Why I Believe A Tradable Bounce Is Inevitable
Rather than looking at
things from an intermediate-term perspective, I’m going to focus on the
short-term today. This reason for this is simple. The greatest edges
I am seeing are short-term oriented. The market has pulled back relatively
sharply over the last few days and is now oversold, as are most sectors. I have
found that some of the most opportune times to buy occur when the market is in
an intermediate-term uptrend and is also short-term oversold (like right now).
The pullback, though sharp, has not been accompanied by high volume, which is
preferable. (Anyone who read my recent columns on distribution will understand
why correct volume patterns are not required.)
Obviously the easiest setups to find in an environment like this are pullbacks.
You can play either pullback in individual stocks or in ETF’s. One reason I like
to buy ETF’s on pullbacks is that it is not necessary to wait for a resumption
of the uptrend before entering. When an individual stock begins to sell off,
there’s no telling how low it will go before it bounces. The broad markets, and
even sectors, do not have the volatility that are inherent with individual
stocks. When conditions become extremely oversold, it is a near certainty that a
bounce is near. Timing the bounce exactly is impossible, but once you understand
the bounce is inevitable, you can look to take advantage of it by scaling in to
ETF positions. When the bounce does occur, you exit. If you use a systematic
approach, you can make money doing this fairly consistently.
In my last column I noted that Retail had been pulling back and was getting
primed for a bounce. I suggested waiting for an entry because I had no
indication that the pullback was nearing completion. I now say that retail can
be bought. The RTH is very extended short term and it is also just above several
levels of support.
Support levels I see include:
1) The 7/26 low of $99.14.
2)
The rising 50-day moving average near $98.33
3) The high of the June
“handle†near $98.30.
4) Fib supports including the 50% retracement off the 6/24
low right below current levels and the 62% retracement near $98. Traders can
look to scale in anywhere between current levels and $98 and then sell once it
bounces.
Best of luck with your trading,
Rob
robhanna@comcast.net