Recap of last week
Insane week where we traded 4800s, and almost tapped 5500 again.
I was looking for a 4800 support to come in on a gap down on Monday which we got. This provided the low of the week, and to be honest I think the low for a couple months at least. As is typical, right when a trend is fully extended and hitting its peak rate of change, the crowd starts to extrapolate the pace and intensity indefinitely into the future, when in fact its about to just die. At 4800, everyone started calling for 4500, and 4000 when in fact the trend died and reversed on a dime.
I also reiterated you wanted to jump on any SPX longs with a 4 handle. That turned out to be a decent call as the inventory was gobbled up almost instantly and we got a monster 10% bounce in mere days. The SPX averages about 10% a YEAR, and that 1-day squeeze was the biggest up day since the Great Financial Crisis.
The lesson from last week is you do NOT want to get cute and sell everything during a market crash to buy back lower, because you may be left out waiting in the cold. We chose to hold. We had to suffer a gut wrenching one whole week. Big fucking deal. Its an unrealized and mark to market. If you sold during last weeks crash and missed the random Trump tweet that sent the market up 10%, how the hell are you going to buy back in? You have to chase or will never make up the benchmark. Crucial to understand I think, during periods of extreme volatility and illiquidity (ES top of book was 10% of what it usually is) you should pivot to focusing on the dimension of time rather than price. Yes stocks were 4800 last Monday but now they are 5500 almost. Why cry over a 1 week drawdown. Remember the SPX wasn’t really valued at 4800 last week, that was simply the last traded price which shows up on your broker. When the market gets into extreme panic mode like last week, the worst thing you can do is sell your longs at the lows, its almost impossible to recover from that.
Luckily, I believe the worst is over. This not a regular market, its a total crisis type situation. You just need to get through it and survive, when VIX falls back below 20 and liquidity returns it will be an active trading environment again. Its absolutely easy to make a mistake you will never recover from during this volatility, and you must avoid that at all costs. Dont be a hero. This tariff hysteria hit its crescendo last week and things will start to calm down now, and we will once again be back into a nice trading environment.
The real question is did the Trump pivot come fast enough, or did he do lasting damage?
Next move for markets