The back story: Momentum can be a critical element for any trader, as it factors into how technical indicators play out. You see a pattern that is bullish, and you want to trade it, but it needs to maintain momentum to work out.
Since the start of August, it feels like the sentiment about momentum stocks has changed.
What I am seeing: Momentum stocks are being stopped in their tracks, unable to push through resistance points. That makes it very difficult to trade long with any conviction.
That feels like the market is at a tipping point, about to change, but the most dangerous words are “This time it’s different” and every time it has felt like the market was about to spill over, it has somehow stepped back from the edge. It makes it hard to trust that things will change this time.
What I am watching for: A downturn and re-set might help, but I won’t believe that we’re out of this slow-mo market until I see it. Until then, I’m skeptical about every momentum play. Barring a big catalyst like we’re seeing right now in bitcoin plays, I need something more than momentum to convince me that I can go long and stay green; I’m looking for short positions where the lack of momentum can be a positive.
Taylor Conway is the lead day trader at PennyPro.com. He is a short-term day trader of stocks and ETFs. At the time this article was published on RagingBull.com, his only open positions were in CHFS and TEUM.