The market is full of uncertainty. Irrationality is always the name of the game and sometimes no matter how sophisticated a tool a trader has, the only real true combatant is to stick to a disciplined strategy and overall “keep it frosty”, ie stay sharp.
With that said though, keeping things real damn simple can also pay off. With technical analysis this means watching your most common moving averages (10, 50, 200), and keeping an eye on volume relative to the average, counting distribution days, etc.
Today’s close serves as a good example of why this can work. The NASDAQ closed at its 10 day moving average (highlighted on Thursday’s recap as a short term price target) and we are now back to a neutral reading as far as sentiment is concerned. Keep it simple, stupid (KISS).
Looking ahead into this week, the lower volume today and last Thursday makes this three session rally fit right into the context of a classic pull back during an established downtrend: Increased volatility, work off the oversold readings, then continue in the trend’s direction (down in this case). Let’s see what happens.
| Trend | Nasdaq | S&P 500 | Russell 2000 |
|---|---|---|---|
| Long-Term | Up | Up | Up |
| Intermediate | Down | Down | Down |
| Short-term | Down | (+) Up | Down |
(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend
*** I’m simply using the indices’ relations to their 200, 50 and 10-day moving averages to tell me the long, intermediate and short-term trends, respectively.
