As a swing trader I am looking for signals to generate a 2% profit within a week. If I can do that consistently I will double my money in a year. I use technical analysis to identify stocks that are either overbought or oversold. When one signal is saying something, I find it interesting, but if there are multiple signals saying the same thing, you definitely pay attention. Such is the case this week from a macro perspective with the Dow and several other technical indicators.
The stock market is a function of fear and greed. Sometimes greed has taken over and there is an over-exuberance in the markets that cannot be substantiated or explained. Irrationality can be winning the day, but one must be mindful that that only happens in short bursts. This is what can lead to corrections. Are we poised for a correction? Perhaps, but that also depends on what your definition of a correction is. A pullback is a softer, gentler term and is also quite likely given the mixed signals of the Dow compared to other signals.
If you look at the attached chart, you can see the Dow has been in an uptrend since early July. Its highs have been hitting the trend line but look at the other technical indicators for the same time frame. The Relative Strength Index (RSI), the Moving Average Convergence Divergence (MACD) and the stochastic oscillator are all trending in the opposite direction. This is known as divergence. When price action is going one way, but the indicators are going the other, something must give.
When a stock price is making new highs and its RSI is in overbought territory, those are confirming signals that the stock movement is sound and is not based on hype. But if the stock price continues to make new highs and the RSI does not substantiate it with new highs as well, there is over-exuberance, and the stock price is inflated. The same is true with the MACD and stochastic oscillator.
What does all this mean? If you are looking for certainties or guarantees, you will not find them here. But you will find reasons to make a percentage play. From a macro perspective, if there is a short-term story to be told that the if Dow is heading down, then shorting stocks is in order. That is exactly where we are at twopercentgoal.com. There are more shorting opportunities than long ones.
Go to twopercentgoal.com and sign up for the daily email to find stocks poised for a 2% gain within a week. The email is free for the first 30 days and then $49/month thereafter. Good luck with your investments.
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Al O'Grady
Financial Writer
www.twopercentgoal.com
