MARKET MOOD: RED
I have to admit, after last week where every trade idea worked, I’m a bit surprised to see the red condition appear. I thought it would be time to continue increasing exposure… apparently not!
With Independence Day around the corner, BBQ and beach season here, I hate to be the one to rain on the party. I think its important to remember that this color coding system isn’t a prediction device or something that suggests which way the market is going to turn. Rather, its a tool to help us figure out when its time to step on the gas or pump the brakes. When its time to take larger or smaller positions.
Here’s what happened last week:
1. Every setup worked (100%)…haven’t seen that in a while!
2. Open trades each made significant progress.
3. Major indexes pushed higher. S&P 500 hit fresh highs. All showing constructive action.
4. New highs ramped up with both the NASDAQ and NYSE pushing higher.
So what’s the problem??
5. Setups heading into the coming week are mostly C level trades.
I feel my approach is fairly conservative. I prefer to take mostly A level trades. A few B level trades that I feel strongly about. And only the occasional C level trade that is a special case. When I go through the entire weekend process of screening, filtering, and grading trades, and all I come back with are C level trades, I take it as a sign to mostly stick with the open positions I have and to go into new ones lightly.
“But Mike, what if in my own screening, I found several trades A level trades? Should I still scale down and treat the market as a ‘red’ condition?”
If what you’re seeing in numbers 1-4 above are the same and instead of C level trades in number 5, you’re coming up with a bunch of A level trades, I’d be in a green condition and would be adding exposure more aggressively.
Learn the language of the market and allow it to speak to you. It will always be your best guide.
Checkout the charts of the indexes below for a closer look at the action.
MONTHLY CHARTS (indexes) Overcall Direction = Up: https://www.tradingview.com/x/4uJxGZKW/
WEEKLY CHARTS (indexes) Overcall Direction = Sideways: https://www.tradingview.com/x/1cz66gTc/
DAILY CHARTS (indexes) Overcall Direction = Sideways: https://www.tradingview.com/x/BogunU2f/
(on the lower right is the image of stocks hitting new highs vs new lows on the NASDAQ & NYSE)
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