Market Volatility Doesn’t Matter With This Strategy
What do I do to handle market volatility, like we’ve been experiencing lately?
Well, I’ll tell you what I don’t do.
I don’t panic-sell my biggest winners… or rush to trade the move without thinking it through.
Honestly, it’s not much different than any other day.
I get right to work, analyzing open positions to see what we can take profits on or roll out of, then look for new opportunities to capitalize on the volatility.
That’s because I trust my systems and the charts.
A key mistake traders can make in volatile times is overtrading.
Immediately jumping into bullish trades, only to see the weakness last a little longer than they expected and suffer sharp losses.
It’s typically the first reaction to a dip in the markets — buy, buy, buy.
As it continues to show weakness, or at least not quickly bounce back, your confidence fades and you take some short-term losses.
Then the market takes another dip before it bottoms and eventually heads higher — the move you wanted to capture in the first place.
It’s all part of the vicious cycle traders can be on without a clear strategy in place. I’ve been there too. It’s all about stripping emotion from the equation.
Once you start to rely on a system that gives you clear signals, even a 3% down day is no different from a day where stocks go nowhere.
By following a profitable approach, and sticking to the key levels I point out in my Quick Takes videos, you can be well on your way to profiting from any type of market volatility that comes up.
So today I want to revisit some stocks that landed on my Bank It list in recent weeks, but are still trading above their key levels and set to head higher from here.
3 Bank-It Names to Ride Out Volatility
First up is Crocs (Nasdaq: CROX), the shoe/slipper maker…
I added it to my Bank It list back on August 12. It had climbed as much as 10% higher, but is now back around where it was that day. There’s a clear green support level we want to keep an eye on.
As long as the stock is holding above that line, I’m expecting the stock to continue to climb.
Palantir Technologies (NYSE: PLTR) is another stock I covered back in August. After trending higher for months, it dipped on the volatility earlier this week…
With the stock hanging on to this rising trend channel, between the green and red lines, I’m still bullish on the stock. Look for it to head above $30 per share in the coming weeks.
And this next one is the strongest Bank It stock yet. Look at the breakout for STMicroelectronics (NYSE: STM)…
It was trading near those highs when we covered the stock, had a slight pullback, then surged from there.
With the stock dropping 6% earlier this week, it gives us a great entry point into a continued rally from here. Use the orange line on the chart, around $42.50 per share, as the major support. If it closes below that price range, it could fall into the $30s pretty fast.
A Strong Approach to Fall Back On
The next time markets turn volatile, you should revisit old price charts from my Bank It or Tank It videos, and follow up on the key levels I point out.
The market makes moves every day. Some Bank It stocks will fall to the Tank It side of my analysis after a price drop like this.
But it’s not the case for these companies, or several others that have been on my Bank It list in the past.
In times of volatility, you have to have a strong approach to fall back on.
Something that keeps you ahead of the game, instead of chasing the swings in the market. The last thing you want is to let your emotions guide your decisions when things are so uncertain.
And sticking to the key trends on the price chart will keep you in the right direction.
Chad Shoop, CMT
Editor, Quick Hit Profits
Chart of the Day:
Zooming Out on U.S. Stocks
Today I want to zoom out and take a look at the long-term picture for U.S. stocks, by way of the SPDR S&P 500 ETF (SPY).
From the bottom at the end of March 2020, all the way to now, the S&P 500 has bounced off the blue support line six separate times. Over the last couple weeks, though, that long-term support line has broken.
Looking just at this blue support, things don’t seem pretty. But there are a couple key reasons why this is likely just a cooling-off period, and not the beginning of another major tumble.
First, look at the horizontal support lines the S&P has established throughout the past year. In short, the more times a wick or candlestick touches one of these lines, the stronger the support. Using this technique, we can see the S&P has three areas of major support to catch any sudden drops.
Also look at the RSI. The RSI on the S&P 500 has been elevated — not overbought, but certainly elevated — for most of the last year. It hasn’t really had time to work off the overbought conditions and return to neutral, as we see during healthy corrections.
There may still be more downside ahead, of course. The S&P looks set to open today right under its former support line — now resistance. If we break back above that line and retest it as support again, the bull run remains intact.
But like Mike and Chad, I see this recent 5% move as the kind of healthy correction we haven’t experienced in nearly a year. It was sorely needed to propel this bull run even higher.
Managing Editor, True Options Masters
Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.