The Markets and Your Stocks
As I have mentioned in other pieces in the blog, about 85 percent of the stocks in the market (DOW-S&P etc.) will follow the market just like a little duckling follows her Mama around. This is all for a simple reason. With no compelling reason to move against the market, trader sentiment, which the market reflects, is where most stocks will go.
Those that aren’t following have some fundamental reason or they have recent news. The result of most news events will dissipate within three to five days unless the news changes the sentiment in the stock greatly.
In the DIA (Dow Jones ETF) chart above the next bottom after the 154.25 low is a little higher. This alone is a good reversal single. The candle at the second bottom is called a doji. A doji candlestick indicates indecision. When you have a gap down to the doji an then a gap up from the doji it is called an island doji and is a very strong reversal signal. The market is telling you in advance that is about to go higher.
I wouldn’t trade this until you get the gap up. From the open the day following the doji the market climbed over seven hundred points in three days.
As you can see in the RCII chart above RCII had bad news 11 days earlier. It had recovered some but the market was falling hard. At the recover (the last four days) RCII moved up and broke out of a descending channel.
Once again with CAR. It had been trading sideways for three weeks with channel resistance at $28.10.
URI is an almost perfect replication of the DIA.
Although this would work with almost any stock I trade only value fundamentals at or very near a support level. If you look back at this time frame (2/11/2016) you can find thousands of stocks with the same chart pattern.
For me the indexes are fairly easy to read. The reason I trade stocks instead of the index’s id the percent of movement you get from the stocks The index may move five percent while the stock moves 20 /25 percent. When you combine that move with a value stock at a good entry you can get much larger moves