Traders are anxious right now – and understandably so – with broad market indexes like the S&P 500 overbought right now, are we headed for a bear run in the next month? My sources point to no. In fact, a swing trading plan could present investors with a serious buying opportunity as we enter the second half of March. But like most technical trades, you need to know what to look for – here’s everything you need to know…

The S&P 500 hit resistance at 1150 last week and is now pulling back.  It’s all about the trend channels at this point.

Right now, it looks like this overbought condition should get worked off by either going sideways (and consolidating for a while) or by pulling back to trend channel support (the lower purple line). That’s the swing trade.

See the S&P 500 during January? It went sideways range bound. Don’t rule that out over the next week or so.

Stay Away from the Market Leaders

Some key stocks may be topping right here. This doesn’t automatically mean that it’s all downhill from here — it just means that they are pulling back right now. I’m sure some of the biggest name stocks will bite the dust in this pullback, but at this moment in time it’s something you want to be aware of.

Most big name stocks on Wall Street right now are probably not good ideas to be a buyer of at this moment in time. A lot of these names could easily just pullback to the 50-day moving average. If you are long-only or looking to gain some long exposure then you need to see some sort of Pull back Off Highs (POH) pattern to form from here over the next few days at least. That’s what we’d be looking for anyway.

The Pullback Off Highs pattern is one of the most bullish and constructive long side set-ups out there. Rather than going straight up, an index or stock will typically make a move higher, then spend sometime consolidating those gains down to an area of chart support (such as its 50-day moving average) before making another move into new high ground.

When a stock clears these consolidation periods, it’s your opportunity to buy them and take advantage of the next run — the bonus part is when you catch a stock at the beginning of a new uptrend, you’ll often get to trade the stock and lock in profits over and over again. And since you are buying it at the point where it’s just started a new move and is near support, your trade’s risk is minimized.

On the flip side, a Double Top is your early warning alert pattern that lets you know in advance that a “Change In Trend” may be near.

If you are long the market, you’ll want to see these leaders pullback from here and form a constructive Pullback Off Highs pattern allowing you to enter them at a risk adverse entry point.  So far, the pullback in the markets is constructive and that bodes well.

Sincerely,
David Grandey, AllAboutTrends.net
for Penny Sleuth

March 16, 2010

David Grandey

David Grandey is the founder of All About Trends, an email newsletter service revealing stocks in ideal set-ups offering potential significant short-term gains.  A successful canslim-based stock market investor for the past 10 years, he has worked for Meriwest Credit Union Silicon Valley Bank, helping to establish brand awareness and credibility through feature editorial coverage in leading national and local news media. Special Report: Imagine Getting Rich as Ignored Stocks Soar- How you could turn $200 into $1.2 million!

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