Anatomy Of A Trend Change

It is easier to swim downstream than upstream where you are fighting against the current. Likewise, a friend of mine told me she does not go out to swim in the ocean when the tide is high least the tide retreat and pull her out. But rather, she swims when the tide is low and it is easy to get out.

Proverbs tells us that there is a time for all things. A time to buy and a time to sell. And I would add, a time to stay out of the market. Being able to time the market is the great passion of many people. And I like it too. Here is my take on timing the market: Watch for trend changes.

A trend is a series of higher highs and higher lows. Once that pattern is broken the trend may be over, but not necessarily. The market has gotten so big that we watch pieces of it now. While the S&P500 has broken the uptrend pattern, as has the Dow, the Nasdaq and Russell 2000 have not. The chart below is a 20 day chart of the S&P500 with 4 hour candlesticks, showing a potential trend change. Whether the S&P500 and Dow pull the Nasdaq and Russell 2000 down or the Nasdaq and Russell 2000 pull the S&P500 and Dow up we will just have to wait and see. Click on chart to enlarge.