Be ready for everything
Posted by Danny on May 16, 2016
Stocks tried to rally for a few days, but fell back just as quickly. The pullback has been very orderly so far, and after 4 weeks of downside action a bottom may be near. Of course it is also possible that more downside action is in the pipeline. Let’s have a look at the Nasdaq chart:
The 4600-4700 area is a probably bottom zone if this market is setting up for a further climb. A drop below 4600 would look much more bearish. Four weeks of downside action has brought the slower Earl2 index (orange line) into bottom territory, but it is not turning up yet. The faster Earl (blue line) and the MoM have bottomed already.
We may see another rally attempt this week, but I think it will take another dip below 4700 to allow the Earl2 to paint a proper low. That would give us a nice setup going into June.
So, I would wait at this point and when the next lunar green period starts towards the end of May we could have a favorable situation to enter longs. Patience pays in this kind of situations and we may be moving towards a “buy in May” while nearly everybody will be chanting the classic “sell in May”.
Be ready for everything, then you can’t be surprised by anything.