The market continues to trade through one of the worst January beginnings in over a decade. As the Dow touched 15,500 this week the tendency to dive in and buy the bottom always entices value investors.
Remember that the trend is your friend. As day and swing traders, we focus on the technicals and trade according to our rules and setups. Today’s long tail in the DOW indicates a potential trend reversal as the lows of the day were bought up quite quickly. We’re replicating the trend reversal pattern from August. That said, I’m still cautious though and looking for shorts only.
The 200 exponential moving average is one of the most important and telling indicators when swing trading for multiple day to week holding periods. One of the most significant lessons we’ve learned here at K Capital Advisors, and what we teach through our alerts and educational videos, is that trading against the 200EMA trend always ends poorly for swing trades. If you’re timeline is above and beyond a day-trade (i.e. you’re swing trading) this rule can be summarized quite simply:
Never go long when a stock is below the 200EMA.
Never go short when a stock is above the 200EMA
Taking this general rule of thumb, we can apply that to both the overall market as well individual positions.
One position we’re continuing to eye as a new short position in our portfolio is ARTX.
ARTX continues to test the 200EMA and broke through to new lows of the week at $1.90. The EMA ribbon (20-50EMA) are starting to point downward and volume is continuing to trade below the 20 day average. As prior patterns show; once the EMA ribbon breaks and the 200EMA is breached the stock has traded down heavily 20%-50%.
We believe this is going to be the case again and are trading this short right now.
The trend is always your friend, traders.
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