On Tuesday, August 29th, the Nasdaq Composite and S&P 500 both flashed a Follow Through Day (FTD). As a reminder, all the technical definitions and examples are covered in the Seminar Videos section of the website. Before I get into the FTD discussion, I would like the review the recent price action.
1) The Nasdaq Composite broke out of a 13-week cup and handle consolidation in early May. When I say the market is healthy 2 to 3 times per year, this was the start of one of those healthy periods. We had a power trend that held the 21-day moving average into July.
2) In early July, I started telling members that I would be looking to reduce my market exposure into further strength. The third week of July was the perfect time to do so because of the 5 reasons I discussed: 1) The week of OpEx provided that added strength that I was looking to sell into. 2) We were getting technically extended. 3) Many stocks were extended beyond safe entry points. 4) Sentiment was getting too bullish. 5) We were heading into the seasonally weak months of August and September.
3) During the week of OpEx, I reduced my exposure from approximately 85% invested down to 50%. I discussed this in all the videos that week and tweeted about locking in some profits on July 18.
4) When the pullback began, I discussed being patient until we see signs that the institutional selling is slowing down. Notice how there was no macro discussion involved? The big institutions control the market and interpreting what they are doing is all that matters. Ok, I’m done digressing, lol. We saw signs of the selling slow down on the daily chart on August 17 and 18. The weekly chart also showed three consecutive down weeks on lighter and lighter volume. In addition, the weekly chart was retesting its 21-week average. I reviewed all these technicals in the Weekend Video on August 19th.
5) Sentiment fell off a cliff. As I mentioned, it doesn’t take much for people to get bearish these days. In my view, this was just a normal 3-4 week pullback and certain sentiment measures got down to bearish levels not seen since the October 2022 lows. It’s really unbelievable to observe the nervousness in this market.
6) Around August 17th and into last week, I discussed how I slowly increased my investment levels from approximately 50% invested back up to 70%. I put money to work in some of the stronger relative strength names and reviewed them in videos at that time. I continued to mention being patient until we saw signs that the big institutions were coming back into the market.
That leads us to Tuesday’s FTD. I like that sentiment got VERY negative over the past few weeks, many of the leading stocks on our Focus List held up very well, and the FTD got us back through the 50-day moving average. I added to some positions the past two days and I’m currently 80% invested.
From here, I am still expecting some backing and filling. We are certainly not out of the woods, and I still think we will see some volatility in September. As I always say, no matter what your timeframe is, get those strong entry points. I am happy with the entries I got over the past two weeks on my new and added positions, and I’m going to do my best to manage things into the week of September OpEx. Again, in my view, this was a normal pullback within an overall uptrend. There are still a few things I would like to see in the market, but today’s FTD was a step in the right direction. I will discuss this further in Wednesday’s Video and the next webinar will be Monday, September 4th at 7PM EST.