MARKET MOOD: YELLOW
I consider the market mood to be in a ‘yellow’ condition this week. Below is the criteria for a ‘yellow’ condition.
Initial buys are 50/50
Trade ideas are 50/50
Some ‘B’ and ‘A’ setups
Indexes are mixed
Both my initial buys and trade ideas last week were 50/50. DEN worked out. WSC was sold quickly for slightly better than breakeven. CENTA was sold for a loss. The trade ideas were split straight down the middle for positive / negative on the week.
I like to see how the market treats both the stocks I’m holding as well as the stocks I’m interested in. This tells me if the market is becoming more or less favorable to my style of trading. As far as trades go, it’s smack in the middle.
This week we’re seeing some more trades that are ‘A’ and ‘B’ level setups. That’s a key factor of what is ‘under the hood’. I’m starting to see higher quality setups. Not quite enough to put the market in a green condition, but firmly in the yellow.
As far as the indexes and New Highs vs New Lows are concerned, we’re seeing predominantly Uptrends on the monthly
Sideways trends on the weekly
Sideways trends on the daily
It’s been a slow grind higher on the indexes and while they’ve grinded higher the moving averages have shown ‘cork screw’ action on the daily charts which Stu pointed out. Cork screw action is where the shorter term moving averages (5, 10, 21, and sometimes the 50) get knotted and crisscross each other. This is happening now on the Russell 2000. See the chart below…
So what does a ‘yellow’ market mean?
For me it’s a key part of my equation for position sizing.
(MARKET CONDITION) x (TRADE GRADE) = POSITION SIZE
Yellow condition = half position size. (see swing trade rules tab in mara lists above for all definitions).
At this point, I feel the market is likely to continue grinding higher as it navigates through the rest of earnings season. I don’t feel as though the market is in danger of topping out suddenly because we have not seen a rapid deceleration in new highs and a rapid expansion in new lows (as we’ve seen with every major correction over the past decade).
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/0pIkOEZV/
WEEKLY CHARTS (indexes) Overcall Direction = Sideways: https://www.tradingview.com/x/XDVrSWUp/
DAILY CHARTS (indexes) Overcall Direction = Sideways: https://www.tradingview.com/x/vMBBiX9f/
(on the lower right is the image of stocks hitting new highs vs new lows on the NASDAQ & NYSE)
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