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Ep 71: Stock Trading in Volatile & Fearful Markets

February 11th, 2016

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Hey this is Sasha Evdakov and welcome to another episode of Let's Talk Stocks, where we talk about the market, give you some insight and just give you some ideas for trading.

On today's episode of Let's Talk Stocks we are on episode 71 and we will be talking about the volatile market. That's the name of the game, that's what we'll be looking at evaluating. We’ll be looking right at the charts and I'm going to take a look at some of the popular companies as well.

That way I can give you some insight on what's going on underneath and how the charts are moving reacting and behaving. If we take a look at the S&P 500, which is one of the indices that I really love trading and it's one of the industries that a lot of big investors also look at.

Let’s take a look at the market

This indices right here, if you've been with me for quite some time you know and understand what's going on underneath and what we've been talking about over the last month and just the different things have been talking about.
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We discussed that we were moving sideways for quite a while and I said that if we break certain levels, we were talking about this 2000 level in the past, that things could get nasty real nasty and here as you see unfolding or things unfolding over the last month and a half year or last month.

Things have been getting fairly nasty, at least the according to the news, according to what's going on and what's happening and you know in part they say this is due to economy, this is due to oil prices, in reality it doesn't matter what the core reason is because there's multiple reasons that impact the market.
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There's multiple things that affect the markets, it’s not one specific individual thing but looking at the overall pattern for those of you that are my let's say intermediate to advanced traders, or people that have been with me for some time you’ll slowly start seeing this A to B, B to C, and C to D pattern forming.

What does that mean? What is my prediction basically off of this A to B, B to C, and C to D  pattern, because we haven't finished the C to D and you don't know the pattern until it's fully complete but this is how stocks move, this is how they move in behave.

For me what I'm looking at is that potentially for the small term, meaning small term here over the next month or two these stocks are nibbling and touching this level of support that we're discussing here at eighteen hundred and ten eighteen hundred and fifteen, those are the key support levels 1812 really is the base.

Then if we dragged the S&P line all the way over, you'll notice the lows in October of 2014 is right around 1820, that's a critical line of support and we've basically broken that a little bit we're touching with it we’re playing with it.
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What happens is similar to house tax don't go straight up they pull back and retrace. The same thing here in today's markets and in this month's markets. They're not going to go straight down you'll notice here if we delete some of these lines and we look at the trend from January of 2016 all the way to the mid-January here of 2016.
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You'll see that we went straight down but we didn't go in a perfect straight line I mean there was a few little pops that we had, a few green bars such as on the January 11th and January 12th we had some green bars that popped but then really what we had was a slight retracement which was our B to C leg right there.

The B to C leg was right here after about 10 to 12 days starting on January 20th. So that was our rebound then again we took it lower and if we look at the SPY, which we can see the volume here, you can see that the volume to the upside or the volume that was strong was to the downside.

Right here from January to Mid-January, January 19 we had strong bearish volume then when we retraced that volume died down. In fact, you can have it look at like a C-shaped pattern from January 19th to about February 1st, it’s like a C shaped pattern.

Then once we continue to break lower the bearish volume started to again increase and then you had the chance with Yellen now I'll give you some insight about Yellen and all these chats these big chance with Yellen.

All about Volatile and Fearful markets

Now, to give you some insight about Yellen and all these big chats, when the big boys start talking, now what you want to do is just hold off on your positions because it can really throw a lot more volatility into the markets.

Now today, what happened was that we basically, if we look at the day action on me give you some run down for some key levels I was watching especially during the chats and things like that.

I'm looking at this low on January 20th, I’m looking at these lows that we had right around the 181 or the 1812 level and we came back to test those levels, we bounced off of that. Now they said, the news said whoever said it doesn't matter who said it, they said that this was due to the OPEC meetings that they are thinking about production cuts.

Now imagine this coming out exactly where this support line is, do you think that was planned, think about that for a minute. Do you think there are some well I’m not going to say conspiracy theory, what I'm going to say is do you think that this somehow was planned potentially to stabilize things.

Most of the people that are doing the trading, the investing, a lot of these major players they have insider knowledge and you say that they don't, you say that you know everybody's playing fair the reality is they will manipulate these markets.

They will manipulate these markets, take my word for it. What they'll do is they'll bounce it, bounce it then spike it. They'll see if they'll get any new buyers coming in, they'll see if they get any retail traders and then the retail traders are saying “Oh, this is the bottom. Could we see the bottom?”.

Oil prices are bouncing and a lot of people get sucked into these positions unfortunately especially if you're new, they’ll say “This is a great place to buy and then later a few days later things continue to roll over”.

Unfortunately for me personally I’ve been burned way too many times on these kinds of trades where I'm trying to fish and catch a bottom.

A lot of times what happens is they’ll hover, they’ll spike around this region or area and then what they’ll do is they will see when the buyers are drying up and then they will break it lower. Now I'm not saying we can't do another B to C retracement, like we did from January 19th to 20th all the way for thirteen, fourteen days and we had a nice huge run.

If you look on the S&P, we had a nice run of about 126 points, this B to C pattern but I mean that's still a hundred and twenty-six points relative to the overall move of two hundred and sixty eight and if we look at a Fibonacci level from the swing point right here.

I’m just going to share some insight with you guys here look at how beautifully that comes into the swing point so what I've done is I’ve drew the swing point from December 29th 2015 highs all the way to January 20th lows.

I drew my Fibonacci levels right here and then the Fibonacci level goes to 50% at the nineteen hundred and fifty S&P level. Imagine that, how does that line up perfectly and if you look at it right here this comes back up to it as well, this January 12, we have it testing January 13.

Then more importantly this February first we had a testing and what happens at the beginning and end of the month? Window-dressing, they rotate positions to show the investors the people that are not not watching the stock market “Hey we got these positions, hey we got those positions”.

So they needed to change the positions at the end of the month and then after the first of the month what happens? They continue rolling it back over. I hope the light bulb right now is going off. Do you understand what's going on right here?

Look at this stock, look at the February 1st we're doing position rotations were coming into the end of the month January 28th we go higher, then January 29th we go higher we need to show something for our investors. January 29th we’re going higher again in those three days we had a pop of 58 points on the S&P.

Now February first we start rotating out of positions, it's almost even territory. Then again February 1st still rotating then February 2nd we’re pulling it down. February 3rd, we continued to pull it down.

Look at the Fibonacci level how it comes right into 50%, remember what I say about 50% to the upside. A retracement a 50% if you're doing any an A to B, B to C, and C to D patterns such as this, a pullback to 50% means the stock is still fine and healthy.

Now what happens if you do it on the down side because that's what we did on the downside, that means it's a healthy pullback, a normal pull-back that means that right now, especially if we break this 1810 level.

You’re going to see that floor and that rug being ripped out and you heard me talking about this market that things could get nasty. I talked about it before you know now we're looking for bottom buyers, we’re looking for bottom fishers value buyers.

So, what could happen right now this is where the dangerous territory lies, if you're too early and you get in too early here at the 1809 - 1808 because kind of get in too early, you’re trying to short the stocks you're trying to get into early you could get burned cause what they might end up doing is they might go to about 1,800 and give you another 30 points to the downside and then bounce and whipsaw right back up violently because there's so many people short.

There are so many short people on the position, and me including we will cover very quickly if things start reversing you know because you're just taking your profits you saying I don't want to lose my profits I'm out so what they'll do is they'll start buying those shares back and that'll run those stocks back higher and it could get it back up you know 1950 level on the S&P.

Then again you could have a second round of selling but you know that really just depends what's going to happen tomorrow but some of these things what happens, is they will isolate there for a few days so which you may get is similar to what we did over here on September 28th and 29th you know we had a slight little bounce.

Then the next day we actually bounced, so you may get a slight little bounce over the next day or two but if it just hangs out there for a little while, because what stocks can do is what they can do is they can hang out.

What they’ll do is they will hang out for a little while, let's take a look at this region or area of August in the 2015. Look at what happened here, what they'll do is they'll hang out for a little while, they'll hang out for a little while and then energy builds and then they break lower but they're hanging out at this support level.

We can take any stock the same thing happens on these stocks. It doesn't matter what company you talk about. Pick a company and you'll notice that they hang out especially the big companies. Same with Apple as we get into January here of 2016 stock is heading lower we know it's heading lower then it'll bounce it's trying to hang out and find the retail buyers trying to find this bottom fishers then it reverses on Tuesday.
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The next day, January 5th then it continues to move lower January 6th so that's what happens and now look what's happening with Apple right now. The lows of this crazy fast August 24th flash crash low is now being tested we’re hanging out in the longer they hang out in that area the more likely it is to break if it keeps pushing lower, think of it like a jackhammer, think of it like a hammer a tool keeps pounding on that roof.

The more keeps pounding on that roof eventually it's going to break through.

The same on the reverse if it's pounding and pushing to the upside, the more likely it is to power higher to the upside but in this case we’re pounding down but it could be building a base so you want to always watch it and wait for the true break.

Several stocks to look at

Now we talked about Tesla even tweeted about this one, I was short in this stock, it's one of the reasons why I don't trade earnings because you see what happens is that these things reverse, the earnings were horrible, well the earnings were not very good he estimates or the projections they seemed fairly optimistic.
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What does that do to the stock? Well first it sells it off then it continues to power it higher after hours, now today it continues with its regular momentum, so could have been short covering it? Could have been, but this is why I don't trade earnings is that we were watching this critical line of support of support in 180 level.

A lot of members asked me about this and you ride that stock down all the way for twenty thirty points, I mean how many of you would love to get 20 or 30 points in a stock, you write it down and if you look at this hourly rate here you can see here the A to B, B to C and C to D.
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Normally I don't really look at this but you see it evolving right there, instead the bigger picture right here on the daily you can see it’s a nice solid clean, it's a very clean support line. If you look at the weekly, that line is crystal clear so you get in it when that breaks, BOM, you're in and that's it.
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If you look at trip we had the same exact thing, so if we take a look at this weekly, clean line of support breaking. Now it popped due to earnings in this is one of the reasons I don't trade earnings, I get out and but you can see it reversing.

When you look at all these stocks doesn't matter if it’s Amazon and so forth what you're doing is you're looking at the pattern in here here's our A to B, B to C and C to D and if I take the Fibonacci level, let me just take this Fibonacci level on Amazon here you can see, let's just see how it plays out.
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Reduce the volume and look at how that plays out. We get up to the 38.2% line our spike was at the 61.8% line right around this 640 level and then we continue rolling over. Our projected move our A to B was a 150 points, our B to C, is a 160 points, we’re just ten point.

Now, what could we be doing? Building a little base and the fact is when I start looking at all these stocks I'm watching all these Facebook's Netflix Tesla's watching these big companies and I'm starting to see ok well what did they do is that the A to B, B to C and C to D?

Once they hit their D, move something new can happen we can build another B to C leg and then roll over and or we can go sideways a little bit and consolidate or we can just continue heading lower.

Now the healthier movies to bounce a little and then continue rolling over or move sideways and then roll over so when you put all of these stocks together you can start looking at the composite the same way.

You start looking at it ok what do I have here A to B, B to C and then I need a C to D, so where would that put my trades? I look at the S&P 500 A to B, B to C, and C to D. Now because many stocks have finished they they're slowly finishing their ABCD pattern so that's why I think you might get a slight little pop here for a few days.
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You might and you might not, you might get a little sideways action, we'll see if they hover around but because we have the A to B, B to C and C to D you know right here at this on the S&P is two hundred and seventy points.

Taking this out to 270 points could put us to around the 1665, so if we take this out and we look at the 1665 level and we start looking at that level, that puts us right around here so that gives us if we take the swing lows to the swing highs 1665.

Puts us just slightly above the 38% retracement from the long-term highs which would not be unhealthy it would not be unhealthy, so if we line this up, the Fibonacci levels from the swing lows of 2009 all the way to the current highs and you do a pull back around 1665 due to the ABCD pattern you’ll still be fined.
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If we get to 1580 you'd still be because you're still at 38 percent. Right around here the 50% retracement is at 1413 and look at how these lines and numbers line right up. If we get to 38%, it put us right at this swing highs of the 2000 and the 2007, it puts us right there right at those points and the would the stock market would still be just find.

Anyway in the in the short term view it does look scary, and it does look dangerous but overall it looks fairly healthy. The one thing that's a concern for me is that a lot of people are on the short side right now so you do get some violent action to the upside and buyers stepping in.
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If you take a look at the McClellan oscillator and you start looking at it here on the two day or weekly, we're not even, we're almost at a neutral state, we’re almost getting into oversold area but you're not even that far oversold.

We could actually see more selling coming in and the markets weak and once it starts breaking and once you start seeing it being this weak and you start looking at the IWM and you start looking at all these different things.
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IWM on the weekly start seeing it right here, this is breaking clear break to the downside. Once you see the QQQs the same thing. When you start looking at this QQQ, you know right here we look at the Qs at the 100 level we're breaking.
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Again, crystal clear that we're breaking in these patterns and we're doing it on volume as we look at the volume were doing it on volume so these things usually take time to digest. How long of a time? I don't know could be, its used to three months at least six to eight weeks minimum but because bearish markets are shorter because there's fear there's emotions.

If we trade about six months’ worth of bearish markets then that's probably I would say decent and realistic. I don't think all of a sudden, do things change right away and very quickly from feeling really bad and crummy and then all of a sudden change right away to fantastic?

If you have an argument with your best friend and there was a serious issue does that argument flip on a dime right away? Typically no, those wounds take time to heal and the same thing here there's going to be some people that are going to be really scared to even get back into the market because they're losing big time, they're losing a lot of money.

Some of the people that are looking and in doing more active trading and so forth so there's going to be some people scared to get back into the markets and so what you want to do is just look at all these different indices between this composite, what you're watching between the Russell.

You see that the that they're all really breaking lower and I talked about the nastiness of the market coming in and I think now we really saw it right now, is there more to come?

The question comes down to shall we or will we get a slight consolidation and pop in which case we may get a temporary pop but the energy, if I look at the monthly and this is one of the good ways to really look at things.

If you just look at the monthly chart it allows you to simply look at colors. It allows you to just look at the colors of the market and as I extend it, it allows you to see things at a more extreme level and on the monthly you can see that we are clearly in bearish territory so we're leaning more to the downside.

You can see that the colors are red and you do the same thing with the QQQ, you can do the same thing with the SPY, you can do the same thing with the IWM, I mean it's clearly; the sentiment is to the downside you.
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Even if you get a slight pop I mean the Bears are in control meaning trades to the short side are more favored and that's really where I'm set up and position as well and you may get some people that take these stocks higher intake these indices higher and you get stopped out because you'll get violent pops but being patient is something that takes time to learn.

When you're not patient these are the things they can whip you around and give you a lot of trouble so sometimes just best to sit on your hands and if you can learn to sit on your hands these volatile markets are not a big deal they just simply allow you to buy things at lower prices.

Imagine if you're able to get back in right around the 780 level right here where the market 780 - 790 level, market comes back there and then you get another two you two to five years’ worth of gains for an extreme amount.

That's typically what happens, is after a major selloff you know you get one year or so just like over here. In 2002 to 2003 you get sideways action and the same thing here in 2009 to 2010 there’s kind of a sideways action a little bit right in the middle of 2008 to mid-2009 and early 2010.

You get some sideways action and then you see the market take off. The same thing here if we get a pullback to even if we get it to 1575, if you get half a year of sideways action after that then you see the markets again take off then it's a perfect opportunity to get in.

It only allows you, the selloffs only allow you to get things at a cheaper and lower price so you might get three or four months maybe six months more of selling, it could be a full year of selling, it really just depends how bearish things get but then you might see you know about a year or a year and a half could be six months’ worth of digestion and then things again could be at a good value.

That's just natural it's a rubber band when it gets too far stretched it comes back and gets to far stretched it comes back and then it powers higher.

Final Reminders

Trading in these volatile markets if your trading, some tips make sure your trading lighter shares. Make sure you also be more patient on the bigger term picture that you're holding it for, if you're holding it for let's say a month then know the bigger picture for a monthly move.

Know what would you expect the next month and don't get caught up in this whipsaw, see-saw action because what's going to happen is going to whip you around so that's one of the reasons why you would want to trade less shares.

If you're not good at shorting or reversing your positions or being in and out quickly or you're not great with computer, your computer software trading platform you probably want to sit on the sidelines because these are faster moving markets.

If you can't handle volatility like on Amazon here what happened was basically I was watching it today you can see right here we had we had a drop from the highs of about $8 and then from those highs later on in the day we had a pop of about 16 points.

This volatile market can really burn you and burn your account and can really hurt you emotionally. The same thing with the S&P today what we did was we had a drop of thirty seven points on the S&P and a pop of 28 points later on in the day.

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If you look at the Dow Jones, general really check too often but it's the same concept you had a drop of almost 400 points and then a pop of 221 points so the see-saw action is something to be mindful of what.

But what would you do want to do is you want to check the end of the day action, so you're watching and you’re seeing this pop in and this is just due to the news and you know it sucks a lot of people in unfortunately this 2 to 3 p.m. area that popped it.

Could stocks continue higher and in get in we are slightly oversold so yeah of course they can continue higher little bit but at the end of the day there's still more selling that came in, this part continued to roll over slightly.

I would say if you’re trading volatile markets just trade lighter, be mindful wait until the volatility is over if you're not trading which you'll see, you'll see those things happening in moving sideways once you see things not moving so much day by day then it's time to kind of step back in.

However, a lot of this has to do with just all the events and activities happening in the markets between the technical, the technical were set up and poised from the Dow Jones to the S&P, the technicals were there set up ready for it to roll over between the yen between the Janet Yellen things that are going on with the conversations.

Then the Fed they're not going to make quick decisions and rush decisions, they don't want to stir up things. All this questioning I mean I know they drill her really hard but it but a lot of it is I mean what else can she say what else can she really tell you she says well we're going to evaluate things and we'll see how things move.

If things are you know get really wild a really crazy then we'll make adjustments but I mean we're going to just try to do our best for the job in the best way that we can do it. I mean what more is there to really say about those press conferences, to me a lot of it is just you know it's just air there's not much to them and then people were you no wondering, she said this word or she said that word.

Just don't read into it too much you know, just watch how the market reacts rather than worrying about what exactly is being set. In fact it's better to just turn those things off, go and read a good book and then come back once it's over and then make your adjustments to your positions if necessary because sometimes I just like when she spoke the other day.

February 10th, 2016 so at first she was speaking and let me just use the S&P on this so before she was speaking there was a little bit of the lighter moved so we basically had a thirty-point move in the S&P and then we had a slight selloff to about from here to here we had only an eight-point positive and then we slowly started to get back to even.

Then things started to roll back over and we were we ended the day I think one or two points down or up on the S&P and the Dow Jones on that day and  about 60 points, 70 points down on the previous day.

It wasn't that huge so with these press conferences a lot of them are you know that they're very fluffy filled with air there's not much substance because what else can you expect them to really say I mean she's trying to do her job.

She’s just trying to do the best that she can and she's not going to say anything rush one way or the other because it can disturb the markets and you know they don't know exactly what they're going to do until they need to do it.

I mean they have plans in place to do one thing or another but it's you know they'll course correct and it's tough to make a course correction with the big ship very quickly. So, all they can really do is just span or stretch that interest rate time frame.

They can condense it, speed it up or stretch it out you know there's but you know to turn a titanic it's very difficult so there's no way that they're going to say oh yeah tomorrow we're raising rates and the next after that we're raising rates as well.

As far as your own positions, you know take your profits in the strength. Always watch when the market is coming into these critical lines of support like the S&P here and then look at the energy the way that's moving.

I mean the market here is making fresh two-year lows and typically that just tells you things are breaking and sometimes these windows take time to break, sometimes the flora takes time to break so I would say that we probably have not seen the end of this yet but I think we may get a bounce here or there which would not surprise me because we just had so much selling and so many people short.

Hopefully this gives you some insight to the markets to how they've been moving behaving and so on. As for me I'm still trying to pre film a lot of videos here for the next month or two, typically what I like to do is presale videos in advance so that way I don't have to do them.

Once I get more of that done, I already have about 12 hours of the option course complete so about twelve of it has done in I'd say that's only about 30% of it so I'm estimating it to be about 30 hours long.

I continued to make that course but right just do the trading with the markets the way they are. I’m having to focus a little more on that but I am still working on the options course and I do have a good amount of footage filmed, done and complete.

I just have to film probably about another 20 or 30 more modules and then I'll be off to manufacturing and all that good stuff but other than that you know just continue trading them well, continue to watch and study and learn the markets.

If you're not trading just continue to educate yourself because these times are not one time a bouncer going to happen sometime in the future. The banks of course are moving fairly low and sell off and if you're watching to get the banks at a lower rate Bank of America for example watch for that $6.70 mark or even the $5 mark, these things are selling off the highs and they move slow.
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I think we posted this in the critical charts before watching this line of support at right around $15 level and you can see also on these daily charts here's the A to B, B to C and C to D pattern which should take it right around if we do it and see this, A to B is 4.50 and here we take it right around 4.50.

It should take it right around nine bucks but we got so much volume coming in that you know bringing it back to right around this level of $10 would not be unheard of.

The same thing with these JPMorgan's and everything else that goes along with it, they're acting weak and once the bank's roll over and you got the same thing happening with a lot of other stocks, it just pulls and sucks everything it as well so it’s just a ripple effect.

Think of it like a hurricane and it’s sucking everything in and that's what happened.

Enjoy the rest of your week, enjoy the weekend and make the most of it. I hope you have a great time in whatever it is that you're doing, for me probably planning out more videos for you guys. I’m working on the course and continue to work on the options course it’s a monster so it's going to take me a little bit of time but still working on it step-by-step.

See you next week trade them well!

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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