There is no doubt that their was damage done last week. Not just to the charts, but probably your psyche. Traders have been trained to buy every dip over the last couple of years, but last week, bounces were shallow and sold into. If you tried to catch a bounce and it didn’t work, let it go and take notice that there is a trend change. Whether that trend will last or we will be back at highs by the end of week isn’t something we need to know right now. What is more important is to not assume that we can’t go any lower or that bounces will have staying power. I
I have no doubt that market participants are looking for a coming bounce. Given the speed, the extent of the move down and the oversold readings, it does seem likely that we stage a fairly decent bounce sometime next week. However, given the recent selling pressure, allowing FOMO (fear of missing out) to NOT get the best of you would be my advice.
Here is a quick lesson in psychology (perhaps one day I will expand on it). You likely already know how intense fear of missing out can be and if you are an impulsive person you know how it can affect you. One way to help you overcome it is by being aware of it and the power it has on you – in the moment and not just in hindsight. For example, if during the week the market starts to bounce and you feel compelled to buy something quickly before price moves much higher, before placing a trade take notice of the feeling (as if you were an outside person observing it) and ask yourself 1) what would happen if you waited before taking that trade? and 2) what would happen if price did move higher and you weren’t involved? In other words, first try to remove the feeling by identifying and watching it. Then see how that feeling changes by not rushing in to take a the trade. Ok, psychology lesson over for now. Here are some charts.
Oversold readings:
- Stocks at 20-day highs is the one showing the most oversold with regard to the oversold charts I often look at. I went back three years, which is longer than this chart (1 year) and it is pretty much as oversold as it gets.
- Stocks at 20-day lows. This one pulled back a bit on Friday. It is still high, but could go higher.
- Stocks above their 50-day moving average is also getting pretty steep, however based on this 2-year chart could go lower yet.
- SPX is outside the Bollinger Bands; however, I would prefer to see a bottoming candle (reversal or bullish engulfing etc) versus an indecisive doji.
Caution and potential bounce area:
Finally, one thing that leads to me being more cautious in this current situation is the amount of people looking for a bounce. It seems everyone expects one (including myself by the way). However, we know how it often goes when everyone is expecting something to happen. I definitely will be looking to catch a bounce next week, but will also not let my ego get the best of me and be ready to stop myself out if I am proven wrong. I also won’t assume that any bounce we get is necessarily the bottom.
Given that there is both a gap on SPY and an area where no volume traded (often price is rejected from areas where little or no volume traded), I will be looking for a bounce between 190.50 and 191 if Friday’s low is taken out. That level is also very near an area that was resistance from March to May (and now possibly support) . 
Good Luck next week.
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Where’s the Bounce Yo? + Overcoming FOMO
There is no doubt that their was damage done last week. Not just to the charts, but probably your psyche. Traders have been trained to buy every dip over the last couple of years, but last week, bounces were shallow and sold into. If you tried to catch a bounce and it didn’t work, let it go and take notice that there is a trend change. Whether that trend will last or we will be back at highs by the end of week isn’t something we need to know right now. What is more important is to not assume that we can’t go any lower or that bounces will have staying power. I
I have no doubt that market participants are looking for a coming bounce. Given the speed, the extent of the move down and the oversold readings, it does seem likely that we stage a fairly decent bounce sometime next week. However, given the recent selling pressure, allowing FOMO (fear of missing out) to NOT get the best of you would be my advice.
Here is a quick lesson in psychology (perhaps one day I will expand on it). You likely already know how intense fear of missing out can be and if you are an impulsive person you know how it can affect you. One way to help you overcome it is by being aware of it and the power it has on you – in the moment and not just in hindsight. For example, if during the week the market starts to bounce and you feel compelled to buy something quickly before price moves much higher, before placing a trade take notice of the feeling (as if you were an outside person observing it) and ask yourself 1) what would happen if you waited before taking that trade? and 2) what would happen if price did move higher and you weren’t involved? In other words, first try to remove the feeling by identifying and watching it. Then see how that feeling changes by not rushing in to take a the trade. Ok, psychology lesson over for now. Here are some charts.
Oversold readings:
Caution and potential bounce area:
Finally, one thing that leads to me being more cautious in this current situation is the amount of people looking for a bounce. It seems everyone expects one (including myself by the way). However, we know how it often goes when everyone is expecting something to happen. I definitely will be looking to catch a bounce next week, but will also not let my ego get the best of me and be ready to stop myself out if I am proven wrong. I also won’t assume that any bounce we get is necessarily the bottom.
Given that there is both a gap on SPY and an area where no volume traded (often price is rejected from areas where little or no volume traded), I will be looking for a bounce between 190.50 and 191 if Friday’s low is taken out. That level is also very near an area that was resistance from March to May (and now possibly support) .
Good Luck next week.
Check out a subscription for trade ideas and more.
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