Stocks preparing for pullback — buy bad news, sell the good

S&P 500 Stocks Trading Above 200 Moving Average – The Technical Traders View

Stocks trading above the 200-day moving average are a great indicator for helping spot broad market underlying strength/weakness. It does lag the market, but is still very powerful. The chart below shows this info and my thinking of what is likely to unfold sooner than later, although price may still rise for several days yet.

I also use a similar chart for timing swing trades and market tops, which are based on stocks trading above the 20-day moving average. This chart is not shown here but is now trading at a level which generally triggers selling/market top.

Stock Market and S&P 500 Trading and Investing Conclusion:

In short, I am still bullish on the market as I focus on trading with the trend. I do not pick market tops and I do not pick market bottoms. Knowing that stocks make their biggest moves at the end of their uptrend and at the end of a down trend, it’s only common sense that risk is extremely high if you are betting against the current trend.

The best thing to do is wait for a technical breakdown and reversal, which puts the odds more in your favor with much less risk and typically a clear line in the sand to exit the position if you are incorrect.

The last major stock market top, which formed in September of last year, had a series of strong news and strong price action persuading the herd to buy stocks.  Instead it was the last impulse wave up just before a strong correction took place. That is much like what we see now with the economic news.

<< Page 2 of 2
About the Author
Chris Vermeulen

Founder of AlgoTrades Systems., internationally recognized market technical analyst and trader. Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. He is responsible for market research and trade alerts for of its newsletter publication. He is the author of “Technical Trading Mastery – 7 Steps To Win With Logic” and has  been featured in Futures Magazine, Gold-Eagle, Safe Haven, The Street, Kitco and dozens of other financial websites. 

Comments
comments powered by Disqus