Major averages finished roughly flat on lower volume as expected ahead of the long weekend. Leading stocks continue to perform well overall. Both GOOGL and AMZN are both less than 1% away from the 1,000 price mark, a testament to the strength of technology juggernauts which typically lead bull markets higher. Singularly, technology in all its forms is only becoming more and more prevalent with each passing year.
And leading sectors continue to benefit from quantitative easing which is still finding its way into US stocks via global central banks such as the European Central Bank and the Bank of Japan which continue to print at full tilt. This continues to somewhat distort markets, propping them ever higher with shallow floors becoming more the norm, but some measure of increased predictability has returned as witnessed how many of our Focus List stocks and Market Direction Model ETFs continue to behave.
Thus when the market has a correction of some magnitude, it is best to honor your stops, then remain vigilant for lower risk re-entry points such through what we call "Ugly Duckling" long set-ups like the U&R, which we consider the most potent weapon available when taking advantage of market pullbacks to pick up shares of leading stocks. Other set-ups include Wyckoffian Retests, and volume dry-up price/volume formations that we have discussed at length in our weekly Focus List Review and live webinars as well as the irregularly published VoSI VooDoo Report.
If we take the recent one-day market drop on the Trump impeachment news as one of many examples, you would honor your stops first and foremost. But instead of assuming a bearish stance, you should remain fluid in your views as you watch the price/volume of stocks on the Focus List and any of your watch lists unfold. Indeed, the sharp drop on May 17 was a one-hit wonder on the strict basis of price/volume action. The general market and leading stocks immediately recovered starting the very next day. Of course, further repercussions could manifest down the line, but such discussion has no place in terms of making money in the markets.
While the bounce in the ensuing days was on diminishing volume on the major averages and in a number of leading stocks, the undercut & rally formation offered excellent profit opportunities at low risk entry points the day after the big drop. Thus time is of the essence especially when it comes to the undercut & rally formation.
Note that warning signs typically show up around major tops and prior to serious corrections as has been evident over the decades as we saw with the crash of 1929, 1987, 2008, and the flash crash of 2010.
The key to successful investing is to stay on top of the data in real-time so you can act accordingly, honor your stops, then redeploy capital as profit opportunities emerge. Undercut & rally is a formidable weapon of choice in such situations.