Be Prepared For Whipsaw Trading

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A short-term uptrend started on Friday, March 26. Not all the indicators agree that the trend is higher, and, as a result, we need to be prepared for the possibility of a whipsaw bad-signal. For instance, the PMO index below doesn't show a white candle yet which means that the uptrend is not confirmed. But the charts below show some very bullish-looking patterns, so, in the short-term, the trend is higher.

My trading account had gone to 100% cash a couple weeks ago, but it is now fully invested again. If the market doesn't cooperate next week, I'm prepared to admit my mistake and move back to cash. I'm not going to be stubborn and fight the market. 

The SPX ended the day above its 5-day average and had a strong close. The SPX certainly looks bullish based on this chart. The Nasdaq also had a strong day but is lagging and isn't quite above its 5-day. The market is much stronger when all the major indexes participate, so we are trading the market knowing that a lagging Nasdaq isn't ideal.

The PMO indicator for the broader market index has started to turn higher, and from a level that is higher than the previous PMO low. That is generally a good sign but let's see this PMO exceed the high marked by the red arrow. If the PMO can't exceed this level then we need to be prepared for the possibility that it won't find significant support until it reaches the November low.

The SPX summation has turned higher nicely, but it would be more convincing if it had turned higher from a much lower level. 

Bullish percents reversed higher but are still below the moving averages.

The SPX equal-weight had a convincing break out above the downtrend. It would be difficult to claim that the market is trending lower with a chart like this one, but we've all seen breakouts like this fail at times, so I'm prepared for the possibility.

Small caps have been important leaders since last November, so they were due for some choppiness after a run like this. I like the looks of this chart because the index tested the 50-day and the early March low, then reversed bullishly. We could have had better volume, though. Keep an eye on these small caps to see how the index handles resistance at the 20-day and then the prior highs. The best outcome would be to see it get above the 20-day and stay there for a bit before breaking into new highs. On the other hand, the worst outcome would be a close below Thursday's low which would probably be a signal to move back to cash.

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Disclaimer: I am not a registered investment adviser. My comments reflect my view of the market, and what I am doing with my accounts. The analysis is not a recommendation to buy, sell, ...

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