The market finally caught its long-awaited cold, slightly surprising with its timing right at the start of earnings, but this drop to the 200-dma is a welcome development.
Why would I think a big pullback is welcome? Because the market had been frothing for months but still ultimately rising; we’ve had countless whipsaws since November; and we simply hadn’t had a proper reality check for two years, and even that one was short-lived.
What this also means is that when this washout cycle is complete, we’ll start to enjoy the best tradeable setups around Key Levels with quality stocks that have long trend potentials.
This happens over and over again, which is why I’ve been loudly hoping for this event to happen for the past few months.
So, how will this washout manifest from here?
My view is that it won’t be a V-shaped bounce like in 2020, and there should be more downside to come in any case from where we are now.
In the very short term we are so oversold that a snapback is highly likely. Ideally, this would take the form of a waterfall setup bouncing up against the 200-dma.
Once the lows are in, I would expect plenty of bouncing around which will ultimately conclude in the highest quality setups including multi-week shrinking rectracements, concluding with consolidations around the major Key Levels.
That’s what I want … and that’s what I expect will happen, at least with enough high-quality liquid stocks to make it a most fruitful time for us all.
In terms of the way down, there is still scope for more, and it’s just a question of picking out the neatest setups near Key Levels and trading the options sensibly, simply and responsibly.
Market Outlook:
It is most likely that we haven’t seen the lows of this downdraft, and we will get a cat bounce of some sort. It remains to be seen if that cat will be dead.
Stock Selection:
For now I’m looking at bearish setups near Key Levels. We had some last week, and we are likely to see more in the coming weeks. We’ll focus on neat and tidy patterns forming at or below those levels, and we’ll trade sensible and easy put options with them.
Application:
It’s never been easier or quicker to find the exact setups we like. You can click a button to find stocks and options setups in seconds.
Software Upgrades
Upgrades will be deployed this week … TradeFinder Fast Filter counts, and new options filters in the OptionEasy area.
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Remember, you can play the video at 1.25x or 1.5x speed if you want to save time! I have placed all the stocks covered in today’s review in your “Latest Preview” watch list.
