MARKET MOOD: YELLOW
I consider the market mood to be in a ‘yellow’ condition this week. Below is the criteria for a ‘yellow’ condition. When any of these conditions appear, the best condition I’ll assign is yellow.
Initial buys are 50/50
Trade ideas are 50/50
Some ‘B’ and ‘A’ setups
New Highs vs New Lows mixed
Indexes are mixed
Last week my initial buys were all winners. In fact, I’d likely still be holding them if I were not going on vacation next week (flying to Disney World on Monday morning). The trade ideas from last week had a 75% win rate with a number of them exploding higher like BCEI, RVLV, and TRQ to name a few.
What makes the Market Mood remain yellow for me heading into next week is the trade setups, new highs vs new lows, and the indexes.
A large part of what drives markets and my participation in them are the setups. Last week we had 27, this week there are only 15. Seeing fewer setups makes me want to ease off the gas or at least proceed with some caution.
The number of new highs ramped up on the NYSE and actually poked into fresh 52wk territory on Friday hitting 384. I like to see that kind of strength and it tends to extend the longevity of uptrends. However, in the short term, these kind of spikes also tend to be followed by short term consolidations. With the NYSE and Dow extended and with the NASDAQ and Russell fighting major resistance, a short term pullback becomes more likely.
Finally, as far as the major indexes go, they are becoming more and more bi-furcated. The Dow and NYSE are hitting fresh highs and are extended. The S&P 500 just hit fresh highs. The Russell and NASDAQ are very choppy. Depending upon which stocks you’re trading, you may not feel the chop. However, awareness of a bi-furcated market condition can help prepare you for when choppy conditions arise. Markets do not remain bi-furcated forever and they will become aligned again at some point. That will lead to more powerful moves. Until then, it tends to be more of a ‘tug of war’ on the indexes between consolidation and the next leg higher.
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).
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/Je2GaJPm/
WEEKLY CHARTS (indexes) Overcall Direction = Up: https://www.tradingview.com/x/V4dnHbuw/
DAILY CHARTS (indexes) Overcall Direction = Up: https://www.tradingview.com/x/SFdZOQcn/
(on the lower right is the image of stocks hitting new highs vs new lows on the NASDAQ & NYSE)
Deep Dive Video