Mid-week Market Update

Another day, another failed rally attempt.

May 18, 2022

This is why we don’t trust bear market rallies

Eventually, a bottom will be found. We don’t have to see it in real-time. It’s easy sometimes to look at days like Thursday, May 12, with a sense of relief. When the $SPY comes very close to the support levels you’ve been watching and then turns higher, things start to look a bit better. But the probability that these rallies fail is high. Failed rallies happen many times in the course of a bear market. But the bottom, the actual bottom, only happens once. Right?

$SPY

And when it does happen, and we identify it afterward as that’s the only way to really know, it may look very much like May 12. But it doesn’t matter. As traders, we don’t have to spot it in real-time. We do have to follow our plans and processes. That means keeping an eye on the overall trend. If your plan says, for example, that you only take trades in the direction of the prevailing trend, then by definition you can’t buy the bottom. Bottoms can’t happen in uptrends.

So get comfortable with that fact. Keep your eye on the timeframes that matter most to you. And wait for your trades to set up.

In the meantime, here are a few nasty charts to remind us to be careful.

Even the staples got hit today. This has been an area of relative safety. It seems everything is getting sold now.

$XLP