After a volatile week in the markets, I hope you got some rest this weekend!

We had lots of activity, and will likely continue to see large volatility going into next week.

If you’re a trader, this is what you live for. This is why you trade. These are days with great intraday action. I can’t speak to whether this is what you want to see as an investor, as that’s not my area of expertise—I’ve been trading since 1991. That’s where my expertise lies.

So, let’s talk about trading.

When we have a declining 5 DMA, it’s guilty until proven innocent…

…but the S&P 500 is above a rising 5 DMA now.

However, that’s not an all-clear, because we have declining 20, 50, and 200 DMAs, so I still consider this rally highly suspect.

Again, I’m a trader. So, when I look at stocks, I look at what’s the likely probability—not at the endless ‘possibilities.’ I don’t believe in simply buying the dip, even if we did just have a generational buying opportunity from an investor’s standpoint.

But I doubt it was. Look at the weekly timeframe on $SPY: We’re still below the 20, 31, and 42 WMAs—same as in March 2022.

But we also saw some phenomenal rallies then.

We can have great rallies now, too. And there’s nothing wrong with trading those.

Just remember that, in a downtrend, the sum of the declines is greater than the sum of the rallies.

Even if we have put in a low, that low will likely be retested—most likely, we’ll slightly undercut that low, then reverse. If that happens, I’d probably buy as it reverses, with a stop below the low.

But I wouldn’t be comfortable investing—not until the moving averages flatten out and start rising again, and price confirms. Until then, if it doesn’t scare you out, it’ll wear you out.

I don’t know whether the market has made a low.

And honestly, I don’t care. It doesn’t matter for my timeframe.

Similarly, I don’t care if I miss a gap up—not when we’re still trending lower on the longer-term timeframe. As a trader, I look at the short- to intermediate-term timeframe. And lately, I’ve been day trading, with some small overnight holds.

I just trade what’s in front of me: A trend, once established, is more likely to continue than reverse. V-bottom reversals are rare. They can happen, but aren’t the most likely scenario here.

Right now, the futures are higher. So, great—we’re rallying.

But while we’re below declining 20, 50, and 200 DMAs, this rally is more likely to fail than to mark the start of a reversal. It can happen, but again, that’s not the most likely scenario.

Be aware of the possibilities and know your timeframe.

Learn to anticipate how the market will respond to key levels.

Anticipate potential scenarios—like the slight undercut example earlier.

Or maybe price will rally, then get trapped by the 5 DMA before breaking down. That’d be a great short for a continued move lower.

Anticipate potential plays, and ask yourself:

• What’s your timeframe?
• How much are you looking to get involved?
• Most importantly, how much risk do you want to take?

Look at Palantir as an example.

$PLTR has just made a 50% move. Sure, it can keep going, but we’re not trying to look at endless possibilities, just at what’s most likely—in this case, a pullback.

Besides the usual names, I always get asked about stocks that have already gone up 10% or more in a short period of time.

But always go through the questions:

1. Where has it come from?
2. Where does it have the potential to go? Where is a source of potential resistance?

You want to establish whether the risk is worth the potential reward.

With $WRB, for example, I don’t see it—not for a new purchase.

You’re not the first to discover this trade idea. I’d much prefer to see it pull back, and test the 5 DMA and anchored VWAP off the pullback low, then maybe buy it as we see a resurgence of momentum, with a stop below the recent low. But personally, I have no interest in this name.

Or $DG—another name someone asked me about. The first thing I notice is a declining 200 DMA. Then there’s the recent, uninterrupted 30% move, and the increased volume on the recent pullback.

That doesn’t excite me. I’m not trying to be bearish here—just pointing out damaged goods while we’re in a larger downtrend.

Again: If it doesn’t scare you out, it’ll wear you out.