On Tuesday, we saw what looked like the start of a potential rally attempt. Even though the NASDAQ finished 1.2% lower on the session, it closed well off its lows and near the top of its intraday range.
However, the hopes that Tuesday’s action was the beginning of a rally were crushed on Wednesday as the NASDAQ dropped 1.9% lower on its highest volume seen all year.
Needless to say, this downtrend continues.
As mentioned here before, corrections typically last 8-12 weeks and the market usually drops about 15%. We’re currently four weeks into this correction and 7.8% off our peak. In other words, if this ends up being a “typical” correction, we’re at the halfway mark right now.
As a Darvas trend trader, the play right now is simple: don’t buy any new stocks, hold only those stocks that are acting constructively (and even those should be scaled-down positions at this point), avoid margin, and PROFIT from the downtrend using the trades discussed in the Darvas Trader PRO newsletter.
Other than that, our job is to find those leading stocks that are using this market downtrend to form sound bases that will propel them as soon as the uptrend resumes.
The uptrend will not resume until a rally attempt is CONFIRMED. Rally attempts are only confirmed after a very strong Accumulation Day (usually an increase of 1.5% or more on the indexes) occurs a few days into a rally attempt.
Make sure you don’t get whipsawed in and out of the market at the first signs of a rally effort. You must wait for confirmation.
* To make sure you’re alerted when the uptrend resumes and for the latest on how to profit from the current downtrend, consider a 30-day trial to Darvas Trader PRO.