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Watch Price, Capital

Hey Market Pilot,

The S&P 500 (SPY), pictured below, has been moving up steadily for a few weeks with virtually no down days until the pullback started. This was a pretty impressive move that just didn’t seem like it was going to quit, but the market always pulls back eventually.

One of the clues about the impending pullback, and also a lesson in the fear of missing out (FOMO) restraint, is when price started to get even more aggressive to the upside. In a small sense, this could be considered a blow-off top. But I tend to refer to the pattern as a “hockey stick” since the premise is that price climbs in a steady fashion to culminate in an even more aggressive angle.

This angle cannot be sustained and is what helps to bring on the pullback.

Managing your discipline against FOMO means that you need to recognize when the end of the move is closer than the beginning. This is especially true when you see price starting to move up even faster and more powerfully which has you thinking about all the gains you are missing. But if it is indeed the beginning of the end, then you don’t want to be jumping in at this location because you will be one of the last in before price changes direction.

A few other signs that the pullback was close was the negative divergence on the hourly Moxie Indicator™ which told us that price was moving up on less energy and this would eventually cause price to revert back to the mean. The next sign was on the daily and there we can see that price jumped off the daily 8 exponential moving average (EMA), creating an unsupported air pocket. Again, this is unsustainable and at some point price will come back down.

We are starting to see a little bit of a pullback, maybe even just a flag, but the signs of price getting right back on track aren’t quite there yet. So I am waiting and watching price do its thing to find the correct opportunity to apply more capital to the market. 

Your Profit Pilot, TG

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