≈ So says the trend. ≈
Do you know why rallies in a downtrend usually fail? It’s the same reason that dips are generally buying opportunities in an uptrend. We could remind you that a trend in motion stays in motion, but let’s dig a bit deeper.
Suppose you bought the S&P 500 at higher prices. Given the recent rug pull, you are underwater and desperate to recoup losses. Up days bring you closer to breaking even. But, once you get there, emotions urge you to jump ship. You are what we call overhead supply, a seller into strength.
The longer the downtrend lasts, the more bag holders enter the equation. Each failed rally adds to the pessimism and expectation that future ramps will falter. Thus, the price decline becomes a vicious cycle.
No one knows how long the current downtrend will last. Maybe we’ve seen the worst of it; perhaps it’s just begun. Those who got defensive when we first broke the 50-day and reduced risk further into the subsequent mid-September bounce are reaping the rewards of their defensiveness.
We’ve now seen four consecutive sessions of 1+% moves. Worse yet, each day has reversed direction, sowing confusion more than anything. If the last two green sessions getting stuffed doesn’t convince you that rallies are suspect, I don’t know what will.
Chart of the Day
Bitcoin Breaks Out
Bitcoin blasted through $50k on Tuesday. September’s breakout attempt was swiftly rejected. This one looks healthier. Let’s see if the mighty crypto can go the distance.
Video of the Day
The Queen’s Court
In this week’s edition of the Queens Court, the coaches bring separate trading picks for Coach Emily including IMAX, Union Pacific, and the Financial Sector ETF. Will she accept the trade ideas, or will she lop off the coaches heads?
Today’s line up
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Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.
Trade Masters 7 PM EST
Join us every Wednesday at 7 PM EST on YouTube as the Coaches go over trade ideas from the Trade Master’s crew!
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