Respect the Choppy Stock Market –

Last week, we had another slow-moving stock market with little to write home about in the broader sense. Volatility remains eerily low despite increasing geopolitical tensions, natural disasters, the goings-on in Washington and potential for the usual seasonal weakness for stocks in the autumn period. But, as a former mentor used to remind me — one can learn much by just watching and thus being adequately prepared for when things get more interesting again.

As a reminder, trading in choppy markets is one of the easiest ways to lose money and your mind.

The number theme I have reiterated to my clients globally (clubhouse members and others) through daily videos, email, texts and webinars over the past month and a half has been to respect this choppy stock market environment and to take a step back.

If we can learn how not to lose (much) money (a big part of this is learning when NOT TO TRADE), then making money just becomes a natural positive side effect.

In my experience and for any seasoned trader and investor, avoiding market chop and not fighting trends and sitting out when the getting is not good — that is called winning.

So you know, I continue liking the relative strength in healthcare and biotechnology stocks as represented by the Health Care SPDR (ETF) (NYSEARCA:XLV) and the iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) exchange traded funds (ETFs) — as discussed last week here and here.

Due to the very choppy stock market environment as of late, clients keep asking me what level I am watching in the S&P 500’s SPDR S&P 500 ETF Trust (NYSEARCA:SPY) that would signal a potential corrective period and spike in volatility.

Stock Charts

Click to Enlarge

Moving averages legend: red – 200-day, blue – 100-day, yellow – 50-day

On the above chart, I plotted the SPY ETF, which off the early 2016 lows has ascended in what we refer to as a rising wedge pattern. While this pattern is not bearish in and of itself, it does give us very-well-defined areas of technical support to focus on.

Next Page