Hey traders,
Today, I want to get into something I’m seeing in the markets that could save you a lot of frustration — avoiding those “too-good-to-be-true” setups.
When a stock shoots up right after a big event (like the election), it’s tempting to think it’ll just keep going. But that’s exactly when caution should be your best friend.
What the Charts Are Saying
The SPY (S&P 500 ETF) is a great example of what I’m talking about. Right after the election, we saw a strong move up — several days in a row of higher highs and higher lows. Now, while that’s usually a good sign, there’s something unusual about this run-up: it’s just too much, too fast.
This recent rally isn’t built on solid ground, and when you see that many consecutive “blue bar days,” you’re more likely to get a pullback than continued gains.
Markets need to breathe, and when they don’t, those gaps — those big jumps in price with no trading in between — will eventually get filled in. It’s almost like a law of the market.
Why Overextended Stocks Are Risky
If you’re eyeing stocks that have recently gapped up, like Amazon, be careful. Amazon popped after just a few days of higher daily highs and lows, but it’s already cooling off. This is the kind of stock that can trap you if you jump in too quickly. Once it’s made an overextended move, it becomes a lot more likely to pull back.
Instead, look for stocks with smoother trends — those without big gaps. Stocks that are steadily climbing with consistent highs and lows but haven’t gone too crazy.
A Few Examples to Watch (or Avoid)
Stocks like Broadcom (AVGO) and American Express (AXP) have also been on a run, but finding a good entry point in these stocks is tough right now because they’ve also formed some of those gaps.
As much as I like a strong trend, I also want a strong setup, and these stocks just don’t have it. Sometimes you can have “too much of a good thing”.
Don’t Get Caught in the Trap
Bottom line: if you’re looking to jump into a trend, avoid the ones that have gapped up quickly.
Look for stocks with steady momentum and avoid the urge to chase the ones that have gapped up.
These “gap-up” moves may look exciting, but they’re often traps waiting to spring. So, don’t let the excitement of a big rally blind you.
Be smart, take steps to protect your portfolio, and don’t be surprised if we see some red in the near future.
Trade well,
Jack Carter
P.S. WARNING: When the Fed announces the latest CPI print, it could end this rally — but that doesn’t matter to me. Because I’ve got data showing these two stocks should soar regardless of what happens with the broad market!
