Today’s stock market selling was obvious, but not from looking at the major indices.
Successful trading requires scanning a lot of charts to see what’s going on under the surface. Sometimes it’s easy and most stocks and sector rotation are on the same page. When order flow is clear, winning day trades seem to be easy. You can’t do any wrong and you love your job!
This is not that tape. As a matter of fact, this is bizarro market. The opposite of a great tape. (If you aren’t a comic book fan, Bizarro is the opposite Superman).
Our morning call noticed there were many more short-sale setups than new buying opportunities today. Noticing these types of patterns will make you a better trader. The scans and game plan were telling us there was a disconnect between price and volume.
The recent 3 week rally in the SPY was not built on a solid foundation and today it crumbled under its own weight.
Taking this game plan analysis deeper, yesterday, many large-cap stocks declined with volume in a neutral tape.
If you are a student of stock trading, you know the market leaders decline or rally first, then the second tier stocks follow.
You will find it easier to earn money when you do this extra work, when you scan more stocks. The key to remember though, is scanning is not enough. You need to interpret what you are seeing. To interpret, you need to know what “should happen” in order to have a framework to make a distinction.
This is simple to learn. When stocks rally, it should be on advancing volume. After a rally and a pause, the pause should be on light volume. Repeat until you get a heavy volume pause.
Stock Trading Recap 10-21-15 | Wednesday Video
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End of Day S&P 500 Map 10.21.15
S&P 500 heat map shows barely any green. Today’s selling was broad-based and strong. We expect a lower open tomorrow and a test of $200 in the first hour.
SPY End of Day Chart 10.21.15
Basic materials reversing the one month trend today.