Navigating Market Bottoms: A 5-Step Checklist for Mastering Stock Entries

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As volatility ripples through the markets, every investor is asking the same question: is it time to buy, or is caution still warranted? In this insightful analysis, Rick Pedicelli, head stock analyst at Morpheus Trading Group, delves into the intricate dance of market signals, providing a comprehensive overview of the current state of play. By dissecting the NASDAQ Composite and employing a proven 5-step checklist, Pedicelli navigates through the complexities of higher lows, volume patterns, and distribution days, empowering traders to make informed decisions amidst uncertainty.

Greetings, fellow traders! It’s Rick Pedicelli from Morpheus Trading Group, and I’m thrilled to share with you a powerful approach to mastering stock entries during market bottoms. As a seasoned swing trader with over two decades of experience, I’ve witnessed countless market cycles and developed a keen eye for spotting potential reversals.
In our previous video, we introduced a groundbreaking 5-step checklist designed to help you determine when it might be safe to start buying stocks again. Now, it’s time to put that checklist to the test and apply it to the current market conditions, focusing on the NASDAQ Composite ($COMPQ) and other key indices.

Step 1: Setting Higher Lows
The first step in our checklist is to identify whether a major stock market index is setting higher lows. This crucial signal indicates that the market may be establishing a new uptrend or, at the very least, a potential bounce. In our analysis, we observed that the NASDAQ Composite has indeed formed a higher low on April 25th, confirmed by the move on April 26th over the previous high on April 23rd. This higher low pattern is a positive sign, and we’re currently on day 8 of a new rally attempt.

Step 2: Bullish Volume Confirmation

While higher lows are encouraging, we need to see bullish volume patterns to validate the potential strength of the move. Specifically, we’re looking for a strong accumulation day where the index is up 1.5% or more on higher volume. Ideally, this bullish accumulation day should occur on day 4 or later of the new rally attempt.

In the current market conditions, we haven’t yet witnessed a clear accumulation day that meets our criteria. Although there was a 2% gap-up move on April 26th, the volume was lighter on that session, failing to provide the necessary confirmation.

Step 3: Identifying Potential Leaders

Even in a broader market rally, not all stocks will participate equally. It’s crucial to identify stocks that are setting up in valid, buyable patterns and could potentially lead the charge higher. While there are a handful of stocks like Shark Ninja ($SN), Cava ($CAVA), and Dell ($DELL) trading near highs or setting higher lows, the overall list of potential leaders is relatively limited, particularly in the growth stock arena.

Step 4: Holding onto Gains

Once stocks start breaking out to new highs, it’s essential to monitor whether they can hold onto their gains and continue pushing higher. Stocks like Wing ($WING), Chipotle Mexican Grill ($CMG), and Vertiv Holdings ($VRT) have recently shown strength by breaking out to new highs. However, their ability to maintain these breakout levels and demonstrate follow-through will be a key factor in determining the sustainability of the rally.

Step 5: Avoiding Distribution Days

Distribution days, characterized by heavy selling volume on down days, can be a warning sign that institutional investors are unloading shares. Ideally, we want to see the market avoiding distribution days as it attempts to establish a new uptrend.

Unfortunately, in the current market environment, we’ve witnessed a concerning pattern of distribution days. On Tuesday, the NASDAQ Composite experienced a 2% down day on heavier volume, just a few days after a 2% gain on lighter volume. Additionally, Wednesday’s action showed higher volume on one data source and a potential distribution day with a 0.3% loss.

Bonus Tip: Relative Strength Stocks

While it’s important to monitor stocks showing relative strength, such as Dell ($DELL), which is setting higher lows compared to the NASDAQ’s lower lows, we must exercise caution when attempting to get too cute with entries in these leading stocks before the market shows signs of reversing and satisfying our 5-step checklist.
Relative strength stocks may hold up well initially, but they are unlikely to make significant progress until the broader market is on a stronger footing. Trying to chase these stocks prematurely can often lead to breaking even or even losing money. Sometimes, a true market bottom may not be confirmed until these relative strength stocks finally crack and then quickly reverse back up, potentially breaking down below key levels like the 50-day moving average before recovering.

Key Takeaways:

  • Mastering a proven checklist like our 5-step market bottom approach is crucial for improving your trading performance and adapting to changing market conditions.
  • While the NASDAQ Composite has set a higher low (Step 1), we haven’t yet witnessed a clear bullish volume confirmation (Step 2) or a robust list of potential leaders (Step 3).
  • Monitoring stocks’ ability to hold onto gains (Step 4) and the market’s avoidance of distribution days (Step 5) will be key in determining the sustainability of any rally attempt.
  • Exercising caution when chasing relative strength stocks before a broader market reversal is confirmed can help avoid potential pitfalls.

At Morpheus Trading Group, we understand the importance of continuous learning and adapting to ever-changing market conditions. That’s why we’ve created the groundbreaking Morpheus Trading Academy, designed to provide you with the tools, knowledge, and support you need to succeed in any market environment.

As a valued member of the MTG Tribe, you have the exclusive opportunity to become a VIP Founding Member of the Academy and unlock a world of trading mastery.

Don’t miss out on this incredible chance to elevate your trading skills and gain a competitive edge. To learn more and claim your spot before the May 31st deadline, visit

Remember, the path to trading success is paved with discipline, perseverance, and a commitment to never stop learning.

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