I don’t often give my broad opinion on the markets.
However, in light of the Nasdaq 100 (QQQ) coming up near all-time highs, I figured it was time to share my thoughts.
You see, momentum stocks (my bread-and-butter) can’t seem to break out to new highs.
How am I dealing with it?
By focusing on the LottoX intraday setups to catch big intraday swings!
In other words, I’ve had to adjust my trading to fit the current market environment…
Will I be stuck trading this way for the rest of the year?
I don’t believe so…and here’s why…
Ask yourself – what defines a healthy stock market? Is it record prices?
To me, I look at market internals to tell me whether a market breaking out or faking out.
My two favorite indicators are the put/call ratio and which stocks are advancing
The put/call ratio is a gauge of investor fear. Historically, it averages around 0.7. When this gets too excessive, we’re typically near a bottom – too light and we’re near a top.
So where are we at right now?
Put/Call Ratio Daily Chart
Currently, the ratio is at 0.64. Now, that might seem reasonable. However, consider what we’ve just been through.
When stocks crashed, the put/call ratio jumped to 1.44. We’re less than half of that. Relatively speaking, that’s a large move.
In the past, that kind of move told me we’re due for a pullback. However, it doesn’t have to come immediately. We could go higher for several more weeks before it happens.
Second, I judge market health based on which stocks are advancing and how they’re reacting.
Remember, Amazon (AMZN) recently made new all-time highs along with Telodoc (TDOC) and Zoom Media (ZM). Yet, now many of these momentum names can’t get anything going.
Instead, we’re seeing money flow into the most beaten-down sectors like travel and banking. While a healthy market needs the banking sector, I want to see those businesses rally because things are getting better, not because everyone else is buying them.
Despite a bleak assessment, I still believe there’s going to be a last push to the upside, and here’s why.
The ultimate squeeze
When I see a squeeze appear on one major index ETF, I get interested. Seeing it on two, that’s something to take notice of.
My TPS setups look at three components – trend, pattern, and squeezes. The charts for the SPY, which tracks the S&P 500, and the DIA, which tracks the Dow Jones Industrial Average, both have trends and squeezes.
You can see the squeezes where the dots are red in each subgraph. Yesterday, they turned green as they fired higher.
SPY Daily Chart
DIA Daily Chart
Neither of these had a great consolidation pattern. But, they should react as any TPS setup would.
The energy gathered in the recent consolidation will send stocks higher until it’s been released. At that point, I expect most of the stocks will turn around.
In fact, you can see how this rally is being driven by the new money finding a home in everything from industrials to financials.
How I’m playing this move
You may think I’m too narrow-minded. But let me tell you something…I trade what works.
Right now, that’s shorter timeframe TPS setups on momentum names. However, I’m making some slight adjustments.
There are a few momentum names not near their all-time highs. Those are seeing buyers step in as they rotate out of other sectors like the ‘stay-at-home’ trades.
As they catch a bid, I look for my LottoX setups and try to get in and out of these names quickly.
I don’t know when the markets will fall apart, but I do expect it to happen. To protect myself and my capital, I’m keeping my trades smaller and faster. Whenever markets decide to head lower, I won’t watch my account blow up.
Most importantly, when I need to, I’m taking a step back from the charts.
Yes, I love trading. But I do this for a living. Throwing money away because I feel the urge to trade isn’t a practical business plan.
I didn’t amass millions of dollars trading haphazardly. I had a gameplan and I stuck to it.
Besides, while I think there aren’t tons of trades on the board, I’m still finding plenty to make LottoX members happy.
And you can be sure that I’ll adjust my trading when I get the signal markets are about to keel over.
So rather than flailing around for trades in this market, why not try LottoX? With trades coming at you nearly every day, there’s plenty to keep you entertained.