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The major stock indexes are already 20-30% above their momentum lows from late March and I am already receiving numerous requests from people asking if we are in the midst of a V-shaped recovery and what should they be buying. The fear of missing out is in the air. If past bear markets are a good indicator, chasing 20-30% rallies after steep selloffs is not smart from a risk-to-potential reward perspective.

While it is true that we are starting to see more long setups – right now, mainly in gold, biotech, telecom-related and data centers REITs, we should not ignore the fact that SPY and QQQ are very close to major potential technical resistance. The wild-card in the whole equation is the Fed, which has now backstopped the entire credit market and is buying Treasuries, Munis, corporate bonds, including junk-rated bonds. Without a doubt, this is basically a bailout of the financial sector. So don’t get too bullish or too bearish. Remain nimble and active because this market continues to provide incredible trading opportunities. Moves that used to happen once a quarter in individual stocks (when they report earnings) are now occurring on a daily basis. It’s a great trading market.

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The charts in this video are powered by MarketSmith

This is the performance for the past 12 months:

IWM (small caps) -33%

SPY -14%

QQQ -0.70%

The Nasdaq 100 is basically flat for the past year in the midst of the biggest market correction for the past decade. How long can this last? The number of stocks on the 52wk high list continues to be extremely low. Furthermore, the breakouts to new 52-week highs are failing quickly.

I continue to be nimble and take profits quickly because if I don’t they disappear. Surviving a bear market requires the realization that what made you money in a bull market is likely to harm you now. Thriving in a bear market calls for nimbleness and understanding that many obvious breakouts and breakdowns are likely to shake you out before they make you money, most clear uptrends and downtrends last only a few days before they are interrupted by a violent mean-reversion.

Try my new subscription service which includes a private Twitter feed with option and stock ideas, a weekly newsletter with concise market commentary and actionable swing and position trade ideas, the Momentum 50 list of market leaders and much more.

PERFORMANCE

Here’s a Google spreadsheet tracking all closed option and stock ideas shared on my private Twitter stream and weekly email for subscribers.


The charts in this video are powered by MarketSmith

The best-performing stocks in the initial stage of a relief rally are typically the ones that were hit the worst during the correction. This is exactly what we saw last week – mortgage investment trusts, casinos, cruise ships, restaurants, homebuilders, airlines went up 30-100% in just a few days. Most started to fade as they approached their declining 20-day moving averages towards the end of the week. The next potential stage of this relief rally is a choppy range-bounce price action during which we will probably see a rotation into the stocks that held the best during the correction.

I continue to stay liquid but I also see good short-term trading opportunities on a daily basis.

Try my new subscription service which includes a private Twitter feed with option and stock ideas, a weekly newsletter with concise market commentary and actionable swing and position trade ideas, the Momentum 50 list of market leaders and much more.

PERFORMANCE

Here’s a Google spreadsheet tracking all closed option and stock ideas shared on my private Twitter stream and weekly email for subscribers.