Options trading in 2016 has been tough – and that’s probably a gross understatement. This market is proving there is very little reason to step in and buy for longer than a few hours (maybe a full day, but no longer than that!).
Yet, so many want to get in on this very oversold market. Why? Just look at what happened last August and October, or October 2014, when deep oversold conditions existed. Utilizing patience will serve you well.
To refresh your memory, here’s what happened the last time we had oversold conditions:
Markets were so beaten up (as they are now) that we saw huge slingshot rallies to the tune of 150-200 handles on the SPX 500. The rallies were fast, sharp and with gaps that did not give many traders a chance to get on board. Gap opens will mess with your mind, convincing you that buying is not the right thing to do. Instead, you think you need to wait for that perfect dip.
This time around, you have probably vowed to yourself that you won’t miss it. Maybe you’ve decided to enter early, even if it means you’ll experience pain prior to a big move up.
Well, as we know, the market is never that convenient, friendly or accommodating. Instead, we have to use our knowledge and experience to determine where and when the next market move will happen. Many traders say that market moves are identical, that you cannot separate them into categories, that fear and greed reign. I agree; however, times and circumstances are different, and while history may not repeat itself, it can certainly rhyme.
Market conditions, Fed support and earnings growth are not inspiring money to flow into the market quickly this time around. We’ll get that rally, since oversold conditions are still off-the-charts bearish. Friday may have been the start of a rally, but let’s see some follow through first before we make a move. Rather than listening to or following the pundits when they say they are going in and buying this dip or that dip, let the market tell you what to do. It’s the only truth you will ever be told.
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