Posted February 26, 2021
By Scott Stewart
SELLOFF in Full Force
Welcome back to the Rude Awakening for Friday, February 26, 2021.
Yesterday finally gave us the selloff weve been talking about so frequently over the past weeks and months.
Markets take the stairs up and the elevator down The biggest moves are always to the downside.
Thats what we saw yesterday. From the opening in the S&P, we sold off all day long.
Whats even more interesting is that the selloff culminated at the end of the day. Although the S&P did not finish at quite the bottom, it was pretty darn close.
This is NOT a bullish sign for a rebound.
Recording before the market open, the futures are not in terrible shape, but they are down, which also indicates we will not see a major rebound today to finish out this trading week.
So, what does this mean for us? And how can we use this selloff to our benefit?
A few things
A Line in the Sand
Remember the 50day moving average. Its the thin line mostly underpinning market activity right here:
You can see going back to March 2020, it was acting as a solid support level.
But then we had the March crash and once the support was broken, it was look out below!
Then, as you can see in the chart, throughout the past year its acted as both a resistance and support level.
Throughout the past several months, its been almost exclusively support, as the market has been climbing and climbing.
The 50day MA is a line in the sand, acting as a sort of magnet for the marketplace.
Whats interesting here is this. Looking at just the past couple weeks of market activity
You can see that the candles from Tuesday and yesterday are just about touching that line. And it was able to hold.
But the question is, can this market hold the line?
This might be a blip o the radar.
But if we cant, and we break below it, that is a very bearish sentiment for the market, and we could see further selloff.
And so, I want to share another tool with you to find the best opportunities in a tenuous market
How to Find Coiled Springs
Using your trading platforms heat map tool, you can see an overview of the entire marketplace.
Heres a look at yesterdays activity:
If you look at the color grid on the bottom right, thats the percentage moves that individual stocks had.
Obviously, VERY red on the day.
But there were a couple of highlights on stocks that held gains in yesterdays massive selloff.
ORCL, CME, TWTR are a few examples.
We refer to stocks like these as coiled spring opportunities because when the market is getting pounded, and you can find a couple of green gems in a sea of red
If the market can find some traction and turn around, they could be set to shoot up even higher.
So, take a look at these three. And make sure to check your trading platforms heat map to discover even more gems.
Have a great rest of your trading day.
Well see you again Monday!
Scott StewartEditor, Rude Awakening