Tuesday, January 25, 2022

Markets saw panic buying yesterday, but today is the hangover...

For those with a long hold time frame, buying here is not to bad a thing to be doing.  Those Tik Tok traders looking to steal a profitable trade are unlikely to fare too well as whipsaw becomes a real issue based on the sharp uptick in volatility.  

The Nasdaq 100 had a enjoyed a sustained period of low volatility for most of the 2010s, but since breaking from this period of (volatility) consolidation in 2018 it has been steadily rising. Luckily, markets had enjoyed a sustained period of gain despite Covid, but as the virus enters the latter stage of its infectious cycle the 'sell the news' has made an early start, and this creates the volatiltiy we are seeing now.  


The Nasdaq tagged its 10% band from its 200-day MA, but it would need to get 14% below its 200-day MA to start suggesting it's near a long term buy.  However, if you are an investor with a buy-and-hold philosophy, now is the time to be buying - even if yesterday's low proves to be a false dawn, it will be -a- swing low.  The buying of yesterday ranked as accumulation eventhough all other technicals are bearish. 


The S&P close the day with a potential bullish harami cross.  There is decent demand on pushes below 4,350, although technicals remain net bearish. The one technical working in its favor is relative performance over Small Caps.  If the bullish harami cross plays true we should see a gap open and a higher close tomorrow.  Any close into the spike low will open for a move to 4,222.

The Russell 2000 is trading around its measured move target. Like the S&P, it also finished with a bullish harami cross and is well placed to advance tomorrow.  A lower close tomorrow would negate the pattern.


On the face of it, the weak start probably put many traders on edge, but the paired pattern with yesterday is a bullish set up.  Having said that, it needs to deliver, and a gap open higher would be a typical start. Bullish Harami Cross's don't close lower, so if there is any weakness in the opening half hour then a degree of caution is advised.

You've now read my opinion, next read Douglas' blog.

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Investments are held in a pension fund on a buy-and-hold strategy.

 
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