So Long to the Sideways Market? Swing Trading Before the Breakdown
Stocks sold off aggressively yesterday, the second consecutive Wednesday in which sellers overwhelmed buyers.
Old school technical analysts call the sort of sideways trading we’ve been experienced a “symmetrical triangle.†It’s a description of a contracting range, from which explosive price moves are often the next development.
Although no pattern is 100% correct, symmetrical triangles are worth noting if only because they are so common in the trading world. Technical trading strategies that involve inside breakouts, for example, play on the fact that, as Forex trader and analyst Kathy Lien explained to me in a recent interview for TradingMarkets.com, volatility is shrinking to levels below normal and are increasingly likely to mean revert toward a more normal — and higher — volatility levels.
I suspected, given the momentum going into the sideways trading of the past few days, that we might develop an old-fashioned symmetrical triangle as a way station between here and the market’s next destination. In either event, we are still showing an overwhelming number of 8-rated stocks trading below the 200-day moving average — and even many of the inverse exchange traded funds we have been able to take advantage of over the past few days have already made their moves.
This leaves us sidelined for the time being. The number of stocks making pullbacks above the 200-day moving average — our bread and butter trades — are growing fewer . And it will take another bear market rally to set us up with another set of opportunities in inverse ETFs. Until then, we wait.
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