Trading Lesson – Market Health

I just wanted to make a quick post. I don’t intend for this website to be a daily market commentary or market analysis site because there are literally tens of thousands of site that do that and do it better than I would.

But I thought today was a good day to point out how important it is to not forget about studying the market everyday if you are owning stocks as trades.

Even if you stocks are doing well remember that they usually will follow the market eventually. This market is overbought and even though market internals like new highs and # of stocks advancing vs declining have been good, the market eventually will pull back.

Yes, there will be daily opinions saying everything is great or the sky is falling, but you have to focus on the the charts to avoid the noise……….Here are a couple I thought were worth sharing.

The Nasdaq is looking tired and the RSI(5day for short term trends) is extreme at 95

Same with the S&P 500 (look at the lighter volume with this move up on the SP500 vs. prior moves up..)

S&P 500 zoomed in with RSI at 90 and tails starting showing last couple days near 1150 resistance and todays high volume so far with tail showing weakness or possible future trend change (maybe it improves and closes at highs of today but market is still looked tired)

Put Call Ratio(not a reliable indicator for actually make a trade off of but interesting to see how many calls vs. puts yesterday)…it is not extreme does confirm that investors are bullish(low # means more calls/puts = over bullish)

REMEMBER, I AM NOT MAKING A HUGE BEARISH CALL. Market is still well above support and trend lines and do NOT fight the trend by going all in bearish up here just because the market is overbought.

Yes, you can play some small positions like Short Index ETF’s that will go up when the market goes down but it is safer to wait until the market actually shows a high volume reversal day and actually starts breaking its trend to make larger bets.

One of the most painful lessons in trading is fighting a market trend so be careful trying to be smarter than the market.

OVERALL, I would rule that the market is overbought but can always stay overbought, yet risk/reward is what is more important to investing so be cautious swith any buys here and be apt to take some profits up here . Checks your stocks you own now and see if any are showing signs or exhaustion with churning(not moving anywhere on high volume or high volume reversals.

Maybe the market just keeps pushing higher but keep a keen eye up at these levels.