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 is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains.Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.