Market Due For A Downtrend

Chart, Trading, Courses, Forex, Analysis

A new short-term downtrend started this past week on Tuesday. A lot of people are blaming the selling on the crazy short-covering of GME, but I think the market was due for a downtrend. Maybe the selling was more severe because of GME, but soon the market will feel like a fresh sunny day after a severe rainstorm because of the severe selling. It's an opportunity.

Let's let the downtrend play out a bit, and then look for signs of the next uptrend. We'll see the next uptrend in a momentum indicator on a chart like this one.

New 52-week lows picked up just a little on Wednesday but then settled back down to harmless levels. At the bottom of a short-term downtrend, we generally see a pick up in new lows. So with the PMO index at the bottom of the range, an increase in new lows wouldn't be a surprise. 

The bullish percentages are clearly pointing lower confirming the short-term downtrend. If we are looking for a washout of the market to encourage a strong next leg up, then it would be nice to see these indicators dip down below the 50% level.

Outlook Summary

The short-term trend is down for stock prices as of Jan. 26.

Contrarian sentiment is unfavorable for stock prices as of Nov. 14.

The economy is in expansion as of Sept. 19.

The medium-term trend for treasury bonds is down as of Oct. 10 (prices lower, yields higher). 

Strategy During a Bull Market

  • Buy large-cap stocks and ETFs at the lows of the medium or short-term market trends
  • Buy small-cap growth-stocks on breaks to new highs in the early stages of market trends
  • Reduce buying when the market trend is at the top of the range
  • Take partial profits when the market uptrend starts to struggle at the highs

Trader Discipline

  • Don't be afraid of corrections because they are opportunities
  • Never invest based on personal politics
  • Take pride in sticking to the trading plan
  • Don't give in to fear, greed, or anger

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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