In Part I I discussed how I put on the breaks on a planned buy in the SPY on 12/11 when price action lowered the probability of a market bounce. This put me in a much better position to play for a bounce on Monday December 14th. Here is a screenshot of my pre-market game plan where I share my top trading ideas for the day. When the market has been hammered for a few days our #1 focus is on trading the market via ETFs such as SPY, IWM, VXX etc.

I took long trades in SPY and IWM in the areas mentioned in the game plan. And added to a VXX short position around 24. The levels that I shared were based on prior areas of support/resistance I had identified on longer term charts. The market had dropped 3%+ very quickly and the probabibility of a bounce was high. Markets are statistically more likely to bottom on Monday’s and Tuesday’s then later in the week. We also had a down day of greater than 1.5% on Friday and since 1990 90% of the time we see a “lower low” established on the Monday prior to a bounce. Also, the statistics strongly suggested a 2-3% bounce for the week following the sort of pull back we had seen the previous week. So the statistics said look for weakness on Monday but to buy that weakness.

The bounce in IWM and SPY was rather muted compared to the sell off in VXX, which completed erased its prior day gains. The same bounce pattern repeated itself the following Monday after another severe Friday sell off.

Steven Spencer is the co-founder of SMB Capital and SMB University which provides trading education in stocks, options, forex and futures. He has traded professionally for 19 years. His email address is: [email protected].

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