This market has been quite challenging and difficult to navigate, which is why it’s been more important than ever to use technical indicators as a guide. Technical analysis is not a silver bullet, but it provides evidence that can help you wade through the waters and avoid unseen sharks.
In this case, our sharks are news stories and tweets that push momentum into reverse. Just when you think there is some potential followthrough on a big day of trading, the markets lose it. It’s maddening!
How technical indicators can help you navigate difficult markets
Some technical indicators provide very clear readings; others do not. Some have short timeframes; others provide a longer term view. Put a collection of them together, learn how to identify behavioral patterns and you’ll start to paint a picture of where the markets are moving.
The most important indicator is price action. For the SPX 500 lately, price action has been a laggard. Other indicators, such as stochastics, MACD, volume and volatility, had been showing a bullish inclination, yet the price chart was not. My approach was guarded until I saw a breakout past 2750 on good turnover. (Why 2750? Several selloffs have occurred at 2750 recently. By waiting, I avoided losses.)
Today, the Russell 2K and Nasdaq are at/near all-time highs, and indicators are supporting the price action. Will this carry the Dow and SPX 500 up as well? Historical evidence says yes, and that may indeed be the case if technical indicators remain positive. Following the technical signals early (as in early May on the price breakout) would have put you on the right side of the trade.
When markets are confusing and direction seems to change by the hour, stay focused on time-tested technical indicators. They won’t often lead you astray.