Join        Login             Stock Quote

Turn And Run The Other Way

 July 13, 2010 04:47 PM

By Jeff Clark

What a difference a week makes. 

Last Tuesday, investors were staring into the abyss. Stocks had fallen hard for several straight days. Gloom and doom were painted all over the financial headlines. And my answering machine welcomed me back from vacation by playing dozens of fear-induced messages from friends wondering if they should be selling their stocks. 

Today, we're right back to sunshine and lollipops. 

The S&P 500 has rallied for five straight days. Investors are 6% richer today than they were last week. The financial talking heads are laughing and smiling and celebrating a summer rally. And nobody's calling me at home. 

It's time to be cautious. 

Actually, it's time to remember how to trade a bear market... buy into severely oversold conditions, sell short when stocks get severely overbought, play only the best setups, and take profits quickly. 

Last week, we had about as good a setup as we could get for buying stocks. If you jumped in with me here, take those profits now. Don't try to sell out at the absolute high. After all, when you slap a bear across the face, you don't stick around to get in another shot. 

In fact, based on the following chart, it's time to turn and run the other way... 

This is a 15-minute chart of the S&P 500. It's a better gauge of short-term market direction than the daily chart, and it's more useful in quick trading environments – like in newborn bear markets. 

The S&P is running up into the red resistance line just over 1,080. The blue lines illustrate a bearish rising-wedge formation with negative divergence on the MACD line a momentum indicator. Basically, that means stocks are going higher but the momentum behind the move is weakening. This is always a caution sign, and it often warns of an impending selloff. 

Stocks are overbought. They're bumping into resistance. And they're tracing out a bearish chart formation. 

This is the mirror image of what saw last week. To me, it looks like a pretty good short-selling setup. 

Best regards and good trading, 

Jeff Clark
iOnTheMarket Premium


Comments Closed

rss feed

Latest Stories

article imageLong-term Relationships and Credit Scores

Unlike many commentators, I tend to think credit scores are a good read on...

article imageIn Defense Of Rolling Return Charts

Robeco’s Lukas Daalder has a bit of an issue with rolling-performance graphics. Bashing a recent chart of read on...

article imageThe S&P 500’s Worrisome Downturn In Drawdown

Last Friday I reviewed some of the bearish signals that were casting dark shadows across the US stock read on...

article imageADP: Private-Sector Employment Rises A Solid 200k In September

The pace of growth for private-sector employment picked up in September, according to this morning’s ADP read on...

Popular Articles

Daily Sector Scan
Partner Center

Related Articles:

In Defense Of Rolling Return Charts
More Articles on: Economics Data

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.