Make up your damn mind Mr. Market. We’re now 3 days into a sideways consolidation pattern on dimensioning volume… we didn’t even see 800 million shares exchange hands in the SPX today. It’s quite clear that the institutions are not buying and everyone else is just moving money around until the next catalyst. Ah, what to do.
Well, let’s think about it – we probably shouldn’t complain. After the nice rising wedge over the last month that moved the SPX from 1008 to 1128, there really isn’t anything catastrophic here if the market takes some profits. To continue the glass ½ full theme, the patterns are playing out exactly as they should when you look at the SPX daily (this implies technical traders are in control and that’s a good thing). We saw multiple failed breakouts of SMA100 and a heavy fall out of the wedge on the collapse through SMA200… both technically logical. But, now we sit just under SMA50 like a cork bobbing up and down waiting for a fish to pull it straight down or for the market to reel it in out of rough waters. Let’s face it – we’re in a messy trading range.
So, what does the SPX daily say now and where do we go from here? That’s the scary question. For me it doesn’t say anything other than WATCH OUT! That doesn’t mean I think the market is about to tank, but it also doesn’t mean I believe there’s a bull move right around the corner. I’ve tossed all of my favorite indicators at the charts and, if anything, it looks a little oversold. Blah. That’s not enough to go on – especially for swing traders. 1062 and 1044 are very possible short-term targets to the downside and the only thing I’m hoping for to the upside is for us a move through SMA50. Let’s at least start there. But, those are numbers I care about as a swing trader. I take a different approach when trading intraday (scalps).
- You gotta find stocks on significant support. Whether it’s trendline support/moving average support, etc.. just find it. I wouldn’t enter a swing position in a stock without it unless you can quickly exit. UXG is a good example of a stock with trendline and SMA50 support on the daily chart. You could swing something like this as long as it holds above support and set a stop just under.
- Find stocks with strong average volume. Thinly traded stocks are sometimes hard to exit and you don’t want to be holding a swing out of support.
- Try to swing stocks where SMA20,50 and ideally. SMA200 are all trending up. This means you are basically in a bullish stock and odds are more on your side that your swing will work. UXG, CRUS, for example.
- Swing in strong sectors. That’s kind of hard to do right now with the market basically confused. But, a strong sector will improve the odds of your stock moving up.
- If you’re bottom feeding, then some of the ideas above won’t apply, but you’ll still need to find support and look at popular indicators like Stochastics and RSI for oversold levels. A great stock would be an oversold one in a sector moving up (laggard).
Remember, swinging is tough right now. Don’t get discouraged – the charts are not helping you out right now, so stay relaxed and take what’s given. I, for one, am swinging less than 10% of my trading account these days. I would much rather participate in short term moves until the next bull comes along.. then I’ll jump on for the full 8 count!