Don’t Fight the Fed. Mow the Lawn Instead
- There was a frenzy of buying activity on Monday morning.
- John Ross refused to panic. Instead, he mowed the lawn.
- What will happen when this hype is over? John bets he'll have even more opportunities.
I turned off my trading platform at 9:45 a.m., Monday morning.
Investors were panic buying stocks.
Moderna Inc. (Nasdaq: MRNA) said it is making headway testing its coronavirus treatment.
But it was a different drug provider that caused the market to soar. The S&P 500 Index, an index of 500 large-cap stocks, jumped 3.5%.
The Chairman of the Federal Reserve, Jerome Powell, promised the central bank could inject more juice into asset markets. I’m talking about America’s central bank, which has been providing an artificial kick — in the form of trillions of dollars — to markets since 2008.
It started during the financial crisis, and investors came to depend on this boost along the way to record highs earlier this year.
They reacted in typical fashion when the market opened on Monday.
The bottom line is … stocks went up and investors were in a frenzy.
I was short the market, betting that stocks will fall. And my quote screens were greener than my lawn. Green tells us stocks are going up.
Oh well. Not the way I wanted to start the week.
So, rather than rationalize why I should fight the Fed and sky-high sentiment, I mowed the grass instead.
I returned a couple hours later to an article with the following chart.
It shows us how we can use short-term investor psychology to our advantage:
The NYSE Tick Up Index measures the number of stocks on the New York Stock Exchange (NYSE) that move higher. It is a good snapshot of investors’ emotional appetite for buying stocks.
More than 2,230 stocks moved higher right when the market opened on Monday. It’s not often that buying reaches this extreme.
This is a super short-term look at investor sentiment, so we can’t read too far into its predictability. But we can’t deny, it signals a turning point — the market sucked in a ton of new money with another hit of Fed hope.
High highs lead to low lows. And vice versa.
The last two times the buying frenzy reach such an extreme, the market made key turns…
- After February 20, the day the market topped, the S&P 500 Index fell 33% in 22 trading days.
- After March 23, the day the market bottomed, the S&P 500 Index climbed 32% in 25 trading days.
I expect the frenzy will wear off. And this tells me not to abandon my short trades in the stock market just yet.
Even after factoring in Monday’s crazy buying spree, my system still favors shorting stocks in this market … or sitting on the sidelines.
Subscribers of my Apex Profit Alert trading research service are ready to profit from the downside. They had the opportunity to see double-digit gains on five of our “buy-on-red” trades when the market rolled over last week.
I expect more gains from these buys on red as the market shakes out this week’s new buyers.
If you want to learn more about how the Apex Profit System can help you buy on red for potential double- and triple-digit profits, click here to watch the presentation my colleague Matt Badiali put together.
Editor, Apex Profit Alert