Trading Evolution

Markets are never wrong - opinions often are

Worst ever first week of trading

It seems we getting into a pattern of "worst ever"s. First worst trading day, then worst four days and now worst first week. S&P is down 8% in last seven days. What's next? Worst month, quarter, year? Just food for thought. As traders we should be ready and prepared for "worst ever"s. Do not get "stuck" in losing positions. Remember to get out, you can always reenter back later.

Worst-ever four-day start to a year

S&P 500 dropped by 4.9% since Monday. This is the worst start of the year for the markets and all FED had to do is raise rates 0.25%. Just imagine what would happen if they continue raising rates as they are promising now. The market is clearly hinting to the Federal Reserve that it is not a good idea and they usually listen so I would not expect any rate hikes soon.

Buy Low, Sell High

How many times did you hear to be successful trader all you need to do is “Buy Low and Sell High”? I heard it thousands of times. Unfortunately, this phrase misses few important words. Let me give you an example on below chart. When you ask ordinarily person or a new trader where is the low and where is the high? Close to 99.9% will say Point 1 is the low and Point 2 is the high and they will be right except one small key word. Point 1 is past low and Point 2 is past high. Unfortunately, when you trade and invest you do it in a future and not in the past.

Let’s look at the chart below which looks at the same data as above but few weeks forward. It turns out Point 2 was past high but it is at the same time is future low. So next time people say “Buy low, sell high” they mean “Buy at the price that will be future low, sell at the price that will be future high” or “Buy future low, sell future high”

Bear market in US stocks now became more likely

According to Mark Hulbert if the first trading day of the year is negative bear market is more likely this year:

So what does it mean for S&P 500? Based on high of 2,134.72 in May of 2015 the S&P 500 should close below 1,707.77 sometime in 2016.