After a couple of months of not writing on this board, I am back with some considerations about the health of the market. Clearly the last 10 days have shown a pretty negative price/action. The market is in a correction right now. Up days have shown no volume and down days pointed at heavy institutional selling. But a correction in the last part of January is anything but a surprise.
The last two weeks in Decmebr and the first two in January are usually good for the market and then there is a small correction. So far we have corrected 80 points on the S&P as of the lows of January 29th. Yesterday has been an up day without volume but today is shaping to be the best day in two weeks: we are moving up and turnover is higher as well.
If the day doesn’t turn upside down, this could be the beginning of a new rally. Too soon to say for sure, but price/action is what counts the most.
TechnicalTrader Market Direction correction, January
A market correction becomes obvious when leaders start to break down. It is very normal to see stocks of bad companies taking huge hits when the market corrects; good stocks however tend to be more resilient and ultimately they are the ones that can keep an uptrend going. Look at Apple and Goldman Sachs for example. In a very bad tape this week where the S&P closed down 20 points or almost 2%, AAPL managed to log in a gain of $2.50 and GS managed to close pretty much unchanged at +$0.11. These are some of the leaders of this market. When they roll over, everything else follows.
Today’s action was pretty encouraging. We declined on lower volume and we also bounced back from the key support level @ the 50-day moving average. My point is that considering that market leaders are acting well, key technical support levels are holding and selling pressure does not point towards heavy institutional selling, I believe that this uptrend has still legs and it could resume as early as next week.
As always, I can only make a prediction based upon facts, therefore if the market starts behaving differently than what I believe, I shall be the first to change my strategy.
Have a good weekend everyone and best of luck with your trading.
TechnicalTrader Market Direction, Trading Ideas aapl, correction, correction 50 day moving average, gs. leaders, key supoort level
The market is behaving poorly lately. We declined 6 times out of the last 7 trading sessions. What do we make of such action?
Let’s start with the facts: if we observe the price/volume action of the last two weeks, we can clearly see at least some institutional selling in the market. Some leaders have been outperforming the major indices however when the market goes down, 75% of stocks will follow. The current uptrend is therefore under pressure. Technically speaking the market made a bearish reversal on 9/23 and the only up day in the last few trading sessions occurred in very soft volume. Now we are quickly approaching the 50-day moving average and also a key area of support around 1,020 in the S&P. If we hold, there is a good chance of a bounce; if we go through, I would recommend to close most of your positions as we can easily drop to 1,000.
Currently, I haven’t taken any action. I am really waiting to see what happens tomorrow. I would be encouraged to see signs of institutional buying in the case we trade to the upside. No buying conviction would be reason to sell into strength.
My current position in GS is still well in the green. GS has been trading very well lately but today was a bad day for the stock even if volume on the downside was contained. Technically speaking GS reversed from $188 to below $180, rallied back to around $186 and today dropped again below $180. It is now $0.51 below last’s week closing price. It looks like a mini double top pattern at this point and if GS closes below the recent low of $177.70 I am out of this trade.
Also CTRP has been trading well in this last market correction and it is only slightly below last’s week closing price at $57.17. Today’s decline came in volume 40% below average, a sign that the stock was only being sold by retail investors. When institutions are not dumping a stock, there might be a much greater upside potential if the market starts trending higher.
Summing up both of my holdings are outperforming the market this week but any sign of further weakness is a good reason to cash out.
TechnicalTrader Market Direction correction, ctrp, Goldman Sachs, GS, october, support
The market has been sending mixed signals over the last couple of weeks. Weakness is in the air and any new buys should be done very carefully with tight stops. Of the two buy recommendations that I made last week, RHT did brake above resistance at $23.72 and I did initiate a small position in the stock. My loss tolerance in this case is going to be less than 4%.
Expect the market to trade mixed in the next few days, a little bit up and a little bit down. Signs of weakness indicate that we have a good chance of a small correction coming. I doubt that the major indices will drop like a rock, however we can expect a 10%-15% pullback which is going to be a great buying opportunity for what I believe is going to be an end of the year rally in November-December. Of course I can be wrong, so I shall update the market outlook as we move forward.
Now I believe is a great time to raise cash and add cash to the trading account if possible. A new good buying opportunity will present itself soon and you don’t want to be left out.
One possible trading recommendation for next week, in addition to RHT which is now in buying range, is the best of breed Goldman Sachs. The stock has been trading in a tight range over the last 7 weeks building a flat base. If the stock breaks above the high in the base $170.94 in good volume, then I would buy. GS is not a small cap growth stock, so the risk is going to be fairly low and the move up is not going to be violent.
TechnicalTrader Market Direction, My recent trades, Trading Ideas correction, GS, RHT, sideways
Everybody has an opinion. Lately, many market managers started forecasting a small correction. When the market shot up on Friday, some of them started forecasting a 1,200 S&P instead.
I have an opinion too, you probably have one as well. The important thing is not to give opinions to much importance if the market behaves the opposite way. Somebody somewhere is going to inevitably be right about its forecast. You just have to keep watching what the overall market does and continue to interpret its signs.
As of today, the market uptrend continues to work. We moved slightly higher in lighter volume, but we still moved higher. Many are saying that these close near the lows of the day are a bad sign, and maybe they are right. When the market starts a correction, you will see bad price and volume action. Today that’s not the case yet. You can continue to put money to work in good stocks when they breakout from their bases. Keep your eyes open all the time however and check daily the overall market’s health.
Remember that the only secret to make money in stocks is to buy high and sell higher. Buying low means putting good money after bad stocks and to me that is a losing proposition.
TechnicalTrader Market Direction buy high, correction, market pros, S&P 1200, sell higher