Almost everyone in the trading business is talking about an oversold market at this stage of the game. Stocks are now entering correction territory and there could still be more selling down the road. Generally, some of the best rallies come during a bear market and this makes many traders such as myself willing to take a shot at the long side when stocks are so low. Unfortunately, the stock bounces that we have seen lately have been met with heavy selling pressure. Often, traders will try to find many important timing factors for trades and hopefully we are entering one right now. Either way, traders and investors must still be very careful when it comes to markets like this. One old market saying is that it’s not how you open them, it’s all about how you close them. This means that the intra-day action is really pointless if you do not see a strong finish into the closing bell.
Watch The Close
Since the December 3rd pivot high, we have only had two sessions that have finished stronger by the closing bell than where price had opened. In other words, there have been just two green candles on the daily chart if you view a daily candle stick chart. On Wednesday, stocks rallied higher intra-day, but it’s the closing prices that tell the tale. In the past, when stocks have behaved this way, there were a few hedge-fund blowups out there. So far, we have not heard of that happening yet, but these things can take some time to come to light. Either way, keep an eye on the charts and let the market tell you what to do.