As I mentioned yesterday this downdraft is likely being fuelled by three factors:
– First is the uncertainty relating to the price of oil. I guess you can throw into the bargain various Euro uncertainties too.
– Second is the fact that we have earnings coming in the next week.
– Third is that this is about the right time of year for liquidating assets to pay taxes.
This triple whammy is causing the steep retracement that is hurting bullish trend traders as did those other steep retracements during 2014. It’s a phenomenon of the last year or so that just as new highs are made the market takes a nasty swipe at the bulls.
To counteract this you have two major strategies in your armoury.
– First is to focus on reversals while this nastiness is happening. This means the very best Doji and Railroad Track patterns. Our track record on reversals is phenomenal, and if you’re not using them you are seriously missing out.
One easy way to play reversals is to look out for the obvious patterns in the indices first. If there’s a key reversal setup happening on the S&P index, SPY, Dow30 index or DIA (or even better all of them at the same time!) then you must pay attention. Then you have to look at major stocks that make up those indices, as contained in my OVI Express stocks as there will inevitably be several of those mimicking the indices.
– Second is to make use of my Dynamic Trendline entry technique that enables you to enter trend trades without a breakout. This is a very specific technique that I spent time on during our November workshop. It means that in specific circumstances you can enter a trending stock while minimizing risk as your entry is that much closer to your stop. This was a hugely valuable part of our seminar and for the best results you should be using the OVI in the direction of the trend. Statistically we know this serves us very well.
For where we are right now, just focus on the reversals or just observe until the mayhem has subsided. My view is that the market should ultimately shake off all this nasty stuff but you have to pick your moment. That moment will likely be a key reversal pattern occurring in the indices and several major stocks.
No video today but here is yesterday’s OVI Market Review Video just in case you didn’t see it.