is out of the way, the focus usually shifts to the next thing on traders’ and investors’ minds.
One can have the best free stock trading software, but if one is not disciplined in one’s stock market trading operations, one will inevitably have to find something else to do. For most successful traders, it takes about a year before they start to do well. To new traders, we say start small, develop one’s skill set, and as P&L improves, then scale trading up. Always use stops and trailing stops. Live to trade another day. YOLO trading is for the foolhardy.
The object is to trade both sides of the market, which entails going long and short. If the idea of short selling is too scary, then going long put options can be part of the trader’s toolbox.
Based on our master cycle, we were looking for the S&P 500 to bottom this past Friday, the 29th, to Monday, May 2nd, plus or minus one trading day. We got a big down day on that Friday as Amazon (AMZN) shares got battered on the company’s earnings release. Then Monday the 2nd of May came, and the market opened mixed to higher, but by mid-day, around the time margin selling usually appears, markets sold off hard. In general, the selling in the market had the whiff of capitulation, but things traded orderly enough. What seemed to be a ‘tell’ for the reversal to the upside on Monday was the striking underperformance of the low beta consumer staples stocks. Safety was being scrapped as risk was being put on into the market’s weakness.
Prominent money managers and stockbrokers we speak with regularly had not seen the usual counter indicator clients selling into Friday’s and Monday morning’s rout, so there continues to be more downside potential after an early May rally post FOMC. The master cycle points to a swing high on the 6th and a low on the 13th. Then a high on May 16th (all dates are +/- 1 trading day), then down, into the end of the month. The 13th to the 16th is a weekend, so that is tricky.
In the big picture, the master cycle only bottoms by late June, then from there, a significant rally is projected for some time. Two related cycles don’t bottom until late July to early August.
As stated before, cycles can invert, and what was projected to be a low comes in as a high and vice versa. It is the dates that are most important. Let the market tell you what it is going to do. Stay disciplined, nimble, and keep a printout of the day’s market performance by groups and individual stocks, best and worst performers. Institutional money takes time to enter and exit sectors and individual stocks. With big money asset managers, buying and selling interest can persist for weeks. Trade well and stay safe. JHS
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