How far ahead of time could we have detected this market weakness?
Certainly, that is not an easy question to answer. But there were signs…
It’s hard to admit something is coming to an end as we continue to see the market at all-time highs.
No one wants to admit “it’s over,” at least for the near term.
But the reality is that it was time to get cautious on the overall market back in 2021.
What leads me to make that statement?
Well, there are two main things we were seeing back then that told me trouble could be brewing…
Little Insider Buying
First, I noticed that there weren’t many buys by company insiders using their personal cash to invest in the companies they are employed by.
You see, it’s always nice to see huge inflows of cash from corporate insiders.
And buying the broad market when corporate insiders are plowing their own cash into their own companies’ stocks has proven to be profitable.
But corporate insider buying started drying up in the first quarter of 2021.
And when they’re not buying, I’m not buying. It’s really just that simple.
When the folks who know the most about their own companies lose confidence, so do I.
Weak Market Breadth
Second, we saw at the time that more than half of the S&P 500 stocks were trading below their 200-day moving averages (MAs).
The 200-day MA is a timeless benchmark for traders, investors and even institutions.
Essentially, when a stock is trending above the 200-day MA, it’s usually in an uptrend.
On the other hand, when a stock is trending below the 200-day MA), it’s usually in a downtrend.
And again, more than half of the S&P 500 components were trading below their 200-day moving averages in December 2021.
Moving averages are not signals to buy. Rather, they help to guide the macro view and identify the overall trend.
Stack the Odds in Your Favor
It’s important to remember that if the market is going down and turns up, the 200-day MA will lag.
And it’s just the same if the market is going up and turns down… The 200-day MA will lag behind.
Of course, corporate insider buying and 200-day moving averages are only benchmarks to consider…
These are not trade plans!
But whatever you can do to stack the odds in your favor is well worth your consideration!
Join Us This Afternoon
Before I go, I want to personally invite you to a special presentation with my colleague and expert stock trader Ross Givens.
Ross’s premium Alpha Stocks research service focuses on only the very best stock trading opportunities — both on the long side as stocks rise and on the short side when markets are crashing.
He recently recorded a 21.6% gain on the downside in only eight days as Pegasystems Inc. (PEGA) stock plunged…
As well as a gain of 21.3% in just 15 days in Permian Basin Royalty Trust (PBT) as that stock broke out of its range.
Rules to Live By
“You might as well answer the door, my child, the truth is furiously knocking.” Lucille Clifton
Until next time, I wish you a beautiful and blessed day!
Yours In Trading Success,
Anthony Speciale Jr.