14 Nov Market Under Pressure 11/13/2015
Today the market call was changed to market under pressure, its been a great recovery since the mini-flash crash on 8/24/15 now the Nasdaq has tested all time highs and has pulled back for now. The previous 2 days have closed down on higher and higher volume as well as the price is pulling back to the 50-day, none of this is doom and gloom, however we do not have wide market participation in the uptrend that started on 10/5/15, there are pockets of stocks doing well but many charts remain broken and do not look at all ready to start moving.
As you see hundreds of thousands of charts over your trading career you start to notice that stocks kind of behave like people, and as you know everyone is different. Some people soar forever never seeming to get knocked down, others are knocked down out of nowhere while some never seem to gain their footing. With stocks you see the same things, you notice behavior patterns and one of the behaviors that you notice generally is that when stocks are ready to go, they look like it. The chart starts to creep up slowly with pockets of good volume on up days, you’ll see down days fewer and on lighter volume and you’ll see many stocks with this behavior. We do not have that market right now it seems, now more strange things have happened and we could turn up on a dime and charts could start setting up as of Monday so while you do notice these things you just have to keep them in the back of your mind and get a picture of the overall market. Its like polling during a presidential race we look all over for different types of stocks and take their temperature to see how we feel about key indexes that day, and it could be different tomorrow.
Now as I say all that about the market not looking perky there is always light at the end of the tunnel. The market has pulled back however it has pulled back to a point of support, there are 2 points after the flash crash that have proven to be resistance points and we are back at that level. Also we have closed the gap from October 23rd when the Nasdaq gapped up unexpectedly, and there is market theory that all gaps close, well this one just did. So on the good side the market closed this gap and could turn around on Monday or early in the week or later, who knows. But look for the behavior of the leading stocks and other indicators to see what the temperature of the market may be. If we continue lower on the gap being filled that’s not the best of news and would definitely continue this overall choppy behavior.
Choppy behavior is a killer in the markets, chop is when stocks trade in a range, selling at highs and buying at lows. Breakouts dont work in this environment they typically flounder and can chew up accounts. It is best to steer clear of choppy markets unless you have a superstar stock that is definitely outperforming the market and its peers, look for the RS line at new highs before the price is at new highs also trade smaller as even the best stocks can falter. However if your super-stock keeps going up, then look for secondary entry points and get into that thing because when the market does get into an upward groove your super-stock could be super-powerful.