At Simpler Stocks, we talk all the time about chart patterns being the first priority, even above ATR trailing stop signals. The other piece of the equation is combining market feel. What do I mean by market feel? When I see a possible actionable idea, overall market criteria is important. I go on probabilities. If I see a bearish pattern and the overall market is skyrocketing, the probability of it playing out becomes smaller. Here is a case of a stock acting poorly, and the overall market showing signs of weakening.
Last week, the /NQ broke under EVERY moving average, and its ATR trailing stop. In these cases, usually every rally can be sold.
On the relief rally on Thursday, the /NQ continued to rally till the mid-afternoon. On the other hand, Google (GOOGL) made its high at 9:38 AM, and had developed a nice ledge pattern.
The key was that not only had GOOGL developed a beautiful pattern, but also was acting poorly relative to the overall market. The theory is that if the market flattens out, or turns down, then the stocks already acting weak should lead the downturn. As seen that is exactly what happened in GOOGL. Once the market weakened, GOOGL broke the ledge and proceeded to sell off 20 points!
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