MarketSmith powers the charts in this video
The market had its bounce in October and so far in November and SPY is back to its declining 200dma. Can we see some chasing and FOMO in December or will more selling follow? No one really knows. There are good arguments for both scenarios. I want to remain open-minded and trade the setups that show up instead of guessing the market direction.
Most breakouts have not been following through lately unless there is an immediate earnings catalyst. Such price behavior reveals a lack of urgency to own and chase in this market. In the meantime, some strong stocks have consistently accumulated on dips to potential support areas. The solar stock ENPH is a prime example. Every single breakout attempt has been met with fierce resistance, yet every pullback to its 10 or 20-day EMA has been scooped up.
My philosophy is that the market is forward-looking. It constantly tries to look 6-9 months ahead in the future and imagine what could happen. Take for example the price action in Zoom (ZM) – it has been declining for many months while its earnings and sales have been still impressive. Just now, we are starting to see a slowdown in their growth. The market anticipated that and acted accordingly. Price action has been a good leading indicator. Or take into account the market reaction in retailers this earnings season. The vast majority of them reported dismal numbers and yet, we saw rallies that seemed a bit counterintuitive. The market is seeing the potential for a recovery that is not reflected yet in those companies’ earnings. The former are forward-looking, and the latter are backward-looking. I rather trust price action than current earnings growth.
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