Did the market over-react going into options-expiration Friday?
Or was it the first shot across the bow & warning to traders that the game is changing?
Given the technical damage from Friday, one might have expected a gap down Monday morning opening to clear out over-levered margin traders, but that was not the case.
Markets can turn on a dime but traders rarely do and that is what keeps this game interesting.
In the Sunday to Monday overnight trading hours, the futures were lower following through on Friday’s ugly down day, but as dawn approached on the east coast, a rally had taken hold to gap the opening up, and strength begat more strength.
Long side misery had turned into a Snoopy the dog happy feet tap dance.
So much for even a whiff of capitulation.
As we do every weekend we turn to the scrolling of charts.
Some of the names that were big bull market beneficiaries are now way off their 52 week and all-time-highs, yet some late-cycle names are near their highs and holding.
Things are changing.
Performance of sectors and individual stocks is now much narrower, and stock picking is evermore the key to making a go of this game we call trading/ speculation.
This change in the environment will demand a disciplined long approach as well as a disciplined short side game.
Risk management is paramount.
Proper trade placement and stop-loss orders will bring longevity to one’s career as a trader.
Down days and volatile markets, separate the hobbyists from the pros.
Those who have anticipated the increased risk are able to limit their exposure and are able to fight another day (or even thrive on the volatility)
Becoming a good chart reader, and understanding risk is the basis for better relative performance in what could be a rocky period ahead.

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