Extension To Equilibrium
Market Update December 21, 2023
Chart School is here with yesterday’s educational article:
Take a look now if you haven’t seen it yet. Video included!
Sellers went to work yesterday afternoon in unison and while seemingly unprovoked.
Maybe it was something out of China. Or maybe profit-taking was needed to buy more Christmas presents. Or, perhaps, it is just part of the normal course of market action.
When stocks go up as strong and as long as they have, some may easily forget that down days do occur. Maybe that’s easy to do, considering that the SP 500 hasn’t tested a rising 21-day MA since August.
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But readers here know that we frequently monitor levels of extension, being mindful that they can not persist indefinitely.
Extension recently was corrected by time, with stock prices moving mostly sideways while the moving averages caught up.
Yesterday was a one-day price correction, with prices moving quickly back to the 8-day MA while simultaneously bringing the RSI back below 70.
It was also a reminder that it’s always good to be prepared with a plan and a process in advance. This will help keep surprise selling from being a problem. For active traders, that often means booking partial profits as positions move in our favor and raising stops along the way.
In other words,
Trim and trail.
SPY tests the 8-day MA again in early trading before rallying into the close. The result was still an inside day - indecision.
QQQ followed the same pattern with the exception that it is consolidating above the previous all-time high. And RSI = 70 - an excellent time to remember that one of the most bullish things a stock (or index of stocks) can do is to become overbought and stay that way.
IWM more high-level consolidation without yet testing the rising 8-day MA.
DIA makes the stock indexes 4/4 on inside days. The persistent rising trend of the 8-day MA has yet to be violated in a meaningful way.
TLT The strength remains in bonds as well. However, it did print a bearish engulfing candle.
DXY The Dollar moved lower from its bearish consolidation pattern. Will stocks follow and give the corresponding move higher? Or will we see further evidence that this relationship is decoupling a bit?
The Closing Bell
Reminder: the Santa Claus Rally period starts tomorrow and will measure stock performance from 12/22 through 1/3.
If the period is positive, no one is surprised.
If negative, then it has cautionary tones for the rest of 2024.
If Santa Claus should fail to call, bears may come to Broad and Wall.
- Yale Hirsch
Weekly Charts on Saturday morning.
See you there.
***This is NOT financial advice. NOT a recommendation to buy, sell, or trade any security. The content presented here is intended for educational purposes only.
Andrew Moss is an associated member of T3 Trading Group, LLC (“T3TG”) a SEC registered broker/dealer and member of FINRA/SIPC. All trades placed by Mr. Moss are done through T3TG.
Statements in this article represent the opinions of that person only and do not necessarily reflect the opinions of T3TG or any other person associated with T3TG.
It is possible that Mr. Moss may hold an investment position (or may be contemplating holding an investment position) that is inconsistent with the information provided or the opinion being expressed. This may reflect the financial or other circumstances of the individual or it may reflect some other consideration. Readers of this article should take this into account when evaluating the information provided or the opinions being expressed.
All investments are subject to the risk of loss, which you should consider in making any investment decisions. Readers of this article should consult with their financial advisors, attorneys, accountants, or other qualified investors prior to making any investment decision.
December 21, 2023, 4:00 PM
Long: AMZN, BITO, BROS, QQQ, SMCI, TSLA, XBI0119C90
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