Yesterday, gold went up and so did mining stocks, however the US stock market dumped hard on the close. It’s good to see gold firm up against the stock market. That is a sign of the start of a potential bottom in the metal, but gold will need to do some base building for a few weeks to complete one and the action in the stock market Tuesday has given me a sell signal on the 60 minute hourly chart. I wish it didn’t, but it did.
Take look at the hourly stochastics. They went above 80 Monday to signal overbought and then gave a sell signal by closing below 80 yesterday.
This sell signal also came at a lower level from where the market was when this happened last week. So that’s a lower high for the market. I think the market is rolling over into a correction. If that is the case it will be confirmed once the S&P 500 closes below its low of last week at 3800. The key level on the Nasdaq to watch is 13000.
If that happens I would consider that a second sell signal.
To negate the sell signal the S&P 500 would have to close above 3910.
There are plenty of warnings signs, though. We have a blaring negative divergence between bonds and the stock market and last week we saw Bitcoin top out and take a 20%+ hit to blow up. If there is any area of the market that is the most dangerous it is in the crypto that quickly turns to kryptonite when the momentum in it fades.
Another warning sign actually happened yesterday with two key stocks that reported positive earnings that caused their stocks to gap up, but then collapsed the rest of the day for deep losses. This happened with Zoom.
And it also happened with Target.
When you are in a big rally stocks typically gap up and keep going when they have good news. But when you are in some sort of market downtrend stocks gap up on earnings and then fade hard.
That is exactly what happened with these two stocks. I did another video in my stock Trading 101 series to explain the stochastics indicators that I use on my charts.
These indicators can also be used for buy signals and in the end if the market does have a correction it will be a wonderful buy point when it does come to an end. The only way we can be a part of that is to be prepared for it and to keep our eyes on the action as it unfolds!
There are different types of indicators to use for stock trading in the markets and one family are called oscillators. They are designed to measure price momentum and give overbought and oversold readings on a chart. Stochastincs and Wilder’s RSI are my two favorite oscillators to use.
For more info on these two indicators check these articles out:
https://www.investopedia.com/terms/s/stochasticoscillator.asp
https://en.wikipedia.org/wiki/Relative_strength_index
To learn more grab my book Strategic Stock Trading click here.
What are your thoughts on the market action? Scroll on down to the bottom to the comments section and join the discussion.
-Mike
