THE MARKET IN REVIEW
Friday's action: Trading range market, and volatile to boot. Ask anyone who really paid attention to Friday's action and you were glad the day ended.
As you can see with the Dow and the S&P 500 both are at the midpoint within their respective blue line trading ranges. This means they could go either way with short term support being the lower blue lines and major support being the lower green lines.
While on the subject of those green lines, there will come a time when we sell off to those lines. But what remains to be seen is will it happen in the next 3 weeks or are we going to try to hang right here till year end.
Don't suprised to see the S&P 500 hit the 1087 trading range support level early next week!
That would also be fine by us as we have a slew of names that you just could not touch the last few weeks from a low risk entry standpoint without chasing them. These names are highlighted in our longside watch list below.
The first of the year is another story as it gives the power movers a whole year to knock the pins over and set them right back up again before the year ends again. They do it quite often you know. In addition to that there are a lot of investors who do not want to lock gains till first of the year due to delaying a tax bill.
More often than not going short the last trading day of the year may not be a bad idea when nobody is looking (sound familiar? Can you say the day after Thanksgiving being a great time to step in and buy). But that's just us thinking and we'll see what things look like as we approach that time frame.
Below is the OTC Composite. That chart looks the weakest of the three as it MAY have a double top at the 2200 level. Still 2125 is a recent prior low so in a pullback that could contain it for the time being. Again first of the year all bets are off.
While the indexes continue to not be able to make up their mind, the real action really seems to be under the surface. We are seeing separation with things on the long side and things on the short side. While the indexes continue to battle it out and try to make up their mind, we will just focus upon where we see the best patterns showing up. Hence more of a market of stocks than a stock market.
"We'll find out over the next few days if we trade back to trading range support or if we break to the upside. Either way we see a lot of nice long side set-ups developing and we'll start to pick them off here and there over the next few days."
The Pullback Off Highs pattern is one of the most bullish and constructive long-side set-ups out there. Rather than go straight up, an index or stock will make a move higher, then spend some time consolidating those gains often down to an area of chart support such as its 50-day moving average, before making another move into new high ground.
When a stock clears these consolidation periods, it's your opportunity to buy them and take advantage of the next run -- and the bonus part is when you catch a stock at the beginning of a new uptrend, you'll often get to trade the stock and lock in profits over and over again. You are buying it at the point where it's just started a new move and is near support which minimizes your risk. Here's an example:
ABVT -- Abovenet
In the chart above are 3 things you ALWAYS want to be on the lookout for:
1. The stock is in a clearly defined uptrend and above the 50 day average
2. The stock pulled back to trendline support in green. Trendline support also happens to be the 50 day average in this case.
3. Full stohcastics were in oversold position (Green circle)
Once you see those things there is only one thing you need to know after that. That is to draw a trendline (Pink) off the most recent highs as shown. That is what we commonly refer to as a Pullback Off Highs Line or POH for short. Then it's all about an upside crossover of that line. That crossover is you're longside entry.
On the longside of the market you now know why they really are the only chart pattern you will ever need to know.
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PULLBACK OFF HIGHS -- On the longside it's the only pattern you'll ever need to know.
Disclosure: No positions