Getting A TAN And Sticking With Working Strategies

Another day, another all-time high seems to have been the prevailing theme lately. Sticking with working strategies and themes may seem challenging, but fighting the tape is not the answer.

It can feel counterintuitive for traders to go with the trend sometimes. I know! A trader may see a chart going from the bottom left of the chart to the upper right-hand corner and wants to take the other side of the trade badly, even though it is counter-trend. Logic might dictate that whatever market you are following should be selling off, and it continues roaring higher like a roaring bull. While I am not trying to be oversimplified here, I want to reiterate that the trend is indeed your friend.

Even when many technical indicators might indicate that a market is overbought (or oversold), a market will oftentimes continue moving in the same direction, leaving many counter-trend traders in its wake. This is the reason that buying pullbacks in a bull market has been the focus here, opposed to trying to pick tops. It is never easy picking tops and bottoms in any market.

This is the major reason that I like to revisit what has been working.

Looking back at the US equity markets over the last couple of weeks, the theme seemed to be bipolar at face value; but has it really? If we take out the fundamental development of the Fed changing stance on interest rates, has the price action been anything more than typical?

Figure 1 - S&P 500 Index May 18, 2021 - June 29, 2021, 10:00 AM, Daily Candles Source

I know it felt like the sky was falling when the Fed changed its stance on future interest rate guidance. In reality, the pullback was pedestrian on the day of the event, and the subsequent market digestion brought the S&P 500 to the 50-day SMA (slightly below) for a short period. There is nothing so spectacular about that. It is just the sign of a healthy bull market.

Looking at the pullback that we saw two weeks ago, it was approximately 2.24%. It felt like it was a larger selloff than that, right? That is what happens when the markets are fired up with emotion, and everyone has their take on what is going to happen next.

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Disclaimer: This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine ...

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