Here’s What Happens AFTER the Selloff
I’m back in Chicago — which brings me to the harsh reality that much is left to do to get back to a more normal life.
The Chicago Loop business district is still a ghost town. The city hasn’t made much of a dent in the cleanup effort from the recent unrest. Storefronts remain boarded up on every block, with only minimal activity to show shops are open.
My trusty go-to for soda and newspapers every morning just a block away from the exchange does not unlock its doors until 7a.m. But who can wait for caffeine until 7 a.m.? Luckily, the McDonalds opens earlier for unsweet iced tea… money never sleeps.
My post-apocalypse 7-Eleven
The Chicago Board of Trade and CBOE still look deserted. But the whirl of billions of dollars of transactions can be seen on your computer screen these days — not in the frenzied trading pits from year’s past.
Not a day goes by that I don’t have to remind myself and others in my circle that the stock market is NOT the economy and the extremely uneven recovery is a reality.
The markets have come BOOMING back as forward-looking, glass half-full measures of sentiment. The S&P is unchanged in 2020, shaking off the super selloff. Now it’s set to attack the top of the 2800 – 3200 range trade.
Remember, markets are forward looking. Optimism continues to win with record highs almost every day in tech as we dig out from this epic wreck. My start as a young trader in commodities taught me to trust that the market usually has it right. They are called futures contracts for a reason — they are the best educated guess of what lies ahead.
Keep it In the Money,
Chart of the Day: Tech’s hard reset
The Nasdaq jumped to new all-time highs Monday morning, only to completely fall apart and close more than 2% in the red. Ouch!
We’ve talked at length recently about how many of the tech momentum names were overextended and how important it is to take profits into strength. Yesterday’s action shows why you should never chase stocks that have gone parabolic! When they correct, it happens FAST.
While an intra-day reversal of more than 4% is nothing to scoff at, it’s also important to note that the Nasdaq was due for the pullback. We’ll need to see how investors respond to the selloff this week. Obviously, there’s a lot going on in the world right now. We have parts of the country closing down again due to the virus, which could become a bigger story. The news doesn’t matter — until it does. So far, investors have ignored concerns of increasing COVID-19 cases.
But if the market continues to weaken here, I suspect the media/analysts will begin to focus more on these stories. Price leads the news.
This is a great time to watch and learn. It’s fun to trade when the market is going straight up, but it’s times like these that separate the profitable from those who just churn their brokerage accounts. Trade smart! And pay close attention to how the market reacts to this week’s dip…
Trading Tip of the Day
It’s time to dust off this old gem:
“Bulls make money. Bears make money. But pigs get slaughtered…”
With the benefit of hindsight, we can see all the opportunities to take money off the table over the past several weeks before the market shakeout we experienced earlier this week. Countless stocks — especially those amazing momentum leaders in the tech sector — were clearly overextended and needed a break.
Yes, it’s extremely difficult to time these moves. But it’s not hard to take some gains off the table once your trades reach their profit targets. Holding on out of pure greed will only get you into trouble!
— Greg Guenthner