Rabu, 03 Maret 2021

The Market’s Major Indecision

Money & Crisis

March 03, 2021

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The Market's Major Indecision

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Graham SummersDear Money & Crisis Reader,

The stock market is at a crossroads.

We’ve had one major rally this week (Monday).

We’ve had one major drop this week (Tuesday).

The issue is which one was the real deal. Monday could easily have been the result of short-covering and “start of the month” buying by financial institutions.

Similarly, Tuesday could have been the markets dropping simply because China issued a warning that it believes U.S. stocks are “in a bubble.”

Honestly, it’s impossible to tell. The market is a bit of a mess. So, the best thing to do is wait and watch today as the markets will finally provide some clarity. One of the greatest trader’s adages is “when in doubt, stay out.” And that certainly rings true for the market this week.

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Two Reasons to Stay on the Sidelines

For the S&P 500, support levels are at: 3,860, 3720, 3,640, and 3,550. If stocks take out this first line (3,860) on a closing basis, it opens a “trapdoor” to a nasty drop to the low 3,700s. This is a BIG reason not to be adding to longs this week.

DownsidePotentialInTheMarket_030321

Similarly, if you are a stock market bear, you don’t want to ignore the strong uptrend stocks have established over the past four months. We’ve had two “bear traps” during that time, in which stocks broke down violating their trendlines, only to reverse and rally hard. I’ve identified those occasions with red circles in the chart below.

FalseDownsideBreakouts_030321

If you’re a bear, these are why you don’t want to bet on a big collapse right now: stocks could break down only to reverse and take you to the cleaners.

So again, the best strategy this week is to “watch and wait.” Let the market show you what is coming, and then take action.

Best Regards,

Graham Summers

Graham Summers
Editor, Money & Crisis

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