The past few days were
probably “OMG” days, for both long and short sides! The market has been really
brutal in Oct not seen for a couple of years, especially the last two weeks. We
saw 9 days consecutive days of selling for S&P (from Oct 17 to Oct 29) with
a climax to the downside to 2604, the low of the Jan crash. Sentiment-wise, I
would even call Oct 29, 18 as a black Monday as it has really caused a lot of
people just throwing in the towel and giving up. Here is what I said to a
friend on Oct 29:
Just look at the tone in WeChat, you know how
depressing the sentiment is. It’s hugely bullish for me to be honest. Of course
I cannot tell you the exact timing but it’s widely oversold. The coming rebound
will be very violent and for sure will surprise all those talking down guys! I’m adding more long positions today and will
add more if it continues to decline. Great time to plan for long term expecting
for a Melt-up next year. Tech and biotech are the best two deals now!
Well, I don’t think
there are many people with this kind of mentality to feel good at lows and feel
bad at highs. And the Market God has the habit to punish as many people as
possible. So it is very likely a lot of people felt so scared on the Black Monday
that they dumped everything as fast as they could. More so, many of them would
be stunned by the OMG moment, feeling the end of the world was coming and they
had to buy puts to protect or even foolishly short. So the Market God is punishing
those first by mounting a violent oversold bounce! The past 3 days of strong moonshot with 150 points up must have
caused huge pain for those who shorted the market at lows. In return, another
OMG moment is created, especially at opening of Friday when S&P shot up
another 16 points. OMG, many must have screamed and thought they could have
missed the boat for the bounce without rushing in to buy. Then MG decided to
kill them as well swiftly by tanking S&P almost 50 points during the day. So
folks, if you more or less have this kind of mood swing with the market, try to
train yourself not to fall into this kind of trap.
So where the market is
heading from here? At this moment, I’m more convinced that we have seen the
real bottom of this correction around 2600. It is much more severe than I initially
thought but that’s typical for MG to trick people. If I’m right and the market
is indeed setting up for the year end rally, would it just go from here to
shoot up straight line? Very unlikely. Instead, I think we may very likely
follow the footprints of the Jan recovery, not necessarily in terms of the
duration but more in terms of the steps. It basically involves 3 phases: hard
selloff-strong initial bounce, followed by another selloff to retest lows, and
then finally a more sustainable recovery. If this is indeed the way it will go,
then we are just at the 2nd phase now. The current bounce, even though
felt like very strong, would likely stall at some point. The most likely
stalling point is the 50 DMA around 2840, i.e. another 120ish points to go. At
that point, another huge OMG moment will likely be created, hooking a lot of
people into chasing highs due to FOMO (fear of missing out). Then the final
strike hits again which, if severe enough, may even revisit the recent low
around 2600. At that moment, we could see some real desperation and only then a
real uptrend will be born from blood and ash! It could be a rather brutal
process and no fun to go through if you are caught up in between. The best for
most people engaged in short term trading is to sit tight without chasing highs
or lows in the next few weeks. Of course, for long term investment and if you
can handle the volatility, it is a great time to buy at dips these days with
the understanding that you may not necessarily always be buying at the lows. A
year from now though, you will be happy for those you buy now. Either trade or
invest, be rational with a cool head!!
Appreciated
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