Hello Tackle Traders,

How about them markets?  We got a holiday-shortened week with horrible volume and a solid beatdown across the board.  I have been fielding calls for the last several weeks about what is going on with these markets?  The usual questions pop up like is the market crashing or are we just pulling back or is this just a big correction or sometimes even what the hell is going on?  These are all natural questions about the market especially if you haven’t gone through this type of market action before.  We talked about where the market was going and how we can react to it in the previous episode of this blog and I won’t rehash that as I believe we did a fine job of going over that.  However, this week’s diddy is a little darker look at how the markets can fool us with its movements.  The market can be tricky and this means we need to be on point in all interactions with said markets.

The reason for this weeks topic comes to us courtesy of the last six weeks of market movement.  We have had six long weeks of solid drops and a couple of vicious rallies, so does this mean we are in a bear market or is this just a correction that is massively overdue?  Well, it could be a little of both.   You see the markets have a way of showing traders what they want to see and not necessarily what they should see.  Let me try to explain exactly what that means.  You see bear market rallies can be some of the most vicious and juiciest rallies that one will ever see in the market and this makes them very enticing to traders who are hanging onto the idea that the markets will go up forever.  Now, I know that anyone who has been reading this blog or has belonged to the Tackle Trading for any length of time would not fall into this trap, right?   Well, I would like to believe that but this is when the market is at it trickest and things don’t always appear as they are and this is the time we need to be most vigilant.

In continuation with the theme of the last time, we got together in this blog we need to watch the telltale signs that the market gives us to determine whether this is a bear market or just a correction on the way to another bull run.  Just looking at the size of the rallies will not get the job done.  We need to gather information from the big picture as well as the size of the drops and the flights.   We need to take into consideration the levels of support and resistance and the spacing of the pivots.  For example, are we making higher low pivots from the shortest term perspective and perhaps lower high pivots as well then the market is telling us that at this point in time it is unsure of where it wants to go.  We need the market to give us more information before we can discern the next direction and this is because with higher lows and lower highs we are stuck solidly in neutral.  This is where we need to read the levels carefully and decide where the most logical price levels for support and resistance are.  Once we have these levels then we can get on board with the new direction when one of these two levels are broken.  This is not to say that we cannot trade in the interim, it just means that our trading perspective has to shorten up to be fully effective.

So don’t let the markets use its wizardry on your eyes and make you believe that one big rally is the stairway to heaven.  Instead, use your laser focus to gain the insight as to what the market is really doing and use your patience to wait for the market to resolve itself and then get on board the train whether it be headed north or south!  Take a look at the image below to see the levels that I have marked off as important, it is these levels that we need to watch so that we don’t get fooled!!!

In our last blog, we went to put on a Bear Put spread on BABA.  I used a limit order for this trade and it did not get filled so we have no trade to update.  This is not necessarily a bad thing.  We decided on a price that was fair for our trade and the market moved against us and we were not filled.  Missing this trade is most likely better than putting on a market order and being filled at a terrible price.  The good news about trading is there is always more trades to be found and we will go looking again next week!

Happy Trading All!