Last week we mentioned that shorting rallies was the safest trade for the time being. The S&P 500 (SPX) followed the sentiment guidelines and dropped 50 points in a fast manner. But that large drop, shook up trader’s confidence enough to trigger an extreme bearish sentiment score of just 1% bulls. That was telling us that traders have giving up on trading the long side, which means it was time to start looking long. The SPX has now rallied some 65 points from the exact hour the 1% bullish sentiment score was triggered.
This market is moving at warp speed and not giving traders any time to think. They are forcing the retail trader to make emotional trading decisions. The best way to manage this market is to not be “scared to miss a trade.”
Cash is a position and the minute you let your emotions make trades for you, you will start making more losing trades than winning trades. It doesn’t make a difference if it is a long or short position, emotional trading will have you on the wrong side of the markets-almost every time.
There is not a trader in the world that can tell you with 100% certainty where the SPX will be in 30 days. But I can tell you with 100% certainty that the markets will be open in 30 days. So missing a trade and waiting for the next sentiment extreme to make an unemotional trading decision, is the easiest-safest and most profitable way to manage your portfolio, when the markets are moving at warp speed.
