What goes up must come down?

2020-08-27

“Crazy,” “wacky,” “not normal,” “profitable,” and “scary” are all terms describing the stock market in recent weeks.

The market — no matter the news or economic events — keeps racing higher.

Key indexes have sliced through all resistance levels on the way to repeated all-time highs. In recent days indexes and market-leading stocks, especially tech tickers, have “gone vertical” with their prices spiking straight up.

As an example, the S&P 500 climbed 100 points in three trading days and the Nasdaq rose 1,000 points in 10 days (notwithstanding a final hour stumble today). There have been only two down days in the S&P during August.

This sky-high price action doesn’t match “normal” market cycles of pushing higher then retracing toward moving averages before rising again. Experienced traders are noticing that in decades of  trading this resembles the Dot Com bubble bursting 20 years ago.

These vertical climbs also resemble a “blow off top” where indexes and prices spike vertically before a significant gap down. The spike usually occurs at the same time of increased volume and volatility. The difference is a blow off top in the past would develop over years of the market rising higher followed by years of trending downward.

By comparison, this year’s market crashed just months ago and now has surpassed previous highs almost across the board. The current recovery is the fastest ever recorded in history — it took just months instead of years.

Is a severe gap down imminent? If this market reverses, how fast and far could it fall? Only time will reveal the next phase, and directional pace, of this historic market.

What this comparison reveals is how Simpler’s traders have been working this volatile market. They continue to run with the bull market as high as it will go while remaining cautious of historical trends and how this market is shaping up, or down.

The key is to not trade too far out in this extended market. We’re trading tight stops and watching position size. This “wild and crazy” market environment is likely a once-in-a-lifetime event, so we’re not fighting the momentum and we’re milking it for any way we can trade in these historic sessions.

We Saw: the market again pushing for higher highs — 

  • S&P 500 teetering toward a 3,500 breakthrough
  • The Dow making up ground in another positive day
  • VIX climbing to highest level in recent weeks

We’re Watching: for more vertical spurts toward new highs —

  • Whether any upward resistance level will hold
  • What’s up with AMZN dipping negative?
  • Setups in: IBM, CRM, WMT, AMZN, DELL

Learn to target precise entries and exits with “divine” tools — take a look at high-probability chart analysis.