Remember those Superballs? The rubber ones that no matter how soft you threw it at the ground it seemed like it bounced 2-3 times as high? It really didn’t, but it was so good at absorbing energy and releasing it you sure felt like it had a rocket it in it. That is definitely what the market looked like yesterday.

Where did that bounce come from? With all of that momentum to the downside how on earth did it jump back up that much?

That is a sign that traders are trying to wish a bottom into reality. Everyone wants to be that person that started buying right at the bottom of this drop and rode it back up. Buy fear and sell greed. Well get ready to see some more selling of yesterday’s greed.

Take a look at what momentum looks like on the downside. Here is the SPY during the 2020 crash:

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You see some green as the market fell. Multiple struggles to guess the bottom. And this isn’t an exception, go back to the end of 2019:

Multiple desperate grasps to catch the falling knife. When momentum is this strong, in any direction, you have to look for broader confirmation that we are at the end of the move. Sure, breaking the 10 day moving average is a sign of a potential reversal, but the bigger the move the more confirmation you need. Use recent highs as a potential point where a reversal might fail, look at your other indicators and line them up. If you are usually comfortable with 2-3 points of confirmation, look for 4. Reduce your position size and do your homework.

I see which tools people use to find the best trades in different markets and I can tell you there is a reason Joe Duffy’s quick read is one of the most popular sources for using momentum set ups to confirm these moves. Be sure to grab it here.

Keep learning and trade wisely,

John Boyer


Market Wealth Daily