Sorry for the lighter volume, I forgot to swing my microphone over.
Navigating the Turbulence: Market Analysis for 27 October
Hey there! Brian Shannon here from Alphatrends Net with a deep dive into the recent market happenings. As many of you might have experienced, there was a brutal week for the markets recently excluding Bonds and Bitcoin, which showed a robust performance.
To lay down some groundwork, everything discussed here is purely educational and does not guarantee any trading success. Trading inherently holds risks and no certainties. This is my personal opinion of the market scenario.
A Peek Into The Brutal Week
First up on our discussion panel is the S and P 500. Often, we look for potential support at the level of interest illuminated from the March low, the volume weighted average price (VWAP). Yet, it is important to understand that true support and resistances can be recognized only after the fact
A level of interest should not be a deciding factor for investment. We can associate certain conditions like the direction of the five-day moving average and the pattern of lower highs and lower lows. If these conditions exhibit bearish signs, it's not sensible to take a bullish action on a larger term time frame.
Potential Bullish and Bearish Scenarios
Even though I presented potential bullish scenarios in a video yesterday, these are mere assumptions and not guaranteed predictions. Let's delve into what the bearish scenario might look like.
The above chart shows the weekly time frame of the S and P 500 alongside its anchored VWAPs from crucial anchor points (COVID low and the first handoff). These can act as areas where buyers could potentially be found. Yet again, no certainties. To plan an investment, we look for a flat to rising five-day moving average indicating bullish signals.
Remember, if you are planning to go long in the market wait till it holds above a rising five-day moving average. Then, properly place your stops and raise them agilely underneath the higher lows. Markets are multidimensional and operate over various time frames.
Beware of declining 20 and 50-day moving averages. They arouse suspicion and call for a reduction in position size. Also, important to keep in mind are the levels of interest:
200-day moving average
Year-to-date anchored VWAP
VWAP from the March low
VWAP from the prior low
Again, these are only levels of interest and not definitive supports!
--- Brian Shannon
Deciphering Market Tendency
A common trader's mistake is confusing relative strength in a downtrend with being bullish. Relative strength when you're in a downtrend just means you're losing less money - it does not suddenly make the market bullish. This is especially true with the Nasdaq and the Russell 2000 indices. As long as the five-day moving average is declining, the market is still guilty till proven innocent.
A Remedy for Buying on Dips
Many share the tendency of buying at 'dips'. Except for those running billion-dollar funds who have to support a stock on its way down, this is not a wise strategy. You don't need to be early in these cases. Even for a longer-term investor, it makes no sense to buy the dip.
Simply wait for the buyers to take control and then volley your shots. Keep a keen eye on the 20 and 50-day moving averages and their slope. Then, based on what the market provides, manage your position accordingly.
Holding a Defensive Stance
There was hefty damage across several sectors last week. Major stocks like PayPal, Square, Ford, Google, and Mastercard took severe hits. Unsurprisingly, news and surprises tend to follow the direction of the trend.
Therefore, always keep an eye out for the five-day moving average, your guiding force when assessing the market. Don't let brand names or previous trends blind you - be vigilant and play a strong defense.
Navigating the market is a complex task. The information provided here offers a glimpse into how to interpret market scenarios. If you'd like to get in-depth understanding of these concepts, be sure to check out my books.
Furthermore, you can sign up for a trial to Alphatrends Net for detailed daily analysis and explanations of both the market and individual stocks.
That's all for today, folks! Keep learning, stay flexible, and manage your risk. Until next time, have a good weekend!