The market has been extended for almost a week.
Like we talked about in my webinar with the Nasdaq last week, that’s typically a good time to hedge. However, one key piece of this is waiting for some type of trigger.
Because, if you don’t, then you’re just fighting the positive momentum higher. Typically, what I like to watch for, is the ‘canary in the coal mine.’
What does that mean…?
It’s the weakest indexes, sectors and stocks, to roll over and die first.
This is our sign that the market is actually ready to pullback.
You can look for this individually, on specific charts. It just takes longer.
That’s why I like to use Phoenix Finder.
Now, Phoenix Finder is my proprietary grid that I use to identify the strongest stocks in the bunch — but you can also use it for weakness. The key here is that you can use it to identify shifting trends.
Here’s an image that explains how to read the Phoenix Finder:
SYMBOLOGY:
If a ticker’s continuing to strengthen (or weaken), the typical order you can expect to see is: dashes, triangle, brighter green (or red) dash, then square.
DASHES — Represent the current candle trend strength. Dashes are on a candle by candle bases what you would be seeing on individual trend strength candles.
SQUARES — When trend is aligned along with price, the square appears. This indicates the strongest trend.
TRIANGLES — Appears anytime the 8 and 21 exponential EMAs cross. Does not indicate direction, only a cross.
Let’s look at the current market situation, right now with this in mind.
We currently have the S&P up against an extension target at $3,100. This has been my target for the year, that we finally met in November. I’d say that’s pretty close!
Now that we’ve met this target, however, it’s time to start looking for a pullback.
But, how will we know? Check out the image below:
What you’ll start to see is the canaries in the coal mine, start to trigger to the downside (you can see this with a triangle). This is indicative of the moving average cross. As you can see, IYT, a leading indicator, has already triggered. Now, I’ll watch for the indexes to follow.
If in fact, they do trigger, it’s up to you.
Do you want to:
- Hedge and hold your longs
- Exit longs
- Trade the downside move
- Wait it out, and buy more on the dip
This is what’s so great about trading — it can be up to each individual trader.
For me, I’ll be trading a bit of the downside move, and also, waiting it out to buy the dip. The market’s so strong right now, I don’t see a huge reason to hedge — unless things change.
In the next episode, I’ll be discussing what I’m waiting for, and the first tickers I’m planning to jump on, once the pullback’s complete.
