If you're breathing a sigh of relief because the Dow Jones Industrials rose a whopping 669.40 points (or 2.84%) Monday, don't think you won't have to hold your breath again.
We're not out of the woods yet.
The market's jittery, to say the least. A super-solid move upward on a Monday, which handily erases an ugly drop the previous Friday, could just be what Wall Street calls a "dead cat bounce."
Here's where the dangers lie, how to play this rally if it continues, and how to tell if it's a head fake.
Listen to What the Markets Say
If there's one lesson you must learn, it's that the market does what it's going to do, no matter what anybody says or predicts.
Sure, there are reasons that analysts give for the direction they expect the market to go in. And, most of the time, they make a lot of sense. But it doesn't mean they'll be right.
After the market's made whatever moves it's made – whether it's over years, quarters, weeks, days, or hours – those same analysts will give better reasons for why the market did what it did. Because it's always easier after the fact to dissect your subject when it stops moving.
The problem is that markets never really stop moving.
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So what I do to figure out which way the market's likely to move, especially over crazy volatile periods like we've been experiencing since February, is to listen to the market itself.
Yes, the stock market speaks. All markets "speak."
They speak in a sign language that translators copy verbatim as technical analysis.
Technical analysis is simply a record of what the stock market, or any market for that matter, says it's doing (intraday price action) and has done (closing price data). If you listen to the market, it will tell you what it's thinking about doing next.
It's not perfect, or even always right, because just like people change their minds, markets do, too.
Translating "Market Speak"
What's got everyone worried lately is the market's talking out of both sides of its mouth since February.
In price data terms, it's frightening.
The big drop the Dow saw on Monday, Feb. 5, 2018, amounted to a record point drop of 1,175 points (or 4.6%). As bad as that was, it was worse intraday. Before the market closed that day, the Dow traded down 1,597 points to 23,923, before closing at 24,345.
It doesn't matter that the percentage drop wasn't a big deal. The worst one-day percentage drop was 24% in October 1987.
What matters was the steep slide: the Dow traveled more than 22,000 points up and down from the open on Monday, Feb. 5, 2018, to the close on Friday, Feb. 9, 2018.
Now, that sounds like crazy talk.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
On top of the free newsletter, as editor of The 10X Trader, Money Map Report and Straight Line Profits, Shah presents his legion of subscribers with the chance to earn ten times their money on trade after trade using a little-known strategy.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on FOX Business' "Varney & Co."