Each week I look at the Russell 2000 tracking ETF IWM to gauge where the market is at and what the dominant trend is on the hourly, daily and weekly timeframes. For more on how I trade, click here.
Look, I don’t like to spread bad news, really I don’t. I’m not the guy who’s going to rain on anyone’s parade, or talk behind someone’s back. I don’t even like to watch the news because that negative crap can really infect any sense of positivity you are trying to hold onto.
But when the market is getting bad, you have to accept it or it will cost you a lot of money.
Even if the market only MIGHT be getting bad, as in it isn’t yet confirmed, you would still be well advised to use caution.
So how do you know when the market’s getting bad?
Well, there’s a few different ways. But, for me, these two methods have always worked:
1. I Pay Attention To The Major Indexes
I say it’s best to follow the major indexes. Because doing so is very, VERY simple. And here’s how I do it:
If the indexes are going up, aka above the 50 day MA, then I’m all good to go long. If the indexes are going down, aka below the 50 day MA, then I’m all good to stay in cash or go short. If you don’t know what the market is doing or it looks like it’s going sideways, you can sit out or trade the ranges — also known as counter trend trading — also known as buying support and selling resistance.
That’s because individual stocks follow the market at a rate of 4 to 1. That means, when the market is an uptrend, 4 out of ever 5 stocks will also be going up. Sounds good, right?
2. I Pay Attention To My Win %
Another way I know when the market is getting sketchy is — when a majority of my trades stop working. Like they did earlier this year when the IWM started to move sideways. In situations like that breakouts start to fail miserably. Every new high is a new bull trap. For me, a long biased trader, it’s the worst.
Anyway, I ramble. So let me bring it back to what we’re here to talk about — how the market looks at the end of this week, and where it MIGHT head going forward. So here are the charts:
Once again, like last week, it’s pretty easy to figure out the trend direction on the hourly chart.
Can you guess?
As we saw on the hourly chart, it’s been a rough couple weeks for longs. This week was especially volatile with an oversold bounce on Wednesday that led to a downside continuation on Thursday and Friday.
To me, this chart says forget about going long — especially if price can’t even hold above the 10 period MA.
Once again, the weekly chart takes the prize for the most ominous looking chart from the group. I seriously do not like that break of support on strong volume.
- Hourly Trend — Down
- Daily Trend — Down
- Weekly Trend — Sideways/Down — and getting worse.