I am a swing trader, not a day trader. What’s the difference? A day trader by true definition does not own a position at the beginning nor at the end of the day. A true day trader buys and sells his stock intra-day. A swing trader has a slightly longer time horizon usually between three days and three months. On average, I hold my positions for about a week. My goal is to make 2% per week. If I can do that consistently over the course of the year, that results in a gain of over 100% per year. A lofty goal, but one that I think is attainable. As a swing trader I try to identify market swings in the very near future and capitalize on those movements. Right now, there is an overwhelming case to be made that stocks are overpriced in the short term and are ready for a pullback, hence my shorting strategy.
Why am I bearish? Let’s start with the big picture. Look at the chart for the Dow. You will see that its 50-day moving average crossed the 200-day average a month ago and has gone below it. This negative crossing is known as the Death Cross and signals the start of a bear market. Look at the slope of the 200-day average. It is flat as a pancake. It has plateaued after a bull run over the last few years. The daily numbers will be very interesting from a technical analysis standpoint this week as several points will be tested. Its daily numbers have come back to reach the 200-day average line. If it goes down, the 200-day line will be a resistance level confirming weakness in the market. Secondly, the recent high equalled a high point in the charts in the third week of March. Again, this could serve as a resistance line further confirming weakness. It has already shown lower highs and lower lows.
When I focus on individual stocks, I will look at its Relative Strength Index (RSI). If it is above 70 it is in overbought territory. If it was above 70 and goes below it, it is poised for a pullback. If it is posed for a pullback and its individual 50-day average is also below its 200-day average, then there are confirming signals it is about to come down. One is a long-term signal, the other is short term, a 1-2 punch. The opposite is also true, when I am looking to buy a stock, I want to see its RSI coming from oversold territory and rising above 30. I also want to see its 50-day average above its 200-day average giving that 1-2 punch in an upward direction. I review the 500 companies on the S&P weekly. How many meet the criteria for overbought poised for a pullback? Answer, 62. How many are oversold looking to move up? Answer, two. There is an overwhelming number poised for a pullback. How do you profit form that? By shorting the market.
This is what we try to accomplish at twopercentgoal.com. Use technical analysis tools to identify companies poised for either a pullback or a rebound thereby earning 2% within a week. Done consistently throughout the year, this represents an annual return of 100%. Go to twopercentgoal.com to sign up for the daily email to see companies poised for 2% growth. The emails are free for the first month and then $99/month thereafter. You can cancel at anytime. Good luck with your investments.
Cheers,
Al