Boy, do I have a lot to say......
I thought I would have at least a week before writing another post about possible entry points. So why am I writing today? We'll, in a matter of a couple of days the market has breached to the upside a level that I had noted in the back of my mind as a possible entry point -- the trailing ATR3 stop at 1970. Am I a buyer? NO.
First, some facts. The market on an intra-day basis reached a low of 1867 this week -- pretty close to the 1877 level that I had mentioned (predicted) in my last post. This represented a 12.5% correction from peak to trough. So was this the correction that everyone was waiting for? Or was it just high frequency traders playing with our emotions and using China as an excuse. Who knows!
When the market started to falter last Thursday, I found it amusing that MarketWatch cited a prediction by Tom McClellan that the market was about to get ugly. He also said that "we" needed to be prepared for a correction lasting several months. As readers of this blog might recall, I mentioned Tom in a prior post when I commented that he and I use the same macro indicator to gauge market liquidity. I also said that I didn't share the same level of pessimism because liquidity hadn't dried up that much. Despite this, this guy looked like a genius for about two days. I still disagree with Tom, but now what? Even though I don't share his longer-term pessimism, I am approaching the market cautiously.
Going back to the trailing ATR3 stop at 1970, I usually use this type of stop as a trigger as a last resort to get me back into the market because it's generally pretty good at identifying changes of trend. However, the speed at which the market broke the ATR3 stop on the downside and upside causes me to be reluctant to use this trailing stop. After all, I wouldn't described what's happened this week as a (bearish or bullish) change of trend. What the market did over the last week resembled more like a flash crash.
Given the fact that I went to a 50% cash position at S&P 2058, I have a little bit of breathing (thinking) room to see what happens. Specifically, will the market hold above 1970. Technically, 1970 is a significant level for other reasons. It just so happens that the market "gapped" down at this level. Historically, markets tend to revisit areas of prior gaps before resuming short-term trends -- in this case, downward. (It's revisiting this level as I am writing this post) This gives the smart money another opportunity to sell to unknowing buyers who think the market will continue onwards and upwards. I hope that I'm right because I would love to buy some stocks on the cheap.
Talking about cheap, the other reason why I'm not anxious to go head over heals into this market now, is because even at sub-1900 levels, I couldn't find any dividend growth stocks to buy. Sure, I could have bought some beaten down tech names, but those stocks aren't on my radar and not a key part of my long-term plans.
So in closing, the S&P is now up 46 to 1987 -- I just have one word, "Wow."
Follow signals from the Prophet4Traders system to identify turning points in the U.S. stock market
The purpose of this site is to share results of a trading system that I use for identifying both long-term and short-term trading opportunities. I take the time to do this because of my passion for investing and helping others succeed. The system helped me avoid the "Crash of 2007/2008" and every major correction since then. The cornerstone of my trading system are analyses of market liquidity to gauge longer-term market sentiment and equity and index options (put/call ratios) to identify short-term entry and exits.
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