Justin’s note: Regular readers know that when a valuable idea hits my inbox, I pass it along as soon as I can… especially when it’s as urgent as this.
Today’s essay, from master trader Jeff Clark, explains one of the best ways to take advantage of the current market volatility. Jeff is one of the best technical analysts I know. When he sees something important setting up in the market, we take notice. And today, Jeff shows us why market conditions are signaling a buy…
By Jeff Clark, editor, Market Minute
Think back to when the stock market entered this correction phase almost nine weeks ago.
The S&P 500 broke down from a parabolic move. It erased all of January’s huge gains in just three trading days. The Volatility Index (VIX) spiked higher. The McClellan Oscillator dropped into extremely oversold territory. The S&P traded about 60 points below its 9-day exponential moving average. And investor sentiment flopped from wildly bullish to extremely bearish.
That’s when I decided it was time to buy.
And I was horribly early.
The market continued to fall. Oversold conditions got even more oversold. The proverbial rubber band kept stretching. And I kept buying.
I told my Delta Report subscribers the three target levels on the S&P 500 at which I was willing to put money to work—2650, 2595, and 2530.
By the time the market stopped falling, it had hit all three of those levels and I had the most long-side exposure I’ve had in several months. Much of it was considerably underwater.
But, here’s the thing… the rubber band always snaps back eventually.
It took less than a week—from the time the stock market hit bottom on February 8—for the S&P 500 to rally all the way back up to our 2730 target and create profits on all of that long-side exposure.
Ever since then, I’ve been talking about using a retest of the February lows as a chance to establish some aggressive long-side positions. We’re in the area of that retest right now.
Right now, technical conditions are quite similar to where they were in early February. I have no doubt that we’ll probably be early when we start adding positions. I also have no doubt that we’ll be profitable on the trades we take—eventually. Because the rubber band always snaps back.
Why am I telling you this today?
Because when the time comes to start buying, you’re not going to want to do it. It’s going to be horribly uncomfortable. It’s going to be the exact opposite of what the folks on the financial television shows are telling you.
That’s exactly how it was back in early February—just before the rubber band snapped back.
So be ready to buy—a little at a time. Be ready to be a little early. Be willing to suffer with the trades underwater for a short while.
If you believe—as I do—that this tired old bull market still has one more rally left in it, buying into this current correction should prove profitable over the next few weeks.
Best regards and good trading,
Editor, Market Minute
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