Since December 26, 2018 the S&P 500 index has bounced higher by more than 240 points. The rally from the December low has been nothing short of amazing, but that’s what happens when stocks decline as sharply as they did from the September 20 top. Many of the talking heads are now looking at Fibonacci retrace levels and other technical tools trying to call the next top in stocks. Often, it is not always the retrace levels that will identify a top; rather it is usually a reversal pattern in combination with other factors. The point I’m trying to make is that the market is not a one-trick pony. If this business was easy, everyone would do it.
These days everyone seems to be a market technician. Last year, Wall Street was a bunch of fundamental investors talking about P/E ratios, book value and the rest of the fundamental factors that the investing crowd follows. It’s amazing to see how that has changed so quickly with a simple stock-market correction. Now, traders and investors will need to be nimble and combine all of the important factors using price, pattern and time.
The Hard Part
2019 is expected to be a trader’s year. This means that there will be opportunity on both the long and short sides of the market. The difficult part of investing in 2019 is going to be when to pull the trigger on such trades. This is where pattern recognition comes into play. For example, if you have a good bullish chart pattern setup and you enter a long-side trade, you have to know when and if that trade turns against you. This is the secret to trading, knowing when you are wrong. Remember, the best market moves will often come from failed market moves. Hint, you must have the discipline to admit when you are wrong and more importantly be able to get out of that losing position. For now, the easy money has been made, so you better know how to read the patterns going forward.
Daily S&P 500