We are getting a gap up today as the S&P 500 is bouncing off of its 200-day moving average. Robots are seeing that and buying – but so are many people. There are people that will now try to just blindly buy whatever is up the most this morning thinking that such momentum trading can work.
But in this market it won’t.
Most people are still bullish on the market even though the wonderful stock market rally that began in December peaked out at the start of this month and then the market began to turn down as the tariff negotiations moved into trade war tensions.
Although the averages are just down a little bit off of their highs so far there are individual stocks that are simply blowing up, but they do this with a big warning sign attached to him before their big dump.
For example yesterday JNJ fell over 4% in a day.
But let me show you the warning on the chart that came before this dump.
JNJ is a stock that dumped in December and although it rallied back up it continued to lag the S&P 500 as the market rallied, which caused its relative strength ratio plot on the bottom of the chart to trend down.
When a stock lags during declines and again on
And so JNJ did.
But this same indicator is flashing a warning sign on many popular stocks.
For instance TSLA’s relative strength plot is in rapid disintegration.
TSLA is the type of stock that could fall 50% from here if the market were to merely fall down and retest its December lows – really I think its going to zero one day, but that’s another story.
NVDA is not going bankrupt, but it also has this problem with its relative strength indicator.
I think now is the time to analyze popular stocks you may own. If it was me I’d dump the ones with declining relative strength ratios that have charts like NVDA on this technical market bounce.
And yes, I would do it no matter how popular the stock is to own.
-Mike
