The Sellers are Tired, Is This the Stock Market Bottom?
Stockscores Foundation for the week ending October 4, 2022
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In this week's issue:
In This Week’s Issue:
- Market Outlook – Sellers Are Tired, Is This the Stock Market Bottom?
- What’s Working Now – Alpha Day Trades and Swings
- Trader Training – Can You Really Make a Living as a Day Trader
- Trade Ideas – 3 Ways to Trade a Market Reversal
Market Outlook
Stocks have sold off sharply in response to interest rate increases by the US Federal Reserve and most other major central banks. This has pushed stocks far below the downward trend line, making them oversold. With support near, it is not a surprise that stocks are making a bounce higher this week.
While the strength of the past few days is encouraging, we should not overstate the buyer enthusiasm. This is more about the sellers being tired than the buyers being extremely motivated. The long-term downward trends are still intact for almost all sectors. Consider this a step in the right direction toward a turnaround, but it is not the conclusive step that the weakness is behind it.
The market tends to focus on one or two things at a time. In recent weeks, the focus has been on inflation and rising interest rates. That may begin to shift toward earnings as the season for earnings announcements begins next week.
For a video version of my market analysis, be sure to watch this week’s Market Minutes video, The Stock Market Crash Will End When … I discuss how stock market crashes typically end with a certain pattern that I show you this week. Plus, I provide my analysis of the stock, commodity, currency and interest rate markets. The day trade of the week is on POSH.
Click here to watch
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What’s Working Now
Short term trading of Alpha stocks continues to be the trading strategy but the strength of the last few days has presented better 13 and 30 minute charts. This may make swing trading a good approach in the weeks ahead as the market tries to make a comeback from oversold conditions. Position trading relies on strong daily and weekly charts and we do not see to much of that yet. October – November is typically the start of the strong season for stocks so I am optimistic that conditions will improve in the weeks ahead and we will start to see longer term trading opportunities. Breaking the downward trends on the daily charts of the major market indexes will be important.
We should also watch the Energy sector has months of weakness has brought prices back to the long term upward trend line on the weekly chart of Oil. This could be the point where the long term Bullish trend for Oil continues.
My swing and position trading ideas are provided with the Tradescores Alerts subscription
My day trading ideas are provided with the Active Live subscription
Trader Training – Can You Really Make a Living as a Day Trader?
Can you really make a living as a day trader? Short answer is yes, .
Some will, but most won’t.
Here is the long answer.
You have probably heard that 95% or more of aspiring day traders fail. I agree with that number. So, it sounds like becoming a day trader is a long shot and you should not waste your time trying. But there is more to the statistic that should be considered.
What percentage of non-doctors who try to do open heart surgery lose their patient?
Without the knowledge of how to do open heart surgery, I would guess the number would be close to 100%
What percentage of people who jump on the ice at an NHL hockey game score a goal?
Again, assuming they are not pro hockey players, I would guess that answer is 0%.
Fortunately, there are barriers to entry that prevent someone from performing open heart surgery or playing pro hockey.
There are almost no barriers to entry to becoming a day trader. Fill out paperwork, deposit cash, trade.
Most then blow up. They thought day trading is easy. It is not.
For those who take the time to learn, have discipline and emotional control, have sufficient capital and are not in love with their money, day trading profitably and consistently is possible.
So, if you want to become a day trader, forget the dream of easy money. Learn, work hard and be determined. With time, it can happen.
Success in trading requires that you have an edge. This means doing something that most people are not doing. You must be ahead of the crowd because the crowd is who you will sell to for a profit. The difference between being ahead of the crowd and selling to them could be a matter of 30 minutes.
I have spent 32 years and tens of thousands of dollars developing my own strategies with my own indicators, algorithms and processes to give me (and my students) an edge.
This makes reading a day trading for dummies book seem like a way to be ill prepared for the market. You can’t be a surgeon by reading a book, you won’t be a pro hockey player without coaching and practice.
The good news is that learning how to trade is much easier than either of these two professions. It takes hard work and mastery over your emotional attachment to money but, with the right tools and knowledge, you can make a living doing it. All from the comfort of your own home.
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The market has made good gains the past few days and that presents a potential trade for a reversal in markets that have been suffering losses lately. I think it is very aggressive to be buying now as a turnaround is still in the very early stages. However, if you are willing to try, here are three ETFs that may move up if the market can hold the recent gains.
1. IWMIWM - the US Smallcaps have done better than the large cap stocks and IWM is a good way to capitalize on money flowing back in to the lower priced stocks. IWM has bounced up off of support and broken the steepest downward trend line. There is still more pessimism to overcome so I expect a long term turnaround will take some time.
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2. T.XGDT.XGD - Gold has been awful in recent months but strong in the past few days. It is now threatening to break the downward trend line. This will be better if it can break the daily downward trend after building a rising bottom. T.XGD is a way to trade a Gold turnaround.
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3. SOXXSOXX - Semiconductors are oversold and should make a move back to the daily downward trend line in the weeks ahead. Watch for a break up from a rising bottom on the 30 minute chart.
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