Hope you had a great weekend!
It’s nice to see the market finish last Friday on a strong note, but the bigger question is...
Are we out of the woods yet?
My crystal ball is (as always) cloudy. Buy stocks if you must (I certainly have). But play good defense. But most of all...
Don’t let yourself get too bullish too quickly.
This video explains the rest, or read on below...
During uncertain market periods, traders like to go home “flat” on Fridays. If there's a bullish phase going on, they'll sometimes sell on a Friday rather than hold positions over a weekend in case there's negative headline news.
Likewise, if they were short the market during the week, they often cover their positions ahead of the weekend, creating a nice reflex rally.
Could Friday's "pop" last?
I'm betting "not."
I don't want to sound too bearish. I actually see lots of stocks that are now in buy-able values compared to just a month or two ago (that's what happens when certain high-volatility stocks experience downside volatility as well as upside volatility).
But let's remember we’re still dealing with the new “post-pandemic” variables — higher interest rates, inflation of key commodities, highly-valued tech stocks, lots of extreme bullishness.
So here’s the game plan in the back of my mind, anyway.
It wouldn't be uncommon for the indexes to move lower again, to test (and perhaps even briefly move below) their 200-day moving averages (the blue line in the chart above).
I’ve seen it before. A move below a major moving average tends to suck the wind out of retail investors’ bullishness, and push many to sell — giving Wall Street pros the final clue that regular folks are throwing in the towel.
Also, the 200-day moving average is roughly 10% below the index's all-time highs. So it makes convenient sense to get a standard 10% correction before Wall Street decides to tell everyone it’s safe to get back in the water.
Lastly, we have about two weeks before Memorial Day weekend, and the unofficial start of the summer. Another bout of selling in the days ahead would induce just enough fear to set up a nice slow-motion summer rally back to near the Nasdaq’s previous all time highs through July and perhaps August.
I always debate whether to even give you my opinion on the market - I’m wrong as often as I’m right (or probably more wrong than right). It really doesn’t have a big impact on my overall decision to buy or not buy a stock.
But just saying… my instinct is there’s more downside for stocks in coming days and weeks. We’ll see if that turns out to be true (or not).
Best of Good Buys!