1) The number one criteria I use to judge the overall health of the market is STOCKS. We need to see strong fundamental companies building sound technical bases and breaking out on strong volume. We’re not quite 100% there yet, but I am noticing more and more trading setups. If they work out, that will be a very healthy sign.
2) Since the recent low (11/25/11), the NASDAQ Composite has only seen one day of distribution (professional selling), another good sign.
3) Although the NASDAQ Composite is below its 200-day moving average, I am anticipating a “follow-through-day” this week that would take us above this level and confirm a new uptrend.
4) I had 4 friends tell me this past week that they are ready to quit trading because they’ve been getting “killed…chopped-up…frustrated, etc.” with this market. That’s usually a good contrarian indicator.
5) Don’t fight the Fed! Bernanke’s providing liquidity again. Don’t argue with it, take advantage of it.
A few additional comments:
A) It doesn’t bother me if I’m wrong about this potential rally because I trade with stops. If I’m wrong, I stop myself out and wait for better conditions. I have no ego when it comes to the market.
B) If I’m right, I have no idea if this will be a short 3-4 week rally or a longer 3-4 month uptrend. As @WScottONeil says: “We’re not in the prediction business, we’re in the interpretation business.” In other words, take it one day at a time and be very open-minded when analyzing the markets. Being stubborn gets you nowhere.
C) Final reminder: The key is not to get the EXACT bottom, but to trade the portion of the uptrend when probabilities are in your favor. For example, I know many traders who made a fortune last year in December 2010/January 2011…THREE MONTHS AFTER the September 2010 bottom! In other words, there is no reason to be in a rush. If conditions continue to improve, there should be plenty of time to make money. GOOD LUCK TRADING!
$SPY $QQQ $IWM $DIA