Trades & Trends No 3: Are we half way there to stock market recovery?

As of August 8, the $SPY has bounced 14% from its year lows of $362 to $413. It needs to climb from $413 to $478 - a climb of nearly 16% more to reach all time highs.


In the words of music legend Bon Jovi, ‘woah, we’re half way there’ nearly…. BUT, woooaahhh we should not be living on a prayer.

As day traders we should always be sticking to a plan rather than making a prayer.

Nevertheless, in terms of the chart, it’s showing more stability and encouraging signs that will eventually lead to recovery.

This larger market strength is definitely transferring to small-cap strength and volatility too. In particular, Chinese stocks have been extremely hot.

The market has been extremely volatile, creating ample opportunity to profit, long and short. But if you can’t cut a loss at a key level, the market can be extremely unforgiving.

Lesson: To learn more about potential indicators that can suggest we’re coming out of a bear market you can listen to advice from Shane Neagle from The Tokenist during our live webinar with Dan Pipitone here.

$HKD creates a HOT wave for China stocks.


$HKD, based out of Hong Kong, was sitting at around $30 since its IPO until it began its huge ascent, eventually peaking at $2,555, generating a potential 8,416% return.
It’s the biggest amount of volatility in the fewest days I’ve ever seen. And when one stock in a specific sector gets hot, other stocks in that sector can ignite, creating what we call: ‘sympathy plays’.

The China sympathy plays: $ILAG


This is the volatility every day trader wishes for: $ILAG ran from $2 - $7 (250%) in just two trading days from August 5 - 8. The jump appears to be based on sector momentum as I couldn’t identify any news source across major news outlets or Twitter.


In the morning of August 8, $ILAG initially rejected VWAP and the $4.40s level before showing strength holding above red green.

The arrows show short-biased day trades in the morning as I was trading it in anticipation of this over-extended day one stock potentially going red after running 100% on August 5.




The stock in fact slowly ground from lows of $3.6 to highs of nearly $7, creating almost another 100% move to the upside.
The stock, after initially opening a little weak, consolidated to make new highs.

My trade takeaways

• Price action is king: Don’t predict. Let the stock show you if it’s strong or weak based on price action around key levels.
  
  
• Stocks can always go higher: It doesn’t matter how extended the stock is, the market can remain irrational longer than you can remain solvent.
  
  
• Respect your plan: I was trading the stock to go red on the day but it held above red so I took profits.
  
  

Lesson: Most of us know these rules but a lapse in discipline can cause fatal errors which we can all can be prone too. In this webinar JTrader provides a strong insight into how discipline can be cultivated.

The China sympathy plays: $BNSO


$BNSO ran from around the $3s - $13s, creating a 300% plus move. The main takeaway lesson for me on this stock is to always remember to avoid hot sector plays on the short side - especially on day one. They can absolutely go higher than you think.

Lastly, returning to Bon Jovi, we can’t hope or predict for any stock to go higher or lower in the stock market, but I’m totally okay for ‘living on a prayer’ that this volatility is now here to stay.

To Conclude

• The overall markets are showing some level of strength which could indicate a transition out of the bear market.
  
  
• China stocks are sizzling as a result of the recent $HKD move.
  
  
• Respecting price action, not having a bias and enforcing discipline is now more important ever.
  
  

DISCLAIMER:
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References:

• ZeroPro Platform: Accessed August 8, 2022.