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I’m not one to attribute the market’s movement to any one event generally speaking. But few should be surprised to have seen the market sell-off accelerate the more it became clear that Congress would not soon reach a resolution on a bailout for the domestic auto industry.
The Dow was off more than 440 points. The S&P 500 was down more than 6.5%.
I have regularly pointed out that momentum, strong-get-stronger markets rarely provide the sort of pullback opportunities that are most effective for swing traders. And while our Short Term PowerRatings help swing traders spot opportunities in weak markets as well as strong markets, our proprietary rating system requires strong stocks and the market has allowed precious few stocks to remain this way.
What do we mean by strong stocks? Our research into short term stock price behavior since 1995 indicates that stocks that are trading above their 200-day moving averages are more likely to respond positively to short-term pullbacks than stocks that are trading below their 200-day moving averages.
As shorthand, then, we consider stocks closing above their 200-day moving average to be strong stocks worth of short term trades to the long side. Stocks trading below their 200-day moving averages are considered "weak." These stocks are not only stocks that traders looking to buy should avoid in the short term. They are also, when they become overbought and their Short Term PowerRatings become low, the stocks that make the best short selling candidates.
The relentless selling has created fewer and fewer strong stocks, by this definition, and fewer opportunities for swing traders. And as we have urged swing traders who subscribe to our trading advisory service – just as I have suggested here from time to time – when our discipline says there are fewer opportunities, then we know that there are fewer reasonable trades. And insofar as we are traders, not gamblers, we are content to wait on the sidelines until the sort of opportunities with historical edges in our favor reappear.
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The Connors Group, Inc. ("Company") is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. The analysts and employees or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in trading securities and/or currencies. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. Factual statements on the Company's website, or in its publications, are made as of the date stated and are subject to change without notice.
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all other features of Company's products (collectively, the "Information") are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company's website are for educational purposes only. Such set-ups are not solicitations of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
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