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Almost everyone is searching for answers about what to do in the stock market. The
two best sources are the market itself, and the second source will surprise many, but it is you!
No one has a greater vested interest in your financial interests than you when it is your money on the line, at risk. The inherent problem with this simple solution is that few ever consider either source as the best solution…
From our point of view, markets are full of logic and reason. There are times when neither may be clear, but overall, both can be found in reading market activity. A direct result of understanding what the market is advertising is your ability to then draw a conclusion based on your own best financial interests. Is it easy? Yes and no.
It is easy if you just accept the reality of what the market is doing and compare your individual stock holdings to the market averages. The most difficult part is the realization that you have that kind of power to choose. For example, are any of your stocks under performing the market averages? If yes, accept the reality and get out. For those stocks that are outperforming the market, use a sell stop to protect your profits should the situation take a turn and start moving lower…
S&P 500 – Monthly Chart
A monthly chart provides an overall context, and this time frame is more controlling than the lower weekly and daily time frames. When all time frames are in sync, making market decisions is much easier.
The trend has been up since 2009…Labeling the market up or sideways is less important than the context of where price is within developing market activity, and the lower time frames may clarify that point.
EDM = Ease of Downward Movement. It is a quick measure to determine if price has an easier time going up, (EUM, Ease of Upward Movement) or down. Clearly, the up bars are shorter and more labored when compared to the waterfall-type declines indicated on the chart.
Understand that there is no magic going on here. All we are doing is making observations about what market activity has been, the market’s message to us, and then drawing a logical conclusion from the information.
S&P 500- Weekly Chart
We marked the recent topping action as distribution, (professionals selling to weak-
handed buyers), but if you look at the weekly chart below, you can see distribution really began throughout much of 2015.
S&P 500 – Daily Chart
While the daily chart below could be viewed as broad distribution and a sideways move, the price moves from low to high to low can greatly impact overall performance. This kind of activity is not conducive to smart investing.
…It should be evident that one need not be a so-called Wall Street expert to make a self-determination about what to do in the markets and when. The information is always available in real-time, and in our mind the logic is inescapable when one begins to apply a little (or a lot of) common sense [as] to what the market is revealing…
From Star Wars, “Trust in the Force,” is another way of saying to trust in yourself.
[The original article as written by Michael Noonan (edgetraderplus.com) is presented here by the editorial team of munKNEE.com (Your Key to Making Money!) and the FREE Market Intelligence Report newsletter (see sample here – sign up in the top right corner) in an edited ([ ]) and abridged (…) format to provide you with a fast and easy read.]