Panic Selling to Panic Buying...
Right before Christmas investors couldn't find a reason to buy stocks. Now, a few weeks later, they can't find a reason to NOT buy them.
My last email was titled "Nothing is Safe When Panic Kicks In". But now it feels like the panic has flipped from sellers to buyers.
As it stands we are now back above prior break-down levels in the S&P 500 (SPY) and Russell 2000 (IWM)...
These areas of price congestion (dotted lines) matter because they were once areas of support. Bullish investors/traders buy near these levels expecting higher prices. When these areas fail and prices move below, those who bought at support will be showing a paper loss.
Rallies that take prices back to prior support levels offer those buyers a chance to get out at or near break-even. This is why support can and often times turns into resistance, as those who bought at support are happy to minimize their losses by getting out of their once highly underwater trades.
Right now the bulls are in charge of this tape and have taken prices back above areas of resistance. I say "areas" because in many instances prices over shoot widely watched levels, sucking in the last of the bulls or bears depending on the situation.
The rally has been very impressive and as I stated earlier it feels like panic buying or FOMO has returned, at least for now.
If you felt like you were overweight stocks back in December when the market was plunging, you now have the opportunity to re-asses some of your more "questionable" holdings.
Whether this is the mother of all dead cat bounces or a legit V-bottom (which are very rare) is yet to be determined. However, this is a great time to take stock of your holdings and understand what actions you will take if stocks continue to rally or if a re-visit of the December lows begins to look like a possibility.
Plan your trade and trade your plan.
Emerging markets have bounced back in a big way after reaching bear market levels as a whole last year (EEM was down -27% from it's highs). The gains over the last 30 days are impressive to say the least.
In Canada select cannabis stocks have started the year off on the right foot with some of the top names rallying 20% or more.
Technology stocks have lead the way in the US the last couple weeks mostly in the software and semiconductor industries.
Below are five of the stronger trending stocks in terms of price action on my CM50 (Canadian MegaTrends) & UM50 (US MegaTrends) lists.
Remember that chasing stocks higher is not recommended and even the strongest trending stocks can experience significant drawdowns.
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