Signals & Trading Plan for Monday 2/10/20

How To Trade In This Market
After steadily climbing upward between Oct 2019 and most of Jan 2020 (Surge10), $SPX $NDX $RUT started Major Pullback4 on Jan 22.   $SPX $NDX $RUT are technically still in Major Pullback4.  Even though the charts don’t show it clearly, $SPX $NDX $RUT are going through their Drop/Bounce sequence in a classic way.  

Let’s review the movements of Major Pullback4 so far.  Please note that we characterize these movements by what shows up in market internal messages, not necessarily by the appearance on the chart.   However, if you want to compare to a price chart, take a look at $RUT.  It has the most classic appearance.

• Jan 22-31:  First Drop of Major Pullback4
• Feb 3-5:   First Bounce of Major Pullback4
• Feb 6:  Start of second Drop of Major Pullback4.  
  

Trading Major Pullback4 is similar to trading Down Market.   Traders need to be aware that prices are not going to steadily march down in a stair-stepping pattern like what they did while they marched up for most of the last 4 months (Surge10).  
 
Instead, down markets are characterized by sharp Drops, followed by sharp Bounces.  The effect is equivalent to riding a fast elevator.  Traders need to decide ahead of time what they can stomach.  The choices are:

1. Get in a short position at the start of Major Pullback and hold on for dear life through all the Drops and Bounces, until Major Pullback4 ends.  
2. Try to capture only Drops.  Get out when price starts a Bounce.
3. Try to capture both Drops and Bounces in separate trades.
4. Stay out and wait until Major Pullback4 ends.  

Market internals will give us some intermediate clues as to when a Drop/Bounce starts and ends.  But we caution you in thinking you can nail it end to end.  It is better for your profits and inner peace if you simply aim to take a good chunk of profits from the middle of the price swing.  Doing that while trading small and protecting your positions will help you to maximize your gains and minimize your loss.

Market internals will also send out fairly reliable signals when they are turning bullish at the end of Major Pullback4.   They usually will do so before the bullish mood actually shows up in prices.  The bullish signals from market internal indicators will be our clue that Major Pullback4 is ending, and Surge11 is starting.

In the sections below, we will discuss what the reliable end-game signals are for Major Pullback4.

The full article covers:
Market Internal Indicators

• Volatility & complacency
• Market breadth
• Level of bullishness
• Overbought / oversold levels
• Bullish / bearish divergence

Short-term Support & Resistance Levels

• For $SPX $NDX $RUT SPY QQQ TQQQ

Market Projections and Trading Plan

• For long-term portfolio
• For short-term trades

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