I am bearish long term, but this rubber band is stretched too far.

PRE-OPEN MARKET COMMENTS FRIDAY – The market takes the elevator down and we are seeing that this week. During a trend reversal the early stages of that transition are very choppy and there is plenty of volatility as both sides battle it out. Once the trend is cracked, the move accelerates quickly and that’s where we are right now.

Buyers who were scooping dips the last two years have been punished. Now they know this drop is real and they are pulling bids. Those who got it wrong have shifted to “risk off” mode. The bid has dried up and the market hits an air pocket.

They key to trading bearish markets is to take gains into deep drops. Don’t wait for the absolute low unless you are a day trader hawking every tick. The bounces are violent and once the market finds support the snap back rally will be just as violent. If you sell when you have massive profits, you will be exiting options positions when IVs are at their highest level and you will benefit from that.

If you are short, you should be in profit taking mode and you should not be looking to add. The S&P 500 is down 200 points overnight. If the market drops further in the first hour of trading we will be ripe for a capitulation low. This is a temporary move and it it tradeable for Pros. The pattern in the chart below has to be exact. Some traders want to buy a bounce and they will compromise. “Well… it kinda looks like that… maybe this is it?” If you do not have the exact pattern below then buyers are not super aggressive and you will lose a lot of money. Pros will know what to watch for and they will not overstay their welcome.

Novices should take gains on short positions and get the heck out of the way. If you choose to trade the bounce, you can sell short term out of the money naked puts on strong stocks. That strategy will give you some cushion in case your timing is off. You sell them below major support levels that are very unlikely to be breached in the next few weeks. The options MUST expire before the next earnings release.

The jobs report was good. In March 228K jobs were created and hourly wages went up a modest .3%. Those are market friendly numbers, but keep in mind they are backwards looking. What the market cares about right now are the long term repercussions of a trade war. It doesn’t give a “rat’s ass” about a good jobs number because the consensus is that the “hurt” is coming. What consensus, who did you poll?” I didn’t poll anyone, just look at the dang price action the last week. Asset Managers got it wrong and they are in “risk off” mode.

Some of the recent drop is mechanical. Stops are being triggered, institutions who have been “short IV” are having to take losses, investors are getting margin calls and margin requirements on futures positions are higher.

My closing comment is to take gains on short positions today especially if you see the pattern below. You might not pick the absolute low, but you will be close.

For most of you, I suggest going to the sidelines and waiting for a failed bounce. We are going to see some volatility and the swings will be wild and huge. If you choose to trade, trim your size. That will help you to weather the moves. The dollar gains will still be big because you are getting big moves. Smaller size will help you to keep your emotions in check.

If we get the capitulation low, it is only a bounce. Your focus should be on shorting failed bounces and do not forget that.

Support is at $525 and resistance is at the close from Thursday.