You cannot ride a bear.
Rodeo cowboys score points by staying on the bull as long as possible. Investors profit by doing the same.
But a bear is a completely different animal. No cowboy is crazy enough to saddle up and try to ride a grizzly. Yet investors try it all the time. And, they get mauled.
Bear markets are not for riding. They’re for trading.
That means you wait for severely oversold conditions before you buy anything. Then you sell when conditions become less oversold.
And you wait for severely overbought conditions before selling stocks short. Then you cover those trades when the market turns neutral.
It’s not a buy-and-hold environment anymore. It’s a scalping environment. Play only the best setups and take profits quickly.
Last week was a great illustration of how bear markets work. Stocks started the week in extremely oversold territory, and drifted even further into the abyss during Monday’s decline. Oversold conditions can get even more oversold.
But, that’s the setup from which bear market rallies occur. And boy, did we ever get one.
In just three days the S&P 500 rallied 15%. That’s the biggest weekly gain for the index in my lifetime.
In the process, many technical indicators went from extremely oversold to extremely overbought. For example, take a look at the following chart of the McClellan Oscillator for the Nasdaq (NAMO)…
The NAMO went from its most oversold reading of the past year towards its most overbought reading – in just three days.
Traders who tried to “ride the bear,” and held short positions into extremely oversold conditions on Monday, got crushed later in the week. Similarly, bullish traders who overstayed their welcome got hurt during Friday’s decline.
In bear markets, traders shouldn’t be trying to maximize the profits of a position. They should be entering trades when the risk is minimal – like buying into extremely oversold conditions and/or shorting into extremely overbought conditions – and then scalping profits when conditions return to neutral.
By holding on to a position in an attempt to capture the greatest possible gain, traders risk watching a profitable trade turn to a loss.
Bear markets can give traders plenty of opportunities to profit. Just remember – we don’t ride the bear. We scalp it instead.
Best regards and good trading,
P.S. We’re dealing with unprecedented market conditions right now. Just over the last several days alone, the S&P 500 has taken investors on a rollercoaster ride.
But, in my stock trading service the Breakout Alert, I teach my subscribers how to profit in any type of market by trading low-risk stocks in oversold conditions. And we do it using a proprietary technical pattern that’s handed us gains as high as 126% in the past month alone…
To learn more about this peculiar pattern, which predicts explosive moves in low-priced stocks, click right here to learn more.
Today in the mailbag, we have a note of gratitude from Jeff Clark Trader member Bob…
Hi Jeff, I’ve been a member of yours for probably seven or eight months. I just want to thank you for your advice on trading and the few option trades that I’ve done with you.
I’ve had winners on all of the ones I’ve done, and there have been a few that I didn’t get for one reason or
another. I’ve gotten emails from quite a few traders that I am sure know the business… but only you, and one other, talked on a level that really explained the trades, and why you were doing the trade in the way you had chosen to do it.
I just wanted to thank you for your expertise and willingness to explain in a manner that has been very understandable. Here’s hoping we have more good trades in the future. Again, thank you.
And a few thoughts on today’s current climate from James and Jack…
Jeff, I’m also a writer. We’re living with so much uncertainty which was reflected in your non-committal question. Come on, let’s ask, “would it be better to cull the herd?” Is our policy worse than the virus as sooner rather than later it will bring out the worst in our species?
I’m relatively sure of a few things. The American political system is not suited for the 21st century. We will not have elections in November. Out of the chaos and violence, the new order will not be restoring the old order we knew before the Trump era, who only exacerbated the existing self-destructive factors that led us to this catastrophe. Just sayin’… As fascinating as it is to watch as a plane crash plummeting to earth.
So, I can’t walk a seven-mile-wide open beach and reservations are cancelled at marinas in the Keys. I’m also hearing all law enforcement will be on the water preventing boats from rafting up.
Wow we are really getting serious, yes? But wait a minute… let’s pack hundreds of people together for four hours on a flight from NYC to Florida’s major airports. These flights are incubators being unleashed on the populace.
Immoral and criminal, and I choose my words carefully. Where they have landed has created hot spots which will get worse. Insanity!
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at firstname.lastname@example.org.
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