Stack the Cards
Searching for a simple mechanical tool
that will reliably identify turning points in the major indices is one of the
traditional Holy Grail hunts that novice traders go on.Â
It is only after many frustrating learning experiences they they find that
market timing is not as simple as it seems. No one can consistently predict
which way the market is going to turn from day to day. But notice I said
“consistently.”
What I mean by that is there there are times at which many technical factors
all agree with one another–allowing you to conclude with better-than-average
odds that the market is going one way or another.
The key to success in market timing is to have a grasp of what these
technical factors are and have the discipline to wait for them to line up
properly.Â
In my experience, one of the best ways to stack the cards in your favor is to
wait for multiple bullish or bearish patterns to show up in multiple stocks
within the market as a whole or in individual sectors. Last March, for example, I
noticed a whole slew of head-and-shoulders tops forming in biotech stocks. Similarly,
during the spring just before a rally in biotech, I noticed many biotech leaders
forming bases and exhibiting accumulation patterns.
In today’s example, I see some indications of potential support coming into
the Naz on a short-term basis. While just this bit of evidence is far from
conclusive enough to say the potential for rally exists–it illustrates the
point.
The QQQ, Intel
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just above their 61.8% retracements off recent highs and lows. When I see this
kind of thing, I look for other signs of support to chime in. Intraday basing
action or perhaps a sizeable bounce would certainly help to confirm this
support. Just remember–don’t cave in to the temptation to see this as a signal
for a bottom. Wait for patterns to setup across the board.
Have a great weekend,