Looking at a number of charts of individual stocks this past Thursday and Friday I was finding more and more situations where the charts and indicators suggested tradable rallies are possible. This is not "THE Low" in my opinion, but it represents a turn where we can make some money on the long side for a few weeks before renewed declines.
Let's dig into the charts.
Since our Dec. 9 review/forecast for 2022
we consistently have been pretty negative on the stock market averages and a host of individual names. Buy recommendations from me have been few and far between, but now the patterns suggest a recovery rally that should be a worthwhile trade. This is not a buy-and-hold recommendation. Remember that in a few weeks when the upside gains begin to slow.
In this daily Japanese candlestick chart of SPDR S&P 500 ETF ( SPY
) , below, we can see a potential bottom reversal in the past three days. Prices are deeply oversold when looking at the slow stochastic indicator in the bottom panel. The trading volume has been heavy in the first half of May, suggesting some degree of "throw in the towel" selling. However, the daily On-Balance-Volume (OBV) line has not made a new low with the price action for a bullish divergence.
In this daily Japanese candlestick chart of the Invesco QQQ Trust ( QQQ
) , below, we can see a similar technical picture. A bottom reversal pattern combined with an oversold reading.
In this daily Japanese candlestick chart of the SPDR Dow Jones Industrial Average ETF DIA, below, we have a similar bottom pattern.
In this weekly Japanese candlestick chart of DIA, below, we can see that the latest weekly candle is a potentially bullish hammer bottom. We do not have confirmation, but with the daily chart (above) showing us a daily bottom reversal with confirmation I am willing to take a leap of faith.
One of the last stocks I became bearish on was Apple
) , but as I wrote recently, it turns out that "AAPL is flirting with its October low. Some traders and or computers may try to defend this area and prices could bounce." And in this daily Japanese candlestick chart of AAPL, below, we can see a bottom reversal pattern with heavy trading volume.
Finally, in overnight news we are learning of news of the Chinese economy weakening. But at the same time we find that a sell side firm is raising its fundamental ratings on Alibaba Group Holding ( BABA
) and Baidu ( BIDU
) . One piece of news is lagging and the other is forward looking. Let's look at a chart of BIDU, below. Here we can see a low in March and a retest in May along with some bullish divergences from the 12-day price momentum study. The daily OBV line has held its lows successfully.
Bottom line strategy:
There was a story on www.bloomberg.com on Sunday that said, "A mass exodus of money, an $11 trillion wipeout, and the worst losing streak for global stocks since the 2008 financial crisis. The bad news is that it may not be over yet
The story above is not what is interesting, but what will be interesting is if the stock market ignores this kind of "news."
In my first book, "How Technical Analysis Works," I go into Eight Guidelines for Successful Trading (chapter 18 if you are interested). The Third Guideline is "Don't Expect Too Much." Treat each trade as just a trade. Don't talk yourself into finding the next stock that will climb tenfold and allow you to retire. This kind of thinking is not productive.
Treat this recommendation as a trade looking for a 10% move on the upside. For the next few weeks the news will remain bearish, but stock prices will probably rise. Pay attention to the price action, not the news.