We have seen some wild swings in the market this week and they negated the idea of a low volatility floating market for August. This August month is now playing out much differently than those of the past three years have done.
A week ago I did a post showing you that for the stock market momentum to the upside to continue after the FOMC meeting would require a breakout in the Russell 2000 index, which the IWM ETF tracks.
Most of the big cap tech stocks like AAPL and FB and NFLX and so forth had simply gotten so overbought coming into July already that they began to sell their earnings reports as they came out one by one.
That meant that for big gains to continue for the S&P 500 would require a rotation shift into the Russell 2000 and it looked like it could happen as the IWM ETF was consolidating, but alas it did not as you can see from this chart.
This breakdown in the Russell ruined a potential S&P 500 breakout run in August and so the stock market dumped on Monday.
This does not mean that the stock market is going to crash here or that stock market bulls need to give up.
What it does mean though is traders now need to adapt to this change in the market. Just buying the SPY ETF or AAPL on an up day is no longer going to work.
Instead people need to look to buy dips and consolidation periods in SPY and the popular stocks.
In other words the trend for the stock market this month is really now going to be defined by sideways up and down movement. Really the opportunity to buy SPY will be a washout near support like we saw in May. It is hard for most traders to deal with sideways markets and dips.
Breakout trading for the US stock market and popular stocks is not going to work this month.
Now if you want to play stocks that are just going up and up then you need to look outside the favorite fad stocks now and focus on the sectors where the momentum now truly is to the upside.
And yes that means gold, silver, and the mining stocks. This morning once again gold and silver are up, but they have not been going up one day and coming down a day later, but instead are going up in up in a big momentum bull rally.
That action is different than the action this month in the SPY and it is happening, because gold broke out of a four year base when it cleared the $1350 resistance level that had held it down for years in June. That’s a long-term buy signal and set gold up for a rally that would go on for months.
And this is one reason why I made Aftermath Silver my top stock pick for this month yesterday.
You can read that post here:
And yesterday it went up 15.15% in a single day!
That is the type of action you get in the right mining stocks.
Oh and remember KL – my July top pick…..
…..it went up another 0.62% on Tuesday too.
That might not sound impressive to you, but it’s now up 42% from my May trading alert for my private Power Investor group.
This is exactly why you need to become a member. To join just go here:
http://wallstreetwindow.com/join-power-investor/
-Mike
