I remain on the sidelines in terms of stock swing trades on the long side. I will be running my stock scans tomorrow, but as of right now I don’t see a lot of compelling setups. This is one of my main indicators. No strategy trades=stay out.
When there are very few good trade signals, and few stocks meeting my scan parameters, it is usually a good time to step away for a few days.
The S&P 500 did recover a bit on Sept. 14 and 15. As did the Nasdaq 100. Both started giving up a bit of ground today.
I don’t forecast anymore. There is no reason to. I look at the data and my stock scanners and decide if it is worthwhile trading. Right now it isn’t, but I am also not seeing anything horrific out there.
A Look at the Market Indicators and Warnings
On this recent decline, we didn’t see any 90% down days. That’s when 90% of volume occurs in falling stocks. This is the second from the top indicator, which is measuring up volume versus total volume. So a 90% down day would be a reading of 10 or under.
Daily volatility has contracted again, but that indicator is only as good as the last day. We did have some 2% down days recently, and that is a warning sign. This is the second from the bottom indicator.
On a positive note, the recent uptick in prices was wide-spread. NYSE stocks by-and-large advanced, pushing the NYSE AD line close to all-time highs…but not quite. If the NYSE AD line can close at new highs, that is a positive divergence and has been a historically reliable signal that the S&P 500 will also follow through to new highs again. But, we don’t have that signal yet. This is the bottom indicator on the chart.
64.55% of NYSE stocks, as of the Wednesday close, are still above their 50-day moving average. This is the top indicator on the chart. This shows there are still lots of stock in uptrends. That’s good. Yet, with the recent fall in the stock indexes (and stocks) we saw a lot of stocks fall and most haven’t recovered much.
Trades to Watch For
Coming out of this small correction (if we move up) we may still get some cup and handle trades, but in the strong stocks these trades are mostly gone.
More likely, as (and if) more stocks meet the scanner criteria, we will start seeing Double Consolidation continuation patterns as prices start to rise again, and we will also see Triangle Continuations as stocks advance to new highs and form new handles.
Look for these when running scans.
Running a trend channel scan on Finviz (signal: channel up) is also producing more results recently. As trends mature, we tend to get more trend channel strategy trades. Trend channel trades also tend to trigger coming out of corrections, since a pullback is required to push the stock to the bottom of the channel for a possible buying opportunity.
That’s what I am watching and preparing for. But if nothing improves (see the above mentions), or we keep dropping, I will stay on the sidelines.
Cory Mitchell, CMT
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Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.