Finally, can we see buyers coming in or are we set for a double dip? Friday's stock market price action saw some buyers come off the sidelines to add some evidence that there might be some potential support coming in after the prior 3 days sell off. We have been advising you about this due to our trading channel technical analysis.
There are many key factors when trying to buy the support and not entering on the possibility of catching a falling knife! Some of the things you should be looking for when identifying whether this is the next leg up in the uptrend are:
Look to the left on your chart as the price action to the left often identifies support resistance areas.
Look to see what happened when the indices or stock sold off last time.
Where did it find support?
20MA (Moving Average) or 50MA (Moving Average)
How sharp was the sell off
Is it a controlled retracement?
Does the chart have symmetry?
The list above is not exhaustive but you can see the thought process with the overall goal to find out if you have ticked all your trading rules and that the indices or stocks you are about to trade have an oversold signal. This then allows you to increase your edge when placing a trade.
The SP-500 and the other indices have sold off a lot sharper than the last time we sold off in the markets but that is not to say that we are not still bullish. We are just being cautious until we see further evidence to enter with our full position size because there is overhead resistance of the 20ma!
We did some of our buying on the later stages of the Thursday's session due to the 50MA bounce and Friday saw those tight targets being achieved. Now we are just trailing out the remaining positions and waiting for further support evidence to find some longer term trades.