Continue Higher Or Snap Back?

2020-08-25

Mixed trading Tuesday underlined the need for caution as segments of the stock market continue to break through new highs even as other key elements stumble.

Traders are working setups in this trend while keeping an eye on how extended the market, and popular stocks, have become in recent weeks.

Prices have moved significantly away from key moving averages. The more extended this market becomes, the more likely a reversion awaits.

This market has shown a cycle of stretching rallies and then pulling back more suddenly than anticipated.

Traders following the media tend to react according to the latest bad piece of news and this can send a shock wave through the market. The more extended the market becomes, the more potential for a sharper pullback from this rally.

Many issues and events, such as U.S./China trade, vaccine status, stimulus plans, and a Fed speech set for Thursday, are in limbo and this creates an uneasy market.

There are also internal indicators and analysis showing the market’s current action is similar to the months just before the pandemic crash. 

Until the market makes a move, the consensus is to follow the bullish trend and take advantage of any opportunities it presents. While the market works out its next twist or turn, there are opportunities behind the uncertainty.

Simpler’s traders are following potential moves in sectors such as the cloud, semiconductors, transports, materials, and financials. Tickers in these sectors display bullish strength despite the market being extended.

We Saw: a market on a run — 

  • More all-time highs stacking up in indexes
  • Key stocks taking hits under the radar
  • Analysis hinting at caution for pullback

We’re Watching: sectors, stocks making moves —

  • Any ticker not worrying about uncertainty
  • Averages showing key support, resistance
  • Plans to ride the rally until the trend ends

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