My 2 cents on today’s weak stock market action ($SPY, $DIA, $QQQ)

On a technical level, one reason for today’s (June 1) sharp decline in the Nasdaq, S&P 500, and Dow Jones is the fact that the major indices all formed bullish intraday reversal bars yesterday AND on sharply higher volume. We pointed this out in today’s Wagner Daily stock newsletter, as well as in our analysis of the S&P 500 SPDR ($SPY) in today’s free trading video. Because yesterday’s reversal bar on higher volume statistically favored a near-term move higher, technical traders believed the market’s next move would be to the upside. Therefore, when the stock market gapped substantially lower immediately on today’s open, the bulls who were accumulating shares yesterday were trapped, which compounded the weakness because they were forced to sell. Technical analysis is really nothing more than a graphical way of understanding the psychology that moves stock markets, and this is one good example of such.

After locking in a nice 11-point gain on our swing trade in $CRM short yesterday, and closing out our two remaining short positions ($XLY and $DKS) for small gains on today’s open, we are now flat in our model ETF and stock portfolios. With our market timing system, the goal is always to catch the “meat of the move,” rather than attempting to exit long positions at the absolute high or cover short positions at the dead lows. As such, we were perfectly happy to have been in cash as the market fell apart today, especially considering the model ETF and stock portfolios in our swing trading newsletter gained nearly 4% last month as the main stock market indexes shed more than 6% (complete updated trade performance statistics for May will be published here soon).

Have a great weekend everyone.