Stocks enjoyed a decent open with buyers trying to support the market, but it was the weakness going into the close in Europe that set the tone for much of the day. As the European markets closed sellers rocked stocks as they enjoyed a nice push, but at the close they were well off their highs finishing flat. Sellers didn’t waste their time here in the states pushing stocks well below Friday’s low. Volume was running lower throughout the day as selling volume dried up. Buyers stepped up in the afternoon, but they lacked the necessary vigor to really mount anything special. This market remains unhealthy and the lack of conviction has yet to change this market’s character.
The market remains oversold and reached extreme levels at today’s low. Markets can remain in oversold areas for a long time, but for the time being we reached oversold levels that indicate a bounce is near. If we have been seeing better action out of stocks and we saw better conviction from the market it may be a different story. However, this market needs to continue to work its way through this correction. It is highly probable any rally here will be a great way to set up shorts rather than new longs. Be patient and allow stocks to set up.
With the market volatility it has left a lot of stocks with loose price patterns. Loose price patterns often lead to wild price swings and lower prices. The lack of tight charts also is a clue that this market is quite unhealthy and needs to continue to work itself lower to set up better price patterns. In the meantime any rally will set up better shorts in a few weeks. We are preparing for the past leaders to setup properly and give us the best chance at booking gains.
There are plenty of traders out there salivating at the recent volatility as a chance to day trade stocks. There are very few who can consistently make money day trading. They aren’t an instinct bunch, but probabilities show that it is not a viable way to make money in stocks. All of the greatest traders knew the key was holding for longer than an hour, day, week, or a month. While defining yourself as a trader is a key part of becoming successful, but we feel by emulating the greatest gives you the best chance of becoming a professional.
Stick to disciplined trading and avoid the pitfall of over trading!
