I wanted to give you a market update by looking at the trends I’m seeing in the market today — March 7th, 2024.
In order to gauge the broad market’s direction, I look at SPY which is the S&P 500 using the chart settings I talked about over here.
When I look at it in my chart program, here’s what I see today:
Your chart might look different. This screenshot is from my custom-built TrendPoint software.
Just to give you a quick orientation:
- the red line is the long-term trend
- the dark blue line is the mid-term trend
- the green line is the short-term trend
- and the bars, which are white/pink before late October and then turn to teal/yellow after that indicate the S&Ps price on each day
As you can see, since late October, when the S&P bottomed out and jumped up above all 3 of the trend lines…
It’s been in a beautiful trend, bouncing nicely off that short-term trend line which is what we want to see. That’s a healthy trend.
Next let’s look at the DIA, which is the Dow Jones Industrial Average.
As you can see, the teal/yellow bars are constantly dipping slightly below the green trend line.
This tells me the Dow is not nearly as healthy as the S&P.
It’s a good trend, but not as good as the S&P.
Finally, let’s look at the QQQ which is the Nasdaq.
Another good trend, but again it dips below the short-term trend line, so the S&P is healthier.
Still, we can see that all 3 major indexes are bullish.
Now, one stock I specifically want to show you is ANF.
This is about as good of a trend as you can get.
First of all, the trend fills the full 6 months of the chart.
Secondly, the price action stays nice and close to the short-term trend line.
This is about as perfect of a trend as a you can get.
You might ask why. Wouldn’t it be healthier if a stock really took off and shot straight up?
The answer is no. Because when stocks shoot straight up, it might look good on paper, but that’s a really volatile stock that could turn around and go the other way at any time.
For an example of that, let’s look at TSLA:
Look over on the far left hand side. See how far above the green line the price went?
Then what happened? It slammed down below all three trend lines shortly after that.
Then it went back above then. Then it slammed down below it.
That kind of volatility makes it hard to make money. When you think it’s going up, it could be getting ready to turn around on you.
For another example of that, let’s look at one of the most popular stocks today: NVDA.
See how that price action has been getting further and further away from the green short-term trendline?
It’s really hard to maintain a trend like that.
Finally, let’s look at another stock that’s in the limelight lately: SMCI.
See how far above the trendline that price action is?
It’s a powderkeg. Sure, you could make some money on it.
But you never know when it’s going to blow up in your face.
My Favorite Way To Use Trends
Ok, so now you know about trends, how to find them. What the good ones and the bad ones are.
Now what?
Well, you could just buy the stock and wait for it to go up. That’s not a bad move, but it does require a big chunk of cash — and the stock has to continue moving up.
You could also buy a call on the stock. Plenty of people do it even though recommend against it.
And I recommend against it because most options expire worthless. So, statistically speaking, when you buy an option, the odds are against you.
Not to mention that when you buy an option, the clock is ticking. Every day that passes is another bit of value eroded from that option.
So what do I do? I like to collect instant income in exchange for a promise.
If I see a stock trending up, I’ll make a promise to buy that stock if it goes down.
The vast majority of the time, that promise I made expires worthless. And I walk away, keeping all the cash.
Curious to see how it all works? Check out this video I recorded that explains it all.
Trade well,
Jack Carter
