The Last Time This Happened, 80% of Traders Blew Their Accounts
$S&P 500(.SPX)$ saw one of its biggest selloffs in months last week despite strong jobs numbers. On a macro scale, continued tensions in the Strait of Hormuz and supply chain issues from that uncertainty are still having sporadic, adverse effects on markets. It's still too soon to tell what will happen next, but I have a few scenarios that I want you to keep in mind (Scenario #3 will blow your account):
Scenario #1: Bullish Continuation
$S&P 500(.SPX)$ reclaims 7500 with a strong recovery from tech leading the charge. Bears who got overly excited get squeezed out and help push the market higher towards 8000. Bears try to call another top as $SPX backtests previous ATHs only to get squeezed again; support near 7600 is just too strong.
Scenario #2: Bearish Reversal
$S&P 500(.SPX)$ loses 7370, backtesting 7334. Bulls can't overcome the selling pressure as continued fears of an unraveling AI trade begin to mount; tech continues to slide lower, dragging the rest of the market with it. When 7334 fails more people begin to panic sell: the entire market slides another 300 pts toward 7059.
Scenario #3: Chop to Pop
This is the worst possible scenario for most day traders: an extended period of consolidation. With no follow through from tech and an even match up between bulls and bears, $S&P 500(.SPX)$ consolidates in a 170 pt range between 7334 and 7500. This consolidation period may last up to a few weeks or a few months: regardless, 80% of traders are going to give back their gains by being too impatient. Once the dust settles and impatient traders' buying power is exhausted, $S&P 500(.SPX)$ breaks out and moves towards 8000.
It's too early to call a top or a bottom, and you shouldn't care about trying to. Good traders are reactive, not predictive: have a couple scenarios in mind, take note of key levels, and execute accordingly. Your desire to make money needs to be greater than your desire to be right if you want to last in this game.
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