This last week, the stock market came under pressure, as the Nasdaq tumbled below its 50-day line and speculative growth names were hard hit. The Dow Jones held up better, hitting a record high Wednesday, but still declined for the week.
The NASDAQ corrected 5%. This doesn't sounds that bad, but if you look at the growth stocks that I follow, they experienced a lot of pain & damage. Many have broken down chart patterns.
It is useful to have market corrections as the market was getting frothy and a bit overextended. Also the correction gives you the opportunity to spot the new leaders which emerge after the market corrected.
The correction we saw last week was much deeper. The NASDAQ corrected beyond 50day moving average, found support at 65 day moving average. The correction on high volume is a significant move.
The action in the indices is not as important as the action in the individual stocks! A lot of them corrected 5-10% and more. The volatility increased dramatically. Most of the stocks I trade will need weeks to consolidate and build up new chart patterns. A lot of them may never see new highs.
NASDAQ 100 ($QQQ ETF): The $QQQ broke the up trend of the channel and trades now below the EMA 21 & 50. We have to observe the situation day by day to get new clues about the market direction.
However, this is a great opportunity!
New leading stocks will emerge and show themselves between all the losers. The stocks which corrected the least, show high relative strength and with correct chart patterns have a good chance to become the next leaders.
As a trader and new investor, this is the time when you want to increase your research activity!
The recent earnings from some of the companies have been excellent. They have been pulled back due to market corrections. These great growth companies are the ones that come out of the gate resuming new uptrend when the market settles and recovers. So it is important to trim your watchlist and add these new earning winners and potential future new (or resuming) leaders.
Look for stock with relative strength.
Some of the recovery plays (economy reopening hope stocks) has performed better than tech stocks in the last two weeks. But don't put all 'tech companies' in the same basket. There are tech companies that can do really well when the economy reopens too. I have some of them in our forthcoming watchlist (will be published tomorrow) for members.
Don't go all in on these names. Even when the stock chart is showing signs of life, the overall market needs to be healthy. Or else, studies show nearly 3 in 4 stocks follows the direction of the market. So be selective and conservative in your buys till the broader market settles down.
New leaders will emerge sooner or later for traders. This also provides fantastic opportunity to initiate or add to your positions for long term investors too.
Investing is NOT 'buy and hold for ever' or 'buy and hope'. It is 'buy and monitor'.
You will learn more about this approach in our membership resources, along with trading knowledge and skills. Look out for the trimmed down stock selections in our watchlist tomorrow.
Come on board and join our membership, if you haven't yet, to kick start your investment journey with like minded people and with guidance from GrowWealth.
Happy Learning & Successful Investing.
Disclaimer: This material is intended for educational purposes only, and is not recommendations to buy or sell any financial instruments or products. Do your own due diligence and make your own decision. The value of your investments can rise as well as fall. Capital is at risk when investing in any financial products. You could get back less than you invested. Past performance may not be indicative of future results.