The Bear Strikes Back: Survival Guide

Stocks are down hard this morning because that’s how bear markets work.

For those of you who started trading after 2009, welcome to hell. You’ll find the heat a bit… stifling at first. I’m not going to lie, most of you are really going to hate the next few weeks. But, if I do my job and we all try to learn as we go along there’s no reason anyone needs to get wiped out like some house-flipping day-trader.

Stocks are set to erase all of Thursday’s gains right at the open. Blame China. Blame the GOP debate. Blame nothing at all. Price is reality. Here’s where we closed last night:

 

Here’s where we’re set to open this morning:

 

 

Digging deeper into the madness it looks like all the popular stocks (Either heavily-owned or those few with gains YTD) are down across the board:

 

 

Today is a day when technicals are both very basic and important. Watch Wednesday’s lows. If we take them out every single person who “bought the dip” over the last two days will be underwater. Disciplined traders take profits before winners turn into losers. Newbies tend to wait until they’re down before conceding defeat. Either way, there will be sellers. This isn’t chartist jargon speak. It’s no more complicated than training a dog with a shock collar. When something hurts sentient beings seek to stop the hurt.

I can tell you from personal experience getting suckered into a headfake rally hurts. A lot. That means selling. The Trillion Dollar Question is this: Will there be buyers?

You don’t need a lot of new material this morning. All the charts from yesterday still apply (since, you know, Thursday basically never happened at this point). I covered the emotions and basic strategy in my morning write-up and the closing video.

Here’s one chart. It’s the S&P500 over the last two years:

 

Counting from October 2014’s Ebola Lows (we hit 1820 intraday but closed in the mid-1800s) a reversal on the S&P500 anywhere between 1865 and 1850 would constitute a quadruple bottom.

Traders don’t believe in triple bottoms so you can imagine the suspicion with which they view the prospects of a knee-jerk bounce off ancient support. This is especially true in light of the freshness of yesterday’s pain.

Futures aren’t everything, as this week as proven. We could bounce but Friday’s are a matter of time. If we’re down hard at noon NYC time (with its fancy “NY Time Values”) there’s a decent chance today ends in tears.

Very few good decisions are made under pressure. Your instincts will probably betray you. Be afraid but not scared. Don’t make any trades without thinking about the risk-reward first.

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