Momentum Monday – Normal Consolidation

MarketSmith powers the charts in this video

It seems the market is worrying about something different every week. Three weeks ago was about high inflation. Then after the lower-than-expected CPI print, about missing out on a potential rally. Last week, it seems the new worry was about the implications of a potential recession in 2023. We went from “bad news for the economy is good news for the stock market mantra” because it means the Fed might pivot earlier to “recession might not be fully priced in the stock market yet”. None of these things are relevant if you are a short-term trader.

Large caps QQQ and SPY tested their 10-day EMA and bounced. Small caps IWM tested their 20dEMA and bounced. It is normal to see some form of consolidation after the post-CPI ramp. The pullback in the past week has helped many stocks to form setups with better risk/reward entries. I see some intriguing setups in biotech and energy. That’s what matters. We don’t know if those setups are going to work but at least they exist. Most breakout attempts didn’t work last week, probably because of the general market weakness. Buying pullbacks have worked a lot better lately.

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