Let’s be honest — the market feels like it has two minds right now.
On one hand, we’ve got some pretty compelling bullish data stacking up. According to Fundstrat’s Tom Lee, the recent correction was the fifth-fastest in market history. And what’s wild is that every one of those rapid corrections in the past has led to higher prices 3, 6, and 12 months out.
Let’s be honest — the market feels like it has two minds right now.
On one hand, we’ve got some pretty compelling bullish data stacking up. According to Fundstrat’s Tom Lee, the recent correction was the fifth-fastest in market history. And what’s wild is that every one of those rapid corrections in the past has led to higher prices 3, 6, and 12 months out.
Combine that with AAII bearish sentiment clocking in above 55% for three straight weeks — something that’s only happened once before (March 2009, just before one of the greatest bull runs ever) — and you start to see why some people are feeling optimistic.
But here’s the other side of the coin…
March is set to close out as the worst month since September 2022.
And while we did get that bounce mid-March, just like the seasonality charts often show, we gave it all back and then some. It’s as if every time the market tries to rally, some new fear creeps in — whether it’s tariffs, inflation, recession risk, or just good ol’ uncertainty.
So, what do we do with a market that’s clearly torn between optimism and panic?
One thing we don’t do is try to predict which “market mind” wins. That’s a great way to get chopped up. Instead, we can take trades that don’t require us to be right about the direction — we just have to be right about the setup.
A good example? A pairs trade — going long on a strong stock and short on a weak one. If the market bounces, the strong stock can really pop, and the weak one might lag or even stay flat. If the bearish wave continues, the weak stock might roll over hard, while the strong one holds up better.
Worst-case scenario? One stock goes up and the other down, and you roughly break even. But in the best-case scenario, your winner vastly outweighs your loser. And in this market, I’ll take that kind of edge any day.
Could you occasionally get it wrong and the strong stock weakens while the weak stock rallies? Sure. But how often is that really going to happen if you’re selective?, but when you are trading correlated stocks, you remove a lot of that potential.
In this recent chaos, Profit Pairs have stacked up quite a few winners while many of my more bullish strategies have struggled. And that’s a big reason I like to have as many tools in the trading toolbox as possible.
The takeaway here is simple: don’t fight the market — work with it. Have a plan, and use setups that don’t need a crystal ball to succeed.
At 1:30 PM ET today, I’ll be walking through the market outlook and I’ll be going over some ideas like this in the live room. If you’re looking for ways to play both sides of this split-market personality, come hang out. Let’s get ahead of it — together.
Catch the on-demand replay right here!
— Nate Tucci
