by winston » Mon Feb 19, 2018 11:13 am
TUESDAY
Market is closed Monday for Washington's Birthday, and that could be bad for US investors and traders. The rest of the world will be open, and it could be that they get the jump on the US in selling and that could have US stocks opening lower Tuesday. That is speculation, but it is a possibility.
While the relief move, or whatever you want to call it, still remains intact as of Friday, the indications are and the history suggests it is ending and a test of the prior low is coming in the near future.
Therefore, we took some gain Friday on several positions, let positions still working well continue, and if the market hesitates Tuesday, we are going to close the upside outside of those strong areas such as biotech, and have downside plays ready to go.
Indeed, it may be that even the biotechs, metals, retail have issues if the rally has run its course and starts the test of the prior low.
As a refresher, historically when a market peaks and then reverses as violently as stocks did three weeks back, they rebound over the course of a few weeks, then fall back down to test the prior low.
Often that test undercuts the prior low and really shakes out the weaker hands that got in late, bought too high, and don't have the stomach for getting burned again (as is usually the case because they always come in late). Once they are gone, the people left are the stronger holders and they use the violent shakeout to start buying. Then a new rally begins.
That shows why this works: in the heat of the battle most players, even the veterans, lose sight of the big picture, what they know to be the likely scenario. When stocks are getting slaughtered in a sea of red, redemption requests are surging, and margin calls are peppering the accounts, even the seasoned traders and managers succumb to their emotions.
Their algos read the headlines and sell, then the managers take over after the initial selling, but then someone panics again and the downside resumes. The run to the sea is on.
On days when the market is strong, they are gushing that you should buy everything, talking about their dogs or anything that pops in between the ears, chiding those who actually have a plan.
On down days, and I have seen it the day after one of those up days and the talk that the sky is the limit, they are almost morose, saying the market is just fickle right now, that selling will come so get your buy list ready.
But what? Didn't they just say the day before to buy everything, that you were a fool for not owning them? This is what you are up against and you have to see through it. Don't ignore it; use it to illustrate the kind of emotion that plays in the market and makes people make emotional decisions.
Source: Investment House
It's all about "how much you made when you were right" & "how little you lost when you were wrong"