Ep 177: Red Alert! Bear Market? Charts Breaking Down…

March 29th, 2018

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We're going to take a look at the overall market. I'm going to share with you some insights on why this could be an early bear market and kind of a precursor to future selling pressure.

We'll take a look overall at a couple of quick things that happen:

We had Trump tweeting about the Amazon

When you look at this how is sent the stock lower, it's not just because of his tweet that sent the stock lower. The market is more volatile today, and with more volatility, you have this whipsaw action. Amazon is poised to break down anyway, but with the tweet, it added a little bit of fuel.

We start also looking at some stock market Big Boy's like the Nvidia, Tesla, Amazon, Facebook

All these also Fang stocks or some of the big boys are also struggling. I want to dig deeper into the charts and share with you some insight on why this could be an early potential bear market.

First off, you have to remember and understand that when you're in a bear market, especially a big bear market, you're having a lot of volatility and a lot of whipsaw action. That means you get massive moves to the downside.

If it were just a standard pullback, this would have isolated, and slowly we would have been climbing and reducing the volatility.

The issue in the problem here is we're starting to create lower highs. Also, the volatility keeps staying and sticking. So as you begin looking these bigger bars again.

When you have these moments of euphoria of things are being great again, that's really where the bear market lies. It's a lot of emotions that play.

I want to show you how dangerous this is because when you look at 2016 where we were with the prices, we're now testing this trend line, this angle of elevation is being tested, and it's starting to fail.

As this fails in a transparent way, you're going to have mom and pops also start to sell the early guys. Then you'll have the late bloomers come.

This thing could get down to the 2200/2100. It could go, if you start looking at things, we could get back into 2008-2009 highs - 1600 and test those levels.

What I'm showing you here is that we're failing the upward trending support line that's been holding for a long time. It's testing, it's breaking below it, and now it's trying to get above it, but it's not doing it in a very strong or a right way.

Overall, the negativity or the momentum is down or negative.

The next thing is you're looking at this 200-day. If we break below that, you can see it's pushing like a jackhammer down on this 200-day. If we cut through it - we break below it, you're going to go down. It's that simple.

So like a roof, hammering down on a roof breaks through it, that's it, you're going to have a hole in your roof. You're going to have water. So that's what's going on, you're watching that level. If it breaks below it, you could have further trouble.

Just looking at that angle of elevation, combine this with looking at the stocks. If we start looking at overall the stocks -look at Amazon, we have this upward trending line. Look how accelerated that move is, and the stock is breaking down.

Take a look, here's our upward channel trendline, you can draw however you want. You could draw one even right here because that's where the recent one is. I brought the slow one, and it still broke below it. It's going to try to test it probably. It's going to try to go up, but it'll more than likely reject it.

This is why even before Trump tweeted about it, it was already breaking that trendline and rolling over.

Imagine all these stocks start moving all down together; they start breaking. I understand we're getting a pop here today. I get it we had some massive pops right there. In shorter-term, we are oversold. But it could be for a week or two. If you get one to two weeks of positive gains and the headlines say hey we're back, this is an excellent market, on a bull on the market, and then all of a sudden you roll back over. Stocks then will be in further trouble.

You need to be very careful setting up with the rise in bearish volume that's starting to pick up. If that continues to accelerate, if you get the more negative sentiment that comes in, if these lines they have already been penetrated - they've already been broken and if they stay broken and they continue to accelerate, and more Bears keep stepping up.

The reason why you have these big large downdraft bars and then big updraft bars is the managers on those big updraft bars are selling. They're selling slowly. Little by little. They don't want to wear out your fuel because you're buying and you're happy about buying it. But then they're dumping it to you slowly liquidating their position.

Then again they dump in a big way it goes down. People are starting to buy in a little bit of a day trade thing that goes a little bit higher. And then again, they'll dump it. So, they're slowly trying to liquidate things as far as it's called distribution to the little guy.

It takes a while to do that and then eventually it just drops.

That is what I wanted to share with you.

When you start looking at this these stocks, the lines are being penetrated. They're being broken. That's a huge warning sign.

We're still holding things especially if you look at the moving averages. So in theory and technology, it's still holding, but it's holding weak. It's like staying on a mountain cliff with two or three fingers when you're a thousand feet up. You need to be very careful.

Overall, in the long run, the market does continue higher. Let's say 50 years from now; I'll do to inflation. But in the shorter term, even for the lifespan that I'm alive well you could have a two three-year bear market, who knows. It typically lasts about one/two years. But you can see, the pullback was about one and a half, the pullback here was two/two and a half/three years.

At that point, you're taking out 50% of the gains. So 50% of the profits could put you around 2300. But if you're doing it from the breakout low, I mean 50% puts you right around 1718.

Things to remember when trading in this scenario

  • Trade lighter when there's higher volatility.
  • You want to go wider
  • Fewer shares
  • Be more cautious
  • Take your profits earlier

Just by being nimble where you're at in the marketplace, it'll keep you out of trouble and allow you to survive another day, another week, another year in this business. Otherwise, if you're trading 99% of your capital and you lose a bunch of it, you're not going to have a lot of money left, especially if you're losing a lot of your money.

The market is a long-term thing. You want to be able to be trading for an extended period. So, if you were trading here or here or here, there are different conditions. If the conditions are not set up for you, be patient allow things to set up - cool down might take three to six months, then get back into it. There's nothing wrong with that.

Author: Jorge Diaz

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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