Is this pullback going to mark a market top?
Hey Rob, where you been the last week
and a half?
With the introduction of TradingMarkets’ new stock picking
contest, nobody’s reading the columns anymore. They’re just going to the site to
look at the pictures. (Not the one of me.) Therefore, I thought it would be a
good time to take a short break. Interestingly, not one of the models listed
Playboy (PLA) among their stock picks.*
Inside info? Or are they simply more interested in Biotechnology and Computers
than I would have thought?
*Editor’s note: One of the contest
rules was that none of the contestants select Playboy
(
PLA |
Quote |
Chart |
News |
PowerRating).
Today wasn’t all that bad considering the start. After gapping
down big, the market held on and actually improved a little from open to close.
So is this pullback going to mark a market top?
I don’t know. From my standpoint it isn’t a question that
NEEDS to be answered yet. Short-term, the market is now in a very favorable
position. We have a pullback within a long-term uptrend. The pullback has been
fairly sharp in some areas (Japan, Semis, Internet, Drugs, even QQQQ’s). When
sharp pullbacks occur after strong run-ups, it normally leads to a bounce in
fairly short order. The
(
VIX |
Quote |
Chart |
News |
PowerRating) and
(
VXN |
Quote |
Chart |
News |
PowerRating) are also both stretched,
indicating this pullback has spooked some people. That is good.
Therefore, it is time to start scaling in to some of these
areas that have pulled back the sharpest. When buying into oversold markets, my
normal entry technique is simply to scale in. If I’m early, I’ll buy a few more
shares at lower prices each day until the bounce occurs. By doing this, I don’t
need to be precise with my entry to make money and probabilities are strongly in
my favor. Next, it will be important to monitor the action on the bounce. Watch
volume and advance/decline numbers. These may provide clues as to whether the
bounce will lead to another leg up or not.
Once I see the bounce, then I can evaluate the market health a
little more deeply. Plus, with Amy McCarthy up over 14% and proving worlds more
photogenic than me, no one is going to read this anyway. I think I’ll need to
whiten my teeth and do a few extra push-ups before my next column…
Best of luck with your trading,
Rob
For those who may be looking to expand their
knowledge beyond just market timing, my
Hanna ETF Money Flow System utilizes the VIX in generating trading
signals for spread trades.
Rob Hanna is the principal of a money
management firm located in Massachusetts. He has spent the last several years
developing and refining methods for trading in stocks across multiple time
frames. He selects stocks using both fundamental and technical criteria, and
then trades them using technical analysis techniques.