Learn How To Spot A first Thrust Down Pattern
The savviest of investors earn their keep because they know not only which sectors
of the market are currently and soon-to-be hot They also know the overall health of the market and can accurately predict its health down the road.If you have some farsightedness, you can see some opportunities in both the short and long-termeven in a sagging market. It requires you have a good knowledge of market history, know the overall behavior of investments and investors alike, and have an ability to spot a pattern when you see it.
There are a couple of patterns I want to talk to you about today, and where you can see them in action in todays market. Learning about these patterns will help you go very far and reap some nice gains along the way, while minor-league investors are left scratching their heads...
The 50% Fibonacci Time Window Is Open
In my last few articles in Penny Sleuth, Ive talked about how overbought the market is, and how we are seeing a successful short-sell pattern show up on the charts of many leading stocks. Now is the time to be prepared to make the most of it should the market move lower and trades from this pattern trigger.
In fact, that is exactly what happened the week before Thanksgiving. Read on below to learn more about this pattern and how to trade from it
That same week, the market broke into new highs, but after the initial boost it pretty much fizzled into a big yawn.
The thing that really has market technicians excited right now is the fact that Thursday of that week was the 50% Fibonacci time window of the whole bear market.
In plain English, that means that the whole bear lasted 17 months, and right now were sitting at 8.5 months into the move off of the bear lows. Thats significant because weve also seen a 50% gain in stocks since the market lows back in March. Take that 50% time move, couple it with 50% Fibonacci price levels being touched on the indexes, and youve got confluence here.
Thats why right now is technically significant.
When looking for opportunities to deploy new dollars in the market, all that matters is the short-term uptrend off of the November lows thats what were watching.
And as you can see from the chart above, its not anywhere near where we want to consider being buyers on the long side, because we buy the dips and sell the rips and the daily charts are telling us that weve just been ripping into higher territory this month.
Opportunities on the Short Side
But on the short side, we see lots of opportunities all of them in the form of the First Thrust Down/Pullback Off Lows pattern. More on those in a minute
In addition, when looking at the indexes, odds favor those on the short side than those on the long side why? Well the indexes are all pushing the upward trend channel resistance with well into extreme overbought territory when viewing the daily charts.
So when you combine that event occurring in each of the major indexes along with the formation of a classic short-sell set-up in many individual stocks and some ETFs, you have a good combination where odds of success are much greater by betting against stocks right now.
Remember its all about trading in tandem with the market. If the indexes are at resistance and you have a list of stocks that are showing a breakdown could be imminent, those are the issues you want to focus on until that trend changes in both the indexes and other individual stocks.
First Thrust Down / Pullback Off Lows Patterns
So, what about those First Thrust patterns I mentioned earlier?
In essence, a First Thrust is a potential transitional pattern as a Change in Trend occurs from up to down, or from down to up.
For this article we will be focused upon the transition from up to down after all, weve already talked about why were looking at the short side of the market.
In order to give you a better idea of what these look like from a chart perspective, below are a few examples of past First Thrusts that have occurred, which were followed by deeper consolidations.
Notice the Blue box in the charts above? Those blue boxes are your first thrusts down.
After a first thrust we look for a snapback rally (everything above the Pink Line), these can range in duration from 1 week, up to 6 months, but all of these snapbacks have that same look and feel to them when all is said and done.
After an issue (or index) stages a snapback rally, its time for investors to really be watchful. This is when the market shows us whether or not it will find support, or if it will go on to deteriorate even further
Numerous issues as of late have staged First Thrusts downward, and from here forward it is all about seeing if they are going to be short-lived snapback rallies, or if sound new bases are going to being built.
Over the coming weeks and months we will get our answers. If we start seeing these snapback rallies fail, then well know which way to lean and then be ready to trade accordingly.
No Place to Go But Up Even if Youre Going Down
As you build skill and grow to understand more about technical analysis, you will be able to take action with greater confidence trading based on what you actually see in the charts is critical to removing the guesswork of investing. After all, if you own stocks at a market top, you need to know when to get out; and if you are short stocks at a market bottom, you need to know when to buy and cover your position.
No matter where the market is at top or bottom it is possible to spot winners and make the most of whats out there. Using technical analysis can get you on the winning side of even a losing stocks downfall.
Theres no doubt having a good working knowledge of how First Thrusts and Pullback Off Lows will go a long way in helping you get a leg up on your competition. But theres one more technique to help you make the most of market trendsthe most critical to your profit margins, in fact
Pullback Off Highs: The Only Pattern You Need to Know
Theres no question that technical analysis is tricky. Learning how to take a stock chart and make a profit-producing prediction takes years of study and experience. But with a decade of technicals under my belt, Im here today to show you why theres only one long-side pattern you need to know to profit from this market.
Its time to dissect the Pullback Off Highs
The Pullback Off Highs pattern is one of the most bullish and constructive long-side set-ups out there. Rather than moving straight up, an index or stock will make a move higher, then spend some time consolidating those gains often down to an area of chart support such as its 50-day moving average, before making another move into new high ground.
When a stock clears these consolidation periods, its your opportunity to buy them and take advantage of the next run. The bonus part is that when you catch a stock at the beginning of a new uptrend, youll often get to trade the stock and lock in profits over and over again. Thats because buying it at the point where its just started a new move and is near support, which minimizes your risk. Heres a recent example
In the chart above are 3 things you ALWAYS want to be on the lookout for:
1. Defined Uptrend
The stock should be in a clearly defined uptrend and above the 50-day moving average, the thin line above that represents the average share price over the trailing 50 days. Moving averages are technically significant in this case, the 50-day moving average acts like support, halting share prices should they move lower after our trade triggers.
2. Pull Back to Trendline Support
We always want to see a stock thats sitting right above trendline support as well (thick green line). Stocks bounce off their trendlines, so we want to take our position just before a stock starts its bounce back up. Trendline support also happens to be the 50 day average in this case.
3. Oversold Stochastics
Full stochastics were in oversold position (the green circle) in the chart above and thats just what we want. Stochastics, an indicator of a stocks momentum, give us a glimpse at just how overextended a stocks price is at any given time. When a stock is oversold, its time for us to buy.
Once you see all three things, there is only one more step you need to know after that: Draw a trendline off the most recent highs (pink line). Thats what we commonly refer to as a Pullback Off Highs Line. Then its all about an upside crossover of the stocks share price above that line. That crossover is your entry point.
Be Engaged
Technical analysis is not for the faint of heart. Nor is it for the lazy and non-chalant. Being a smart investors means also being a hard-working, well-informed investor. Using Pullback Off Highs and the other techniques Ive talked about today proves that.
If youre not interested in being engaged in your money and where its going, technical analysis probably isnt for you. But if youre willing to work at it, these tactics could lead you to some very nice returns on your dollarpotentially much higher than most other investors.
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