Although I preach taking things one day at a time, now I mean it. We are in one of those markets where you have to be careful not to chase your own tail. A big down day looks a little ominous and a big up day suggests an all clear.
In general, the market has deteriorated as of late. Notice that the Ps (S&P 500) haven’t made any forward progress on a net net basis since July 1st. Ditto for the Quack (Nasdaq). The Rusty (IWM) is even worse. It closed at 111.03 on Monday which is exactly where it closed on October 28th, 2013.
This is not the end of the world but it is an intermediate-term loss of momentum. Even if you didn’t know how to draw arrows on a chart you could simply connect the dots from today’s close to closes of market’s past. BTW, that simple technique can be pretty powerful. So, before you plot your first or 15th oscillator make sure you take a glance at the chart and ask yourself: Where is it now? and Where was it?
On a micro level, even though all three indices (Ps/Quack/Rusty) ended in the minus column, it felt like an up day. The day started much worse than it ended. This is a minor victory. It suggests, at least temporarily, that everyone isn’t running for the door at the same time.
Gold stocks continued to hit new lows. This is in spite of wars, plagues, and latest Amada Bynes arrest. The underlying commodity ended slightly lower and is approaching new lows. Don’t bottom fish here as long as it is headed lower. Do watch for longer-term support and see if it can mount an emerging trend off of it. This might take a while though. I’m just telling you now just in case I get hit by a beer truck.
Banks got hit hard yesterday in spite of a flat market. They are on the cusp of forming a Bowtie down from multi-year highs. What’s concerning is that this developing pattern is coming from multiple peaks. These signals can be very powerful. Take the Semis for instance, they too are on the cusp of forming a Bowtie down from multiple peaks—in this case, a double top.
As mentioned on Monday, the bigger picture classic patterns (e.g. double tops) give you a market framework. The setups (e.g. Bowties) give you an entry within the context (i.e. timing). I’ll discuss this in more detail in Thursday’s chart show. For now, keep an eye on other sectors for similar patterns.
REITS and Energies, which recently tanked, are good examples of what can happen when you combine classical TA with a short-term signal.
Lately, the market seems to rally just enough keep the bulls’ hope alive and sell off enough just to keep the shorts’ eager appetite whetted.
In general though, it continues to deteriorate.
So what do we do? Again, the recent ups and downs can have you “chasing your own tail” if you are not careful. Therefore, instead of trying to be a hero and proclaiming that the bull is still alive or the bear has arrived, why not honor your stops and be selective on new positions? Heck, I think I might even write that down.
Best of luck with your trading today!
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