Landmines Ahead

Don Kaufman here. 

Let's talk about what's happening in the market right now.

We're seeing stocks advance, building on the recent comeback rally. The Dow, S&P 500, and Nasdaq are all up, with the S&P and Nasdaq on an eight-day winning streak - their first of 2024. Sounds great, right?

But here's the thing: We've been through a choppy stretch lately. Just a couple weeks ago, we saw the S&P 500 have its worst day since 2022.

Recession fears were running high, and there were concerns that the Fed was behind the curve on lowering interest rates.

Now, the market seems to have shaken off those worries. But as traders, we need to ask ourselves: Is this rally sustainable, or are we setting ourselves up for another downturn?

Remember, it's not like we don't have potential catalysts on the horizon. We've got the FOMC Minutes coming up, Jobless Claims, and Jerome Powell's speech at the Jackson Hole Economic Symposium. Any one of these could be a landmine waiting to be stepped on.

So while the market's looking bullish right now, let's dive into why we might want to be cautious...

All it takes is one landmine to be stepped on…

And panic will seep back into the market. 

But the market isn’t pricing any of it in. 

For example, the weekly expected move in the SPX this week, is a shade under 75 points. 

And today it rose 54 points. 

Meanwhile, retail investors' inflows into US stocks jumped over the last 2 weeks to their highest levels in at least 12 months.

Of course, the market could continue to drift higher on low volume. 

But as traders, you’ve got to put your bias to the side. 

And start thinking in terms of probability. 

The market was pricing a modest move this week, and we nearly got there today. 

According to the weekly expected move, we could see another 20 points higher in the SPX, but the bottom range is 128 points lower. 

Now, you don’t have to be a math whiz to realize there’s more downside risk than upside. 

So if you’ve been long this rally, congrats, now is probably a good time to lighten up or hedge. 

And if you’re feeling brave, take some downside shots. 

As for me, I’ll continue to look for more In/Out Trades, just today I closed a winner out in SLV for a solid 30% gain. 

In fact, I’ve been on a crazy winning streak with this strategy. 

If you’d like to learn more about how it works and why it’s so effective in this market, click here to find out more. 

To your success,

Don Kaufman