It was another volatile week in the market, with bulls and bears taking turns ruling the roost. When it was all said and done, though, neither side clearly won out. In addition, momentum plays have lost much of the luster which had previously defined the uptrend throughout 2013.
Last Sunday in my Weekly Strategy Session, and indeed since late-May, I wrote extensively about navigating this type of market environment.
Here are some excerpts:
On Trading Breakouts and Fake-outs in a Corrective or Potentially Rangebound Market
You can expect upside breakout plays to be even trickier (i.e. prone to head-faking higher and then reversing lower or merely failing to follow-through to the upside) in a continued corrective market. In particular, the widely-watched marquee stocks may be nowhere close to putting in major tops. But that does not mean they are currently in a healthy, trending phase. Instead, they could easily be in the process of building out the next multi-week consolidation.
So, the idea is to be cognizant of the fact that we could easily be in the midst of that choppy sideways period right now in those issues, thus compelling us to not prematurely assume they are on the cusp of another imminent leg higher. What also tends to happen in a corrective market is traders congregate in vast numbers around the premier stocks which are holding up well or even showing signs of making a push to recent highs, and they became overly-watched and further prone to head-fakes.
In a similar vein, trading ideas on the short side should be taken with a grain of salt, since the broad market remains in an overall bull run with rising 50 and 200-day moving averages on the major index charts. Hence, even the most tempting of short setups and weak charts require traders to be exceptionally nimble with locking in gains and waiting for another short entry after a bounce.
The issue going forward is whether traders should continue to tighten up timeframes and assume we remain in a corrective phase.
I will cover that subject and much, much, more–Including actionable trading ideas, educational material, and in-depth market issue coverage–in my next Weekly Strategy Session, set to be published on Sunday. Please click here for more details.
Have a great weekend!
