The best trends rarely give you a chance to get in, especially in a fast-moving market.
Case in point: During these past two weeks, markets seemed to crack below support but then do some heavy lifting to get back above short term resistance. The effects of these deep moves would make anyone queasy, yet our focus has been on the trends of individual stocks – that is where the big money is moving. Strong money flows have been evident in options trading volume, which has expanded stock volume and price breakouts.
There is no need to be scientific here trying to look for explanations and rationale. Here’s why:
With a “buy the dip mentality,” there should have been many buying opportunities after we got past the first few days of February. Coming down off the highs in late January, the markets corrected nearly 6 percent to reach a fully oversold level. Further, sentiment soured quickly, as it has during the previous six drops. The VIX spiked higher, polls leaned significantly bearish, McClellan Oscillators signaled that we were in ridiculously oversold territory, money flows were negative, and the put/call ratios were screaming over 100 percent – not to mention the 10 day moving average of the TRIN was at a bloated level (a high TRIN means the market is very oversold).
Wasn’t the talk at the end of 2013 that many were looking for a 4-6 percent market correction before they would get on board? Now the markets are right back up, the Nasdaq 100 is at a 14 year high, and several names are overbought.
All of the ingredients are in place for a strong snap back, but there is a prevailing thought out there that at some point the market has to crash. Why? Simply because five years is far too long for a strong market and nobody wants to be left holding the bag when the inevitable happens. So, will “the inevitable” happen?
Lately, there have been some interesting chart comparisons published by writers and bloggers comparing our current situation to the 1929 when a sell off wiped out nearly 90 percent of market value.
I suppose history does repeat, but taken in context, this comparison is truly a reach. From a chart perspective, my good friend Jeff York has a simple answer for 2014, and no, it’s not even close. Take a look at his chart here. There are just too many differences to consider, never mind the time frame. It is fun to compare, but this information is completely useless when it comes to trading today.
We have to take our clues from past patterns and trends until they no longer work. Several charts demonstrated good relative strength during the market correction, and they did an “about face” turn higher when it was time to move back up. Names like Netflix, Priceline, Tesla, Google, Apple and several others held strong, kept their trends in place and even provided some chances to get in. In the chat room, we were literally shouting out some option plays as screaming buys, and most of them worked. However, if you weren’t looking for it, you missed it.
Will you get another chance? With an open mind and by paying attention, you might be able to grab another great opportunity.