Key Sector ETF & Broad Market Technical Analysis
The Stock Market Trend & Hot Sector ETFs
Trading with the trend should be your main focus for long term success no matter what type of trader you are (Options Trader, Stock Trader, or ETF Trader) although it’s not as easy as it sounds.
Trading With the Trend – The Sweet Spots
Knowing the direction of the market is often simple, but trading with the trend is not that simple because of natural human behavior. Instead traders fall victim to trying to pick a top or bottom because they think the price is overbought or oversold and they want to catch the next big trend change.
We all know the saying “the market climbs a wall of worry”. Well, the biggest worry most traders have is buying long in a bull market because stocks and price always look overbought and ready to top each week… This leads to people trying to get fancy picking a top only to get their head handed to them a few days or weeks later depending on how stubborn they are to exit a losing position.
The key to long term success is to buy during broad market (S&P 500) (SPX) (SPY) corrections once sentiment, cycles and momentum are starting to flash extreme oversold conditions. These show up as green arrows on the trend chart. At that point most sectors and high beta stocks like (IBM), (GOOG) etc… should be at a key entry points with most of the downside risk removed already. Remember 3/4 of stocks follow the broad market so it only makes sense to follow it also.
What about a runaway stock market? This is when the stock market does not pullback but just keep grinding its way higher and higher… The only thing you can do is sit in cash, or look for a stock or sector that is having a small pause or pullback and get long with a small position until you get that broad market pullback and major by signal to add more.
Below are a few sectors showing a minor pause/pullback within this bull market.
The Stock Market Trend
On the below SPY chart is a simple trading model based on key technical analysis rules from one of the world’s best chart technicians (John Murphy). The key is to identify the trend of the market. Once that is known you can focus on trading strategies that take advantage of the current trend.
This indicator/chart layout tool converts my chart reading experience, tips and tricks into a simple system, removing analysis paralysis which cause most individuals to second guess what they see and don’t pull the trigger. Using too many indicators or read/listening several other traders commentaries with different views than you causes this paralysis.
My simple red light, green light model clearly shows a viewer the current trend and expected price range (high and low) looking forward a couple days. I use a series of data points like volatility, volume, cycles, momentum, chart patterns and logic rules. It even shows extreme pivot points helping you find low risk entry prices for both bull and bear market conditions.
Recent trends and signals for the S&P 500 Index Daily Chart:
Overall, the broad market remains in an uptrend. While I would like to see the SP500 pullback and give us another major buy signal, like it did in December and February — I do not mind that much if prices keep running higher, as it just give us more cushion and potential profits for when the trend does eventually roll over and flip signals. I hope you found this report interesting . It’s just scratching the surface of this topic but it’s a start.
Courtesy of Chris Vermeulen, www.GoldAndOilGuy.com