Our stock market timing model shifts to “neutral”

Enjoy this post? Share the love.

Even though the benchmark S&P 500 Index has been outperforming the other averages lately, Wednesday’s (August 1) heavy selling was the second day in a row of institutional distribution (higher volume losses). Two days of distribution so close to a bullish follow-through day is usually bad news for the bulls. As such, because of the mixed signals, our rule-based market timing model has just switched to “neutral.”  This occurs when the broad market is attempting to form a bottom and we receive a buy signal that doesn’t follow through (false buy signal). Rather than switching back to “sell” mode, we adjust the model to “neutral.”  In this mode, we can either go long or short; however, our position size on all positions is light because market conditions are not ideal.

Our current near-term plan is to continue to lay low,  just as we have done the past few weeks, patiently waiting for conditions to improve while protecting our capital (cash is king). Despite the challenging and erratic market conditions, we still netted a profit in July from individual stock trades of The Wagner Daily swing trading newsletter, equating to just over 1% of the model portfolio value. While certainly not a killer month, we felt the small gain was pretty good, especially considering how unbelievably choppy the market has been.

Perhaps most importantly, swing traders and short-term investors who have been disciplined enough to follow our swing trading strategy over the past few months should be in good shape mentally. Along with capital preservation, staying mentally sound is always  a main concern when trading in a tough market. Unfortunately, many traders have undoubtedly overtraded like crazy in recent few months and are now in a big hole. Conversely, we stayed out of harm’s way, and even made a 1% gain last month, by simply following our market timing model. Many newer traders enter trades just for the “rush,” and have a hard time sitting in cash or trading with reduced share size. But we know from more than 10 years of short-term trading experience that knowing when not to trade may be the hardest skill of all to learn (and carry out) in the stock market.


Enjoy this post? Share the love.
Deron Wagner

Deron Wagner is a professional trader, author of several ETF trading books, and the Founder of Morpheus Trading Group. Since 2002, he has been sharing his proven swing trading strategy with thousands of traders around the world. He has appeared on CNBC, ABC, and Yahoo! Finance Vision television networks, and is a frequent guest speaker at various global investing conferences.

Recent Posts

Unlocking Explosive Gains: Mastering the 20-Day EMA Pullback After a Strong Thrust

Missed the initial breakout? Don't worry - there's still a chance to catch that rocket! Today, we're diving deep into…

3 weeks ago

Nasdaq Flashes 3 Powerful Buy Signals: Your Ticket to Serious Profits

Discover the three powerful buy signals flashing in the Nasdaq and learn how to profit from the surprising shift in…

1 month ago

Tesla Stock Analysis: 5 Bullish Signals for Swing Trading $TSLA [Sept 2024]

Could Tesla (TSLA) be gearing up for a major bullish run? Veteran analyst Rick Pedicelli breaks down five critical technical…

2 months ago

NASDAQ’s Bloodbath: Navigating the QQQ Plunge and Uncovering Hidden Opportunities

The tech sector has recently experienced a significant downturn, with the NASDAQ index plummeting, but for astute traders, such market…

2 months ago

Decoding Nvidia’s 35% Tumble: A Technical Analysis Masterclass

In the high-stakes world of AI stocks, even giants can stumble. Join us as we dissect Nvidia's recent 35% correction…

3 months ago