Bulls Retreat

The stock market bulls are in retreat. After weeks of big swings up and down, the bulls have thrown in the towel. How deep will it be? How long will it last? Of course nobody knows the answer to that question even when they claim they do. The chart below courtesy of www.bigcharts.com shows clearly how the major indexes have now broken the 50 day moving average decisively.

 

It is important to know that in a down trend we can get big up days to suck in the bargain hunters only to take the market lower. To combat against this we have to look for an odds favor condition, we call this a follow through day. While making up a list of stocks holding up well in this down trend we also have to watch for a follow through day. A follow through day is when we see a move up on volume four to ten days from a recent low. This does not guarantee a new uptrend has begun but puts odds in our favor that it may have. Remember no bull market starts without a follow through day but not all follow through days will guarantee a new bull market has begun.

Be Patient

The stock market continues to have wild swings as the bulls and bears fight to make headway. If the selling dries up then we are left with just the buyers to form a new trend upward. Of course if the buyers cave in that leaves the sellers to form a new trend downward. Don’t be a hero and try to guess the outcome, you do not need to. Simply wait for a trend to re-establish itself before committing new dollars. With the bulls and bears battling it out then we are bound to see the big swings we are currently seeing.

While you wait maintain a list of companies that are resisting any sell offs. These companies will be moving sideways and will most likely be the first to break out to the upside when the stock market re-asserts itself. Is that tomorrow, next week, next month? Only a fool knows the answer to that question, wait for the confirmation.