Many traders are stunned by the current stock market performance. Since October, markets are up 14%. Everyone’s wondering how long it can continue, while some are sitting on the sidelines, waiting for an eventual pullback.
That pullback hasn’t happened yet, and it’s causing a lot of frustration. You are likely feeling it. I think we all are to some extent! Whether you are actively trading or sitting on the sidelines, you are eager for the next great trading opportunity. When will that come? Stocks can’t go any higher – can they?
That’s not a question we will ever answer, nor is it one that should be asked. Instead, follow the market’s road signs. They will guide you to the next great opportunity.
Follow these road signs
Your most reliable road signs are the time-tested tools of technical analysis. Even though the charts and technicals look back in time, human behavior towards wealth and money never change. Once you learn to analyze this behavior in a chart, you will understand with great certainty what might happen next.
The best technical analysis tools to use are:
- Volatility Index, or VIX, which tells us how much fear is in the markets
- Chaikin Money Flow, which tells us how much liquidity traders and investor have
- Stochastics, moving averages and price/volume charts, which give us a read on price action
- Short Term Trading Index and oscillators, which give us a read on breadth
- Put/Call Ratio, which tells us whether people are buying more put or call options
Together with sentiment data (from the IIAA and Fear/Greed Index), these signs provide us with a robust read on the current stock market.
What the current stock market road signs are telling us
My read of the current stock market? We have a tough road ahead after a very smooth ride.
Don’t chase down the markets here. The uncertainties could start piling up and put the market on the defensive. Will the uncertainty provide us with great opportunities? I’m not sure yet.
In the meantime, buckle up. It’s going to get bumpy.