It is said that you can’t time the market. I’d like to talk with those who say that and show them how I trade. Can I change their mind? You tell me, states TG Watkins of Simpler Trading.
This week, we saw the market pullback, which was something I was warning about even the week prior. I could see the signs that begin to indicate the market and price are getting extended and likely in need of a refresh. Let me show you how the Moxie Indicator helped me see it coming.
Here on the Powershares QQQ Trust (QQQ) 15 min, you can see that price had been moving up steadily along the 50 SMA. This is all well and good, but energy had been deteriorating for a few days—something that price wasn’t clueing anyone into. But if we look at Moxie, we can clearly see the deterioration as price continued up, while the indicator trended down, eventually parking itself under the zero line. This is what I call negative divergence and is a stark warning sign. The signal for the break was when price spent time at the 15-minute 50 SMA, then failed.
The next metric I use is the 3rd ATR and this one was most relevant on the daily time frame. The 3rd ATR is great for determining when price is at its outer range and likely to pull back. Case in point, the QQQ daily hit that outer market perfectly (pink arrow) and then dropped. Talk about timing.
I’d like to remain strongly bullish on the market, but we need to wait for the pullback to finish. There will be a bounce, there always is. The question will be: what happens after the bounce? For that answer, we will simply have to watch and look for the signs that the market is either healthy or could be getting into the early stages of weakening. Be sure to watch other names out there for signs as well. If none of your setups are working, that could be a clue. So far for me, the sailing is still smooth.
TG Watkins is the director of stocks at Simpler Trading.
