Correction by time

Hey Market Pilots,

The indexes have been a little difficult to read and interpret over the last few weeks. I chalk this up to back-to-back four day holiday weeks where traders are on vacation and volume is reduced, plus end of year shenanigans due to tax concerns. I wrote a newsletter the other week describing that while many names out there were getting pulled down into the end of the year, the indexes themselves were barely budging. I called it “Action Underneath the Surface” and it was interesting to watch, leading me to believe the “markets” were strong.

Then on Monday, the first day of 2021, we opened with a new high and promptly sold off all day in a stiff, waterfall fashion only to then get bought right back up the next day. Of course, there were excuses such as the Georgia Senate race, but I looked at the charts and saw that the SPY simply bounced off the Hourly 200 SMA, for now.

It has been confusing, hasn’t it? Nothing is trending with the indexes. Some days are up big, some are down big, and we have news plus holidays swirling around. I remain bullish overall despite all this because it appears to me that all of this chop and chaos has actually been helping to build strength in the form of consolidation and a backing off from a strongly overbought condition.

When markets are seriously overbought and need to cool off, they can do it with a pullback to support, or with a flag and take time in exchange for a drop. Let use FAS as an example:

This is the financial ETF with the Daily and Hourly shown. What you can see is that a few weeks ago price peaked and came off its high. But it didn’t need to pull back all the way to more major support like the Daily 50 SMA. Instead, minor support of the Daily 21 EMA was enough and price mostly hung just over that MA, going sideways for many days. As price continued sideways, the indicators (such as Moxie) bottomed and started to climb higher and higher towards zero. Then, finally, price popped with energy and volume. This sure looks great to me and is what I could see the SPY, QQQ, and IWM doing right now.

Shown here is the SPY Daily and Hourly. We can see also that price really hasn’t been going anywhere or making any significant upward progress. Or the up moves get pulled down. But price keeps holding the Daily 21 EMA and has now met the Hourly 200 SMA twice. This all seems to be strong until otherwise demonstrated. Even on Wednesday, we saw a great move up after the senate election results with volume. So maybe just a little sideways and then we can start to see earnest, upward progress.
I am bullish, with stops in place.

Over and Out,

Your Profit Pilot.


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