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Most amateur investors aim to “buy low and sell high.” Throughout my two decades on Wall Street, I have learned that such a strategy is flawed and will not work for most investors (except for buying the S&P 500 Index for long-term & retirement accounts. In my experience, the best way to capture high reward-to risk zones in the market is to strive instead to purchase “reactionary” pullbacks within an existing bull market. However, unlike Amazon’s ((AMZN - Free Report) ) “Prime Day,” investors often look beyond a bargain. Nevertheless, buying pullbacks in a bull market is optimal for three main reasons, including:
· Investors can Trade Against a Level: When a market retreats to a moving average like the 50-day moving average, investors can manage their risk against a “level.”
· Avoid Chasing: Buying instruments that are “sticking straight up” can be dangerous because sellers often step in after spikes in the market.
· Psychology: In strong bull markets, it only takes a minor decline to shift investor sentiment from hot to ice cold. The way to make money on Wall Street is to fade the crowd.
Below are five reasons that the S&P 500 Index ETF (SPY) and the major U.S. indices are likely to bounce soon, including
EPS Anticipation / Short Covering
Earnings season is around the corner. Tomorrow, streaming juggernaut Netflix ((NFLX - Free Report) ) will kick off earnings season for big tech. Often, stocks run up in anticipation of earnings in bull markets, while short sellers cover their bearish positions to avoid the binary event.
Leaders are at Price Support
So go the leaders, so goes the market. Leading stocks like Super Micro Computer ((SMCI - Free Report) ),Nvidia ((NVDA - Free Report) ), and Coinbase ((COIN - Free Report) ) are retreating to their 10-week moving averages for the first time in ages. The first tag of the 10-week is an area where buyers tend to step in.
Image Source: TradingView
Investors have One Foot out the Door
Market sentiment has crashed lower despite the relatively mild retreat in equities (the S&P 500 is about 5% off its all-time high). Remember, bull markets like to climb a “wall of worry.”
For example, the CNN Fear & Greed Indicator plunged from “Extreme Greed” in March to “Fear.”
Image Source: CNN
Gap Fill & Retest of Break Out Zone
Wednesday, QQQ filled an open daily gap. Gap fills often are turning points and act as support.
Image Source: TradingView
Seasonality
According to seasonality studies, since 2000, historical trends favor the bulls in the back half of April.
Image Source: Ryan Detrick, Carson Research
Bottom Line
Though the current market weakness has scared many investors, 5 signals suggest that it may be an optimal time for opportunistic investors to take advantage of.
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5 Signs a Market Bounce May Be Imminent
The Psychology of Wall Street
Most amateur investors aim to “buy low and sell high.” Throughout my two decades on Wall Street, I have learned that such a strategy is flawed and will not work for most investors (except for buying the S&P 500 Index for long-term & retirement accounts. In my experience, the best way to capture high reward-to risk zones in the market is to strive instead to purchase “reactionary” pullbacks within an existing bull market. However, unlike Amazon’s ((AMZN - Free Report) ) “Prime Day,” investors often look beyond a bargain. Nevertheless, buying pullbacks in a bull market is optimal for three main reasons, including:
· Investors can Trade Against a Level: When a market retreats to a moving average like the 50-day moving average, investors can manage their risk against a “level.”
· Avoid Chasing: Buying instruments that are “sticking straight up” can be dangerous because sellers often step in after spikes in the market.
· Psychology: In strong bull markets, it only takes a minor decline to shift investor sentiment from hot to ice cold. The way to make money on Wall Street is to fade the crowd.
Below are five reasons that the S&P 500 Index ETF (SPY) and the major U.S. indices are likely to bounce soon, including
EPS Anticipation / Short Covering
Earnings season is around the corner. Tomorrow, streaming juggernaut Netflix ((NFLX - Free Report) ) will kick off earnings season for big tech. Often, stocks run up in anticipation of earnings in bull markets, while short sellers cover their bearish positions to avoid the binary event.
Leaders are at Price Support
So go the leaders, so goes the market. Leading stocks like Super Micro Computer ((SMCI - Free Report) ), Nvidia ((NVDA - Free Report) ), and Coinbase ((COIN - Free Report) ) are retreating to their 10-week moving averages for the first time in ages. The first tag of the 10-week is an area where buyers tend to step in.
Image Source: TradingView
Investors have One Foot out the Door
Market sentiment has crashed lower despite the relatively mild retreat in equities (the S&P 500 is about 5% off its all-time high). Remember, bull markets like to climb a “wall of worry.”
For example, the CNN Fear & Greed Indicator plunged from “Extreme Greed” in March to “Fear.”
Image Source: CNN
Gap Fill & Retest of Break Out Zone
Wednesday, QQQ filled an open daily gap. Gap fills often are turning points and act as support.
Image Source: TradingView
Seasonality
According to seasonality studies, since 2000, historical trends favor the bulls in the back half of April.
Image Source: Ryan Detrick, Carson Research
Bottom Line
Though the current market weakness has scared many investors, 5 signals suggest that it may be an optimal time for opportunistic investors to take advantage of.