I’ve been saying for a while that the market looks over-extended, BUT that we must continue to “Trade What You See”, meaning you continue with a bullish bias while the market has continued to be bullish.
Why have I thought the market was over-extended?
Primarily because the OVI Dashboard shows how stocks have decoupled far far away from their 200 and 50 Day Key Levels. At the same time there are vast numbers of stocks around their 20 Day Key Level.
When stocks break out through their 20-dma they can of course keep going, but the potential for a severe retracement does increase. Not only that, but other stocks breaking out in such a climate are also vulnerable to steep pullbacks.
And that’s what we’ve seen a bit of this week … stocks pulling back after recently breaking out.
So, it’s slightly challenging in this regard right now, and we’re now also into earnings cycle, which brings more potential for sharp retracements in both directions.
Andy yet, with all that said … with our wonderful TradeFinders making things so easy, I could still unearth some very plausible setups today with effortless ease.
Caution remains the outlook, and you must be conservative with protecting your profits early, but there are decent setups out there, as you’ll see in today’s OVI Market Review.