On Tuesday, the NASDAQ’s Follow-Through Day signaled a shift in market sentiment from Downtrend to Uptrend.
That Uptrend signal came under immediate pressure.
On Thursday morning, the NASDAQ closed the Tuesday gap, which negated the Follow-Through Day signal and put us into a Neutral Trend. See the chart below:
A Neutral Trend is a “yellow-light” environment. It means that the market is indecisive and that you should be extremely cautious if buying into new positions.
If you do buy into new positions, make sure your positions are smaller than normal and don’t consider any stock that isn’t in the “best of the best” category in terms of both technical action and fundamentals.
Also, Neutral Trends can quickly lead into Downtrends, so you must be prepared to close long positions and consider going short. Learn to read the market properly and react to Downtrends accordingly.
As seen this week, the initial days of an Uptrend attempt can be fickle. You have to stay on your toes and be prepared for market shifts.
** AFTER THE CLOSE UPDATE **
As you can see on the NASDAQ chart below, the index came roaring back Thursday afternoon and closed UP 0.66% on heavy volume. (Click on the chart to enlarge it.)
What looked like a sure Distribution Day (a decline on increased volume) after the vicious Thursday-morning open ended up becoming an Accumulation Day (a rise on increased volume) by the session’s end.
This was rare and impressive action driven by the bulls.
While the trend remains Neutral following Thursday morning’s drop below Monday’s close, the powerful bounce-back by the NASDAQ coupled with strong action from leading stocks tells us that this market may still be on the verge of a new Uptrend.
Keep an eye on how we close out the week, pay close attention to the action of leading Darvas stocks, and, when entering new trades, make sure your initial positions are lighter than normal and that your stops are tight.