We’re Entering the Best Time in Years to Be a Trader
We’re Entering the Best Time in Years to Be a Trader by Justin Spittler – Casey Research
Justin’s note: Regular readers know that I read master trader Jeff Clark’s newsletter every morning to see what’s going on in the markets. His recent essays have made one thing very clear: The rest of 2018 will be huge for traders.
Below, Jeff explains why… and how you can start taking advantage of this setup, too…
By Jeff Clark, editor, Delta Report
The back half of 2018 could be the best time to be a trader in years…
Volatility is back. After an entire year of low volatility and one-way price action, the stock market has been swinging wildly so far in 2018. The Volatility Index (VIX) is 50% higher today than where it was at the start of the year.
And that’s a good thing. That’s because higher volatility leads to more extreme conditions. And more extreme conditions means more opportunities to profit.
You see, I prefer to trade using a “reversion to the mean” philosophy. I look for extremely overbought or oversold situations and then attempt to profit as conditions revert back to neutral.
Think of it as a “rubber band” style of trading. I look for situations where the rubber band is stretched just about as far as possible. Then I bet on it snapping back.
Now, understand that extreme conditions can always get even more extreme. The rubber band can always stretch a lot further than you think. But in my 35 years of trading, the rubber band has always snapped back.
Think back to the parabolic rally we saw in the stock market in January. The stock market was already overbought just eight trading days into the new year.
To me, the situation looked dangerous. So I advised folks to resist the urge to add new positions until we got some downside action to relieve the overbought condition. The S&P 500 was trading around 2800 at the time.
But the rubber band kept stretching… The stock market kept pressing higher all the way through the rest of the month. It finally peaked above 2870 on January 29.
That day, I wrote this in the Market Minute…
The S&P 500 has gone vertical. While we can’t possibly know exactly when the rally will end, the slope of the parabola suggests we’re approaching the exhaustion phase.
Also, key technical indicators, like the MACD momentum indicator, closed Friday at the most overbought levels in the 35 years I’ve been involved with the financial markets. Maybe they’re the most overbought levels everThis is a dangerous environment in which to put new money to work. We can’t know for sure. But it seems to me traders should get a shot at investing at lower prices sometime within the next three months.
That’s when the rubber band finally snapped back.