I love it when a plan works out.
That’s what Colonel John “Hannibal” Smith would say at the end of episodes in the 80’s TV series The A-Team. We love it too when a plan works out.
Stocks pulled back, almost on cue, last week after the NASDAQ travelled into overbought territory. In last week’s newsletter, we shared the following…
In the near term, it might be wise for investors to hold off on adding any new money to the market. Like C, D and E follow A and B in the alphabet, overbought conditions tend to be followed by profit taking before too long.
This week’s plan is short and straightforward.
We also mentioned 15,000 as a possible destination once the selling started. The NASDAQ bottomed out at 15,030 to start the week. Does that mean it’s time to buy the dip? One word answer, two letters – NO. At least not yet. There must be a pivot point first.
A pivot point will be the first up day(s) following a selloff. We want to see the buyers carry prices above the intraday high for the last day of selling. Based on Monday’s action, 15,215 is the number the NASDAQ has to close above before hitting the buy button.
Sometimes, traders can toss in fake outs. If that’s the case then, again based on the last down day, we know where to cut losses… the intraday low. Again, if stocks begin to recover right away, then a close below Monday’s low of 15,030 is the downside limit. If the previous low breaks, it tends to attract more selling.
As you can see on the chart below, there are a number of recent pivot examples.
Investors would be wise to wait for the pivot before putting more money into the market.
Not a single sector on our performance list managed to finish above water last week. Only three managed to lose less than 1%… Consumer Discretionary, Metals and Mining, and Mobile Payments. Outside of that trio, all the others dropped more than 1%.
We’ll wait for the pivot before considering any sector bets.
Same here, no new ideas until the pivot.
We wish there was more to share, but there is no sense in making the simple complicated or take unnecessary risks.