Hi Folks,
I just wanted to give a quick update on some observations I've been sharing with Art of Trading private members in the past 3 days and I'm sure these thoughts might be helpful to you too!
Its been a turbulent past 6 weeks in the market after a very strong bullish rally from November 2023 into the first of March 2024. Markets were smooth, trades were strong and traders were optimistic and excited for continued strength. As always the market tends to work in cycles so all good things must come to an end! Which isn't a bad thing because it allows markets to reset and resume bullish strength higher.
Some traders might feel like they're stuck in a rut during these corrective, consolidating and weaker pullback phases. This is a natural feeling to have especially after a strong bullish rally phase where each and everyone of your trades just worked!
One of the best things you can do during these phases in the market is pull back on your trading with fewer positions on at a time and decrease your position size on new positions. This way you protect metal capital and preserve your trading account capital. Allowing you to stay nimble and open minded for the next move in the market.
During these weak, corrective phases, after extended multi-day weakness short term bounce opportunities begin to present themselves. I like to use $NYMO & $NAMO charts to give me an idea as to where the market stands.
As of the April 16th close this is where $NYMO & $NAMO charts sit:
$NAMO Chart:
Anything below -60 on $NAMO I consider oversold market conditions
Anything above +55 on $NAMO I consider overbought market conditions
As of April 16th the Nasdaq McClellan Oscillator was sitting in an oversold condition at -67.42. Not quite an extreme but important to note! As of today, April 17th, it would be in a further oversold state!
$NYMO Chart:
Anything below -80 on $NYMO I consider oversold market conditions
Anything above +80 on $NYMO I consider overbought market conditions
As of April 16th the New Your Stock Exchange McClellan Oscillator was sitting in an oversold condition at -102.94! This is an extreme for this Oscillator. As of today, April 17th, it would be in a further oversold state!
With $NAMO & $NYMO in an oversold state, especially $NYMO in an extreme oversold condition chances are the market is ready for a short term bounce phase.
These market conditions offer excellent risk vs reward and don't happen all that often.
As of this writing on April 17th 2024, 4:00 PM EST:
$SPY is trading at $500.47 Down -0.61% on the day!
$QQQ is trading at $425.87 Down -1.21% on the day!
Closing today out (April 17th, 2024) I'd like to see a gap down open that gets bought and goes Red 2 Green (R2G) to set a potential bounce phase up
A gap down open that quickly goes green on the morning of April 18th (Red 2 Green setup) would set up a potential bounce scenario for Thursday and Friday (April 18th - 19th)!
From here we can watch for a potential 1.5% - 2.75% bounce given the $NAMO & $NYMO oversold conditions.
You can trade a bounce using $SPY or $QQQ or a more advanced trader might consider getting long $SPXL, $TQQQ, $UPRO, $TECL or $SOXL. These leveraged ETFs will put more "umphh" behind the trade but they carry much more risk. For a stop loss consider somewhere below an intraday low.
I hope you can use some of the knowledge and teachings from this educational blog post to create your very own short term trade!
Cheers and happy trading!
