Some is making money in each trade, right? Well, not exactly.
The stock market is continuing it’s worst start of a year since 1971. And by worst we mean the biggest drop in the major indexes over the first four months. There is still some gain grabbing from the rally that was 2021 but you get a sense that traders are trying to find a place to move their capital to get a good win. As they poke around and try different things we see the type of churn and drop that we are watching right now.
Just in the last week the VIX has exploded to the upside a sign that we can expect more selling.
At the risk of sounding like a broken record, using bear strategies like buying puts or using inverse index ETFs is a solid way to using the downward momentum to your advantage. We have written about it a bunch (click here to see past articles) but when we are in this kind of drop, they work. The hardest part is being able to tell when they are not working anymore. The volatility can make it pretty unnerving when you are in the middle of these swings.
SQQQ for example is almost double its price at the beginning of the year. Sounds great, right? But it wasn’t a straight climb. In fact it dropped al the way back to where it started just a few weeks ago before shooting up.
This is where understanding momentum patterns can be very helpful. When you know the signs that these climbs are starting to run out of gas you can lock in a nice gain and be ready for the next trade.
Lee Gettess has helped many traders spot momentum exhaustion and use those signs to grab great trades. Get more info on how he does it here.
Keep learning and trade wisely,
Market Wealth Daily