Why?
Thursday's and Friday's action brought the market back down to its major uptrend line (for the first time since mid-July). Pullbacks to the uptrend line (green line) are healthy and are just an expected part of an advance.
The trendline tends to act as support (green arrows). On Friday, the market moved lower intraday, bounced off the trendline but then recovered, which is one sign of strength when at such a key level.
Friday left traders wondering if Monday would either show a follow-through and confirm Friday's intraday reversal, or be a down day -- spelling trouble for the bulls.
If we had a down day, it would have pushed the market below that trendline, which would have negated Friday's intraday reversal, and this would have been a signal that the market would most likely continue lower.
Of course, Monday rolled around (yesterday) and we got the rebound the bulls were hoping for.
Not only did we bounce off of an uptrend line yesterday but, at the same time, we pulled back to the 50-day moving average (light blue line).
The 50-day moving average is the major moving average that traders focus on, to see if the trend is strong (where the market regresses back to it before continuing on), or if the trend is weak (where the market would dip far below it).
A strongly advancing market could pull below the 50-day moving average and still continue higher. But when the market pulls back to the 50-day moving average and then bounces up without even penetrating it, traders view that as a sign of strength ... and this breeds confidence in the next advance.
Finally, there is an old horizontal resistance level (blue line) and old resistance levels tend to act as new support. So we had three major stars aligned that were important to the strength of this market, and the market said
the bulls still have the ball.
HOWEVER...
We still have a Moving Average Convergence/Divergence (MACD) sell signal. The market COULD decide to change its mind and violate all of those key support levels.
Anything can happen.
Instead of betting on direction, you can bet on strength...
You don't have to be absolutely right on a trade in order to make money in the stock market.
You only have to be more right than wrong.
I'll get to that in a second, and I'll spell out a money-making strategy that the professional fund managers use, and you can use just as easily.
One of the easiest ways to make money in the stock market is by using Exchange-Traded Funds (ETFs). For those of you who've been chained up in the attic for the last decade, an ETF is a tradable security that represents a group of stocks, just as the Dow Jones Industrial Average represents 30 stocks.
In fact, the ETF called the "Diamonds" (Symbol: DIA) is the security that mimics the performance of the most popular U.S.
