Projections based on market internals
The rest of this article covers: Table of support and resistance levels Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free.
0 Comments
Reducing risks in Volatile Market
We’ve been emphasizing since September 24 that stocks are no longer in a calm Up Trend. They are in what we call a “Volatile Market”. This means stocks are likely to have big rapid swings up (Bounce) and down (Drop). The overall typical direction of a Volatile Market is choppy sideway trading. It is much easier to trade calm Up Trends. You enter and add to your long positions during the dips. You hold for a while and prices will rise up generally. You can be a bit sloppy in trade management and still be able to make a profit of some sort. Volatile Market in contrast is very difficult to trade. The swings are sudden, fast and furious. They tend to be headline driven, but not in a predictable way. Sometimes it’s buy-the-news. Sometimes it’s sell-the-news. There’s no easy way to predict which scenario it will be. During May, August and since mid-September this year, you have had a taste of trading in Volatile Market. It’s not easy. Therefore, in this type of trading environment, it is very important to manage your positions and find ways to reduce risks. The goal of trading is not to prove that you are right. The goal of trading is to make money. Last week, we shared with you some of our very specific rules for entries and exits in Volatile Markets. We urge you to re-read them. These rules are our mechanism to filter out low-probability trades. They ensure that when we do enter a trade, we increase the odds of making profit from the trade, because we are only entering high-probability trades. These rules also keep us from overtrading. Volatile Market can tempt traders into overtrading. This is the number one reason why casual traders lose money in Volatile Market. When you feel the urge to trade in this environment, think about this quote from Jim Rogers who is one of the few trading wizards of our time. I just wait until there is money lying in the corner, and all I have to do is go over there andpick it up. I do nothing in the meantime. – Jim Rogers If you can practice the same mindset as Jim Rogers, you can increase your chance of making money in this market. Wait for the easy and obvious trades. The other philosophy you should practice in Volatile Market is this. Take the money and run. Use our trading rules to lock in your profits. Do not try to ride every swing trade end to end. You will most likely encounter some sudden nasty reversals and end up losing not just your profit, but your capital as well. The rest of this article covers: Table of support and resistance levels Updates from market internals Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Table of support and resistance levels The S/R levels are still the same as in Wednesday’s table. The rest of this article covers: Updates from market internals Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Market context Our short-term message to you yesterday was that $SPX $NDX SPY QQQ TQQQ were going to drop down to key support zones first, before they can find enough buyers for the start of a Bounce. And indeed they dropped. And today's drop is unlikely to be fully done yet. More about that below. Our long-term message to you was this. Beware of this Volatile Market turning into a major Down Trend. We showed you this chart a couple of weeks ago. This is $SPX hourly chart in late December 2015. Note the candle pattern that formed at the arrow prior to the crash. Below is the current $SPX hourly chart. Observe how the candle patterns are quite similar to what $SPX looks like in the above chart from 2015. We are likely to see a short-term Bounce. But what happens after that may not be so great for traders with a bullish bias, as well as the majority of long-term investors. The rest of this article covers: Table of support and resistance levels Updates from market internals Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Market context
The current Volatile Market is likely to continue its choppiness this week. But there is a strong possibility that after the choppiness, this Volatile Market may roll over into a new Down Trend. Updates from market internals Market internals show a high probability of continued choppy trading for this week. As of right now, we are not seeing enough data from market internal indicators to say that the crash is imminent. But other supplemental data projections show this possibility becoming stronger. The rest of this article covers: Table of support and resistance levels Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. Our gratitude First of all, we apologize for not being able to post all of last week. Our dad’s health has stabilized for now. He is out of the hospital and is recovering at home. We want to take a brief moment to say thank you from the bottom of our hearts to all of you who reached out with your kind words and best wishes. It has been a very difficult week, but your thoughtful gestures really helped. We are very thankful to you. Our apologies for not responding to you individually sooner. Stocks are in Volatile Market The last leg of the Up Trend (that started on 12/26/18) was Surge7. Surge7 was cut short on 9/24/19 when it failed to rise up from a strong support level. This was a big psychological change for the stock market. It greatly reduces the probability of a new all-time high for $SPX. Before we dive deeper, we want to take a moment to discuss terminology. This is important because trading strategy changes depending on what type of market stocks are in. While stocks may not be showing a clear downward direction right now, they are not exactly in a healthy Up Trend either. From a macro standpoint, there are a whole lot of factors working against future economic growth right now. And it’s not just the US that is on the brink of a recession. When we zoom into the weekly charts, $SPX has formed a double-top pattern. $NDX has formed a lower-high triple top pattern. Most importantly, $RUT is starting to trend downward, very slowly but steadily. Small-cap stocks usually lead the way up in a healthy bull market. The fact that $RUT has been forming lower highs on its weekly chart since September 2018 is a big warning sign for the bulls. Finally, market breadth and the percentage of bullish Nasdaq stocks have been lagging behind NYSE, since September 2018. This confirms that under the hood, growth is not happening, certainly not as reflected in small caps and tech stocks. Big-picture trading strategy for Volatile Market Market internals and $SPX $NDX $RUT charts are telling us that we ought to proceed with caution. Stocks are no longer in calm Up Trend. They are in what we label Volatile Market. And this requires a different trading strategy as shown below. In calm Up Trend during periods we label “Surge”, you can build up larger positions, hold them longer, add to them during buy-the-dip opportunities, and cash out big at the end of a Surge. In Volatile Market like right now, whether it’s going sideway or down, we have to trade differently. Think small positions and fast profit taking. Unlike calm Up Trend, you cannot enter randomly in Volatile Market and hope that a dollar-cost-averaging, buy-and-hold strategy will generate profits over time. You do have to know whether stocks are ready to pivot into a short-term Bounce or a Drop, and trade accordingly. If you don’t want to trade, then patiently stay out of stocks altogether until we approach the bottom of a Volatile Market. Volatile Market will give you lots of trading opportunities, but as the name implies, the swings can come fast and furious. This is why we recommend trading smaller positions, and take your profits quickly during these up swings (Bounce) or down swings (Drop). And don’t trade every signal. Be very choosy and wait for a low-risk, high-reward, high-probability setups only. The rest of this article covers: Table of support and resistance levels Updates from market internals Planning your trades Register your email here for full access to all our nightly analysis, trading plans and intraday updates. No credit card. All free. |
Archives
April 2024
Categories |