It is safe to say that when the stock markets were rallying higher it was almost easy to make money. Simply put, if you picked a stock that went lower the overall market would help to rescue the equity from the decline. In other words, the stock rally would bail out a bad stock trade. That is why people love bull markets. This is a normal condition of easy monetary policy. Now these markets are not so forgiving. Perhaps you have noticed what happens to stocks when the company misses earnings, they get slaughtered. Just look at stocks such as LinkedIn Corporation (NYSE:LNKD), or Tableau Software, Inc. (NYSE:DATA) recently. These stocks have lost half of their market capitalization after reporting poor earnings. Other companies have been sold off sharply just for initiating poor guidance. The point is that markets are now different and will show no mercy on companies when the news is bad.
So how can traders and investors make money at this time? Simply put, the buy and hold method does not work in bear bear markets. Remember the old market adage, markets take the stairs up and the elevator down. In other words, stocks decline much quicker in bear markets. The only way to make money in this type of environment is to understand and use charts. You must simply understand the technicals. The days of listening to P/E ratios, book value, earnings per share, and the rest of the fundamental jargon is over. You must simply be a short term trader that buys solid technical support levels and sells major resistance levels. At this time, the path of least resistance is downward. Nearly every trading session we see huge price swings in the major stock indexes and this how you can make money in this market. If you are going to try and use the Warren Buffett (buy and hold) approach you better hope that you live a long long time because it could be a while before some of these stocks see their 2015 highs again. Simply put, if you are not a short term trader you won't survive in these markets.
Nick Santiago
InTheMoneyStocks
