Tuesday, June 23, 2015

Market Lulling The Crowd Before a Trending Move

For the last 4 months, the SP 500 has oscillated about 1.5% above and below its highest point last year on 12/29/14.  

That is an extremely tight range and is likely wearing down both camps by clearing out nearby stops, filling upside breakout orders only to reverse and again clear out nearby sell stops.  So understand what is happening in terms of market dynamics.  Weak holders are being cleared out, and then the big money will be left to drive a new strong trend.

Long consolidations precede major directional moves.  That is a truism of markets.  So we will see a major directional move after this is complete.

I think it is sensible to continue to buy upside breakouts but to exit on classic candlestick reversal with bearish divergence.  

Just stay alert here with underlying strategies for both upside or downside potential breakouts in mind.  If the market shoots up, will you participate?  What type of order and stop will you use to get in and protect the position?

If stocks break lower what signal would lead to a short entry?  What level would the protective stop be at?  What order type is used for entry?

I still view this current upwards drift as a possible ending diagonal in stocks which would likely conclude with a little push higher and a final top.  But if that is not what happens, will I miss a potential big move up to follow this consolidation?  Those are questions that need solidified answers before the action unfolds.


Pete

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