Sir Issac Newton famously said “what goes up must come down”. It is simple physics that the current momentum market has ignored, making all-time highs on almost a daily basis. However, we are seeing underlying signs of weakness.
The market is currently sitting at the 9ema, which is a key inflection point. Strong markets tend to pullback at the 9ema. So do we jump in at this level? After all, this market is the textbook definition of a momo market.
Not just yet. There are subtle indications of market weakness.
Over the past weak the number of stocks participating in the market move has narrowed. This often happens when markets area ready to pullback. I like to use two indicators two assess the strength of the market:
- The relationship between SPY and IWM
- the Worden T2108 indicator.
IWM is a more broadband indictor than SPY, including more small and mid-cap stocks. In healthy markets IWM keeps pace or even leads SPY. Over the past week T2108 has lagged big time, testing it’s 50ma while SPY is only testing it’s 9ema. This is a sign of market weakness.
The T2018 indicator measures stocks above their 40 day moving averages. As discussed in today’s video, we are seeing a negative divergence between a market making all-time highs, and the T2018 indicator, which is testing November 2016 lows. This is another sign of a potential market pullback.
These subtle clues of a market pullback are not signals to completely jump out of the market. However, they do tell us that we must proceed with more caution by exhibiting more patience with entries, only taking high quality setups, and potentially building a shorts watchlist if the market does pullback.
Watch today’s video for an in-depth discussion of how we use the T2108 indicator and IWM as a market guide.
How the Swing Trade Report Helps:
I’ve designed my swing trade report to help those who are new to part-time trading avoid the hurdles that held me back for years. First is the education. As I mentioned above, it’s easy to collect “trading trivia” that feels valuable on the surface but is functionally useless. The strategies that I use and teach have zero fluff. If something isn’t useful in the real world of trading, I don’t include it. As someone engaged in part-time trading, you must focus your limited hours and mental bandwidth on what is most useful, and my report will help you do that.
One of the biggest mistakes I made as a new trader – and it’s one that almost all new traders make – was not managing my risk properly. It’s important to understand that the way a day trader and a swing trader manage risk aren’t identical. When you are part-time trading, you can’t sit and watch every tick of a stock. Some stocks that would be fine to day trade are simply too volatile to swing trade safely. I curate my watchlist with this in mind, leaving out the craziest momentum stocks, while keeping huge movers like $FCX (19% gain, 3-day hold), $UCO (27%, 2-week hold), and $NUGT (24% 2-week hold). When I alert a stock from my report, you run little risk of missing the entry and chasing, and you won’t have to be worrying that it will make a drastic move overnight.
The swing report will help you gain confidence as a trader. Rather than trying to piece together something that works from a random collection of books, forum posts and blogs, you’ll get one concise, cohesive report that gives you everything you need. No more jumping around from one system to the next. No more blindly following the latest social media buzz. You’ll earn your confidence as a part-time trader one successful swing trade at a time.