Yesterday’s sucker punch has left bulls dazed and confused. Is this another in a long line of market corrections that will eventually give way to new highs? Or, is it the beginning of the end to our long-lasting bull market?
Unfortunately, nobody knows. Insert unsatisfying quip such as “time will tell” here.
I want to provide some context and insights (hopefully helpful) for today’s post. These are in no particular order.
I hate you, Mr. Market. You broke my heart with such a cold, heartless dive. My net worth is now 1% less than it was a week ago and I demand reparations. Oh great, now it’s 1.2%. As Uncle Owen once grumbled,
“There’ll be hell to pay!”
With that out of the way…
The first bounce after a crash like this is almost always a fade. That means it gets stuffed into oblivion Dikembe Mutombo style. So consider the eventual snap-back a bear retracement pattern that will create tasty morsels for short sellers. Let us hope we get a multi-day pop, not some one-day wonder.
This morning’s price action was pathetic. The worst thing bulls could have hoped for was a slow grind lower. Either rip the band-aid off or give me my rebound. All this mild meandering isn’t doing anybody any good. I was gunning for a large down-gap and further spikage in the VIX. My request was summarily denied.
What’s that squawking you ask? It’s a barrel full of wounded Condors being taken out and shot behind the shed. Scores of condor caretakers are calling it quits as I type.
… And the market just fell another 0.5%. Maybe we’ll get that puking today after all!
This week’s free fall is a painful reminder to traders of the paramount importance of position sizing and risk management. Suffering a drawdown sub 10% in your trading account is no fun, but survivable. But if through improper sizing and lack of adherence to risk protocols you managed to stumble into a 20+% drawdown – well, the road to recovery is going to be much longer.
Right now I suspect those who stopped out of their bullish trades at the first sign of trouble are sitting back with satisfaction. As well they should! Bailing when you’re down 5% only to see the market swoon to down 10% or 15% is a win, baby.
Let me end on an optimistic tone. This correction will pave the way for a recovery. That’s the way it always works. So, keep your wits about you and develop a plan for taking advantage of the next ascent. As we say in the Bear Market Survival Guide, learn how to sow the seeds for future profits. They always come, it’s just a matter of whether you’ll be there to collect.
P.S. The VIX finally got a bona fide panic spike and tagged 28.84. We are close, friends. Oh so close.
Financial freedom is a journey
The Options Theory series is brought to you by Tackle Trading.
Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.
Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.
All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.