When The Markets Hand You A Lemon

On Wednesday the stock market handed most traders and investors a lemon in the form of a news event that caused a big drop.

Lesson #1 from market catalysts that you can’t control, is to focus on what you can control and make the correct trading decisions based on where your positions are, not where you had expected them to be. Perhaps we’ll cover how to do that another time.

The second reaction to a big market move (especially a down one in a bull market which is likely to be catching a lot of traders by surprise) should be to take that lemon and make it into lemonade. Here’s how:

Any time a bull trend is hit with a big range down day it is a test of the strength of the trend, and it creates great risk levels to trade off of which is another way of saying – an opportunity.

The opportunities come in several forms:

Market ‘shocks’ can highlight which areas or sectors of the market are strong, weakening, strengthening, or very weak. If you have special indicators like our Triple Play or Real Motion you can quickly see how stocks and ETFs underlying trends either strengthen or weaken during these shocks and home in on the best ones and most dangerous ones quickly, but…

If you don’t have special tools you can still observe which areas of the market were hit the hardest vs. those that fared better. To do this look at which areas of the market held support levels vs. those that didn’t. AND…

The ‘shock or lemon’ day is just the beginning. The best opportunities come in the coming days and even weeks as you determine which areas of the market have shifted and which just handed you an opportunity to by the dip.

The range of the ‘lemon’ day is your guide.

You’ll see in the comments about the ETFs below that several times I reference Wednesday’s range. I’m really looking at it for EVERY stock and ETF I look at and own, but saying that in every comment would get monotonous!