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If You Missed Yesterday's Huge Rally, Read This...By Jeff ClarkTuesday, October 14, 2008 "I quit."
Cal dropped his account book on my desk, tossed his hands in the air, and said, "This just isn't fun anymore." He turned and walked out of my office.
That was the last time I saw Cal. It was October 21, 1987 – just two days after the stock market crash.
Cal, an otherwise conservative trader, had blown out all of his accounts. Thinking stocks couldn't sell off much more, he bought heavily into the market decline on Friday, October 16.
By the end of the day on Monday, he had stopped out of every trade. All of his accounts suffered huge losses.
But that's not why Cal quit.
He quit because he missed the rally over the next two days. Stocks crashed on Monday, but then the S&P 500 rallied 15% by Wednesday. Cal sold at the low and feared he'd never get another chance to buy stocks that cheap again. So he walked out.
Lots of traders were caught on the sidelines during yesterday's amazing 936-point rally. So lots of traders are probably feeling like Cal. But don't worry. There's always a second chance.
Here's what I told my Advanced Income subscribers last Thursday...
The stock market is long overdue for an oversold bounce – a quick rally that catches everyone by surprise, forces cash-heavy investors to chase stock prices higher, and inflects massive amounts of pain on greedy short sellers who held on to positions for too long...
It wouldn't surprise me at all to see the Dow rally 1,000 points, and the S&P 500 could explode 150-points higher. It could happen in a matter of days.
The problem is oversold bounces are temporary. And strong intermediate-term bottoms have to be retested.
No matter how strong of a bounce we get here, the odds are quite high stocks will come back down to retest today's low prices. Traders can do quite well buying stocks at current levels in anticipation of a bounce. Investors, on the other hand, should wait for a retest of the bottom.
In 1987, the stock market rallied for two days after the crash and then spent the next six weeks chopping back and forth before testing the bottom on December 4.
Back in 2002, stocks rallied 20% in just one week after the bear market finally bottomed on July 24. Ten weeks later, stocks were right back down at the bottom. Traders had another opportunity to buy.
Yesterday's rally was powerful. And the S&P 500 can probably still rally another 50 points or so before hitting resistance.
But there's no need to go chasing stocks higher. Friday's low, just like the lows in 1987 and 2002, will be retested. And that'll be the time to put serious money to work.
Best regards and good trading,
Jeff Clark
Further Reading:
It's Time to Take Advantage of the Fear 
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