What's going on in the market?
The market has been in a bullish uptrend and has been remarkably resilient to economic outliers. Last week the market showed some weakness towards the end of the trading day. So, what are we looking for going into next week? Let's break it down.
Looking at the daily chart in the SPY, we can see the selloff accelerating with an increase in volume.
In the figure above, the 50 EMA has acted as strong support.
What exactly does this mean?
If we look at historical data in the SPY for the last 5 months, we can see that the 50 EMA (blue line) has been solid support and that the price usually bounces and continues to make new highs after each bounce.
What are we expecting now?
We are expecting the same results meaning that the price will more than likely continue to trek lower until it bounces off the 50 EMA at around the $441.15 level (pictured above). We will continue to use the data in our favor until the data fails and we change our Bullish mindset.
What caused the selloff?
There was no one particular issue that caused the selloff. In my opinion, it was a culmination of different factors. First, I think the market is in a technical rotation of the price action that has been occurring in the past few months. Second, the news coming out of the FED's was not too encouraging and caused fear in traders. Three, fear of early tapering from the FED might be playing into investor fear of a huge market correction.
How can we take advantage of this?
When the market accelerates up or down it creates volatility. Volatility creates opportunity and we need to prepare for it. We know that the 50 EMA has been strong support so buying the dip at the 50 EMA is the smart play understanding that the market is still bullish. If the 50 EMA is unable to hold support then a change in sentiment will immediately turn into a bearish mindset and trading with the market to the downside will be a great opportunity for traders. Having a plan for either a bullish or bearish market scenario is important because opportunities need to be met with preparedness.
This article is for entertainment and educational purposes only and should not be considered financial advice. If you disagree with any of the information provided please stop and consider other informational options.
Disclaimer: Results may not be typical and may vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk!