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Business/Finance See other Business/Finance Articles Title: Here's How to Play Fear... Here's How to Play Fear... •A make-or-break bounce •Gauging extreme emotions •Plus: No disrespect, but you're an idiot... Greg Guenthner coming to you from Baltimore, MD... Traders are freaking out... All last week, stocks continued to slip. The market looked like it was falling apart at the seams, and many traders and investors were bracing for a nasty correction as we entered one of the most feared months of the year. The only question investors wanted answered was how low will prices go from here? Of course, plenty of spooked traders punched the "sell" button early last week. Frankly, I don't blame them. It's easy to get caught up in the hysteria when prices begin to tank. However, as the trading week was drawing to a close, it was becoming clear that we were approaching an emotional extreme--one that might even set up a buying opportunity. "People are panicking," exclaimed Jonas Elmerraji over at our trading desk. "CNN Money's Fear and Greed Index went down as far as 3 out of 100, signaling Extreme Fear among market participants. That extreme emotion was missing on the last S&P 500 bounce, and I think it's part of the reason that the move fizzled out early." But so far this time around, the bounce we experienced Friday looks strong... "The chart shows what the S&P 500 has been up to for the last year and a half," Jonas explains. "As you can see, the big drop in September doesn't look so big and scary after all. We've done the same thing eight times now since last summer. And there are a couple of factors that make last week's bounce off of support look especially good." For one, Jonas says he likes how price briefly dipped below support in the morning--which in turn attracted tons of buyer that pushed the big index higher into the afternoon. "Another important characteristic of Friday's bounce is that it was big," Jonas says. "Looking back over the last couple of years, successful tests of support have typically been followed by around a 1% move higher in the S&P. The big index popped 1.12% on Friday." If stocks can continue higher early this week, you should use the opportunity to buy shares of your favorite names for a bounce... If you think the stock market could crash at any moment, you’re right. In fact, the financial threat adviser to the Pentagon and the director of national intelligence has just issued an URGENT WARNING. He says the recent drop in stocks could be just the beginning of something much bigger. “The Dow will drop to 3,500, one in two Americans will lose their IRAs, banks will collapse and millions of people will be wiped out.” Click here to see his warning. I made the mistake of briefly mentioning the new unemployment numbers Friday morning... In case you have quarantined yourself and haven't followed the news, U.S. employers added 248,000 jobs last month. That puts the official unemployment rate at 5.9%-- a low not seen since July 2008. That's all. No commentary. Just a shred of news that was potentially affecting the markets just before the opening bell. Of course, every time go down that road, I'm greeted by a note like this one (which materialized in my inbox Friday afternoon): If you believe those unemployment numbers to be correct (no disrespect intended) you're an idiot! I appreciate the polite insult. But let's get a few things straight: First, I delivered the numbers without commentary. I didn't mention the folks who had given up looking for jobs entirely, or any of the other squishy data points that have plagued post-recovery job reports. Belief has nothing to do with it... Also, the unemployment number was fresh off the wire. And it beat expectations. Forget what goes into the data and what it means for the economy for a second. Instead, think of the immediate impact a "beat" has on traders and investors. Now that it's Monday morning, I guarantee that no one is talking about unemployment numbers. The statisticians can send them back for endless revisions for all I care, along with job openings, FOMC minutes, initial claims, continuing claims, and wholesale inventories (all of which we'll learn about at some point this week). Your best bet is to not get too caught up in whether you "believe" in the endless stream of economic statistics thrown around every week. Instead, think of the potential impact on the markets and how the numbers might affect the minds of traders and investors. As far as I'm concerned, that's the only use these stats serve in the first place... Post Comment Private Reply Ignore Thread
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