What a crazy week! Just when you think they are going to run them, they kill them and just when you think they are going to kill them, they run them. That's not a fun or easy environment to trade long or short in.
If Friday's action is any indication of what next week's early action is all about then it's pullback off highs time in the indexes. Last week we saw some big kingpin names report (AAPL, GOOG, MSFT) and they couldn't even bust us through the last 3-4 days highs, why? It's trend channel resistance.
That tells you just how strong trend channel resistance is currently. No matter, we don't buy resistance anyway. Instead, we sell it and five names on our featured short side watch list had a killer couple of days to the downside. Kudos to those who were able to take these trades.
As you can see trend channel resistance and support are clearly defined by the green lines in this 6-month chart. As we've been saying the last few weeks it's all about buying trend channel support and selling trend channel resistance. That said, trend channel support isn't far behind with the 50 day average added in for good measure.
One can also see that the S&P 500 has tried for 4 days in a row to bust through to higher highs but as of yet hasn't been able to do so. A pullback to trend channel support may be just what's needed to get a running start. Should that occur then we want to be buyers of stocks that fit a similiar pattern that trade in tandem with the market.
Should trend channel support fail, below is another chart that shows an even larger trend channel support level.
Moving on to the NDX 100 index which is what the index's futures trade off of. Here we see a similar story only trend channel resistance also has that double top shown that also may mark a "We need to pullback to get a running start" if we are going to see another higher high.
So what could cause a running start? Simple Trend Channel Support and how about a news driven event next week in the form of :
3RD QUARTER GDP is slated for Thursday before the market opens, the estimates out there are for 2.2% to 3% growth. Remember it's headline news that's paid attention to not the internals. Either way this is a market moving news event.
Should we trail down into it then we want to be looking for the names that have been pulling back off highs into it vs. names that are still extended and pushing trend channel resistance. This ought to be the big play of the week. Market moving news or no news it's all about Trend Channel Support.
How To Buy Stocks At Support
What we want to be on the look out for is stocks that have pullled back from their recent highs to support at a trendline or 50-day moving average. The chart of GS is a good example of what we are looking for:
GS -- Goldman Sachs
As you can see, GS is pulling back to support at its trendline channel and close to support of the 50-day moving average. And if the market gets closer to support at the bottom of its trendline channel, then you have all the right conditions for a good long side trade.
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