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How To Tell if a Stock is Bottoming Out

Whether your an investor or a day trader, knowing how to tell if a stock is bottoming out is a great way to find good entries in stocks.

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Whether your an investor or a day trader, knowing how to tell if a stock is bottoming out is a great way to find good entries in stocks.

“Buy the dip” is one of the biggest memes on Financial Twitter (‘fintwit’). Users like Ramp Capital are famous for their relentless bullishness in the face of corrections in the broad market.

As such, traders and investors are always looking for clever ways to spot the “bottom” of a market pullback, whether in the index or an individual stock.

While this sort of thinking can be dangerous to a trader, it makes complete sense to try to get the best entry when buying a pullback. 

In this article, we will talk about how to tell if a stock is bottoming out and if the time is right to be buying.

Why Would You Want To Know How To Spot a Market Bottom?

The primary reason traders are looking to spot a short-term bottom is to enter a strong prevailing trend on short-term weakness–also known as a pullback, consolidation, or retracement. They all mean the same thing. 

Trading is relative, but generally, the best entry point is as close to the bottom of the pullback range while still having signals that the pullback is ending. In other words, it makes sense to give up a better price to have some confirmation on the trade.

This is a balancing process between buying a failing trend and waiting for too much confirmation before the trade entry is no longer favorable. 

For example, let’s assume you’re trading Logitech (LOGI), and you see this chart pattern:

 

Clearly a strong trend with some positive tailwinds like the recent earnings surprise and the pandemic-driven increased purchases of computer peripherals. Towards the right end of the chart, you can see that the stock began to retrace a bit and made a pullback.

If we move down to an intraday chart–15-minute bars, we can see signs that the pullback was ending:

 

The stock held the previous day’s lows, failed to make a new momentum low, and made a new momentum high late in the day on February 18th.

This is a situation where it’s alluring to buy near the bottom, but without confirmation of a potential reversal of the short-term weakness, the stock might keep declining.

These are the types of trade-offs that each trader has to make individually. If you buy near the bottom, you get a better price, but you’ll more often be in trades that continue to decline against you.

If you wait for confirmation, you get a worse price but might avoid some of the weaker trades. 

In the above example of Logitech, the swing trade ultimately failed, if you’re wondering. But it serves as good a demonstration as any.

It might seem ironic that we’re looking at a failed trend pullback trade in an article about “spotting the bottom of a pullback,” but if you’ve been trading or at least researching trading for any period of time, hopefully, you can appreciate the sentiment.

There’s no foolproof way, and failed trades don’t disqualify sound concepts. 

Why Not To Look For The Bottom of a Stock

If you’re trying to fight the prevailing trend and pick bottoms, you’re buying a falling knife more often than not.

There should be a million disclaimers attached to that because plenty of traders actually specialize in this trading style, which is called mean reversion trading. 

The problem with mean reversion trading is that it’s much better suited to professionals. Mean reversion traders know they will take massive losses from time to time, and they factor that into their trading models.

Many of them are hybrid traders, relying both on discretion and their systematic trading models.

In other words, it’s not for the faint of heart. Quants like Cesar Alvarez and Ernie Chan can provide some useful information about this strategy, but it’s beyond this article’s scope.

With all of that said, sometimes we’re not blessed with a market like today’s bull market trend, and traders are forced to adapt. Still, few traders would argue with the statement that it’s easier to trade trends (when they’re available) than to trade a mean reversion style.

Of course, this is a very biased view, but I’d guess that it’s true for most traders. 

The Broad Market

The broad market has a huge influence on any individual stock. The correlation level varies, but all stocks are affected to some degree, even if they’re not exposed to the same level of economic cyclicality that most businesses are.

One of the critical things to ask when you’re looking at a retracement in a stock is: is the broad market driving the pullback? If it is, how is the stock doing in comparison?

You can’t use percentage numbers here because of different volatility and beta levels, but instead, use key levels and market structure. 

For example, if the Nasdaq 100 just breached a recent low, did the stock you’re looking at hold its recent lows? If so, that’s relative strength and is a very bullish sign for the individual stock. 

Let’s look at an example in Sonos (SONO), a home theater audio stock, on February 23rd when the Nasdaq 100 was dropping significantly:

 

At the open, longs (including myself) were puking SONO, and it was showing real relative weakness compared to the Nasdaq 100 (orange line).

However, there was a substantial shift in the character of the price action around 10:15 am EST when it breached its high for the day and was able to hold above it, showing considerable relative strength. 

Many times, in the strongest stocks, they never even show that relative weakness.

What happens in the strongest stocks is that the broad market is tanking for the day, while the individual stock is just not going up. The price action is hardly bearish, and there’s clear support near the lows of the day.

This is like the market talking to you, giving you a sign of that stock’s strength. Of course, no indicator is entirely reliable, but relative strength is a well-established signal used by many momentum traders.

Momentum Divergence

What is a momentum divergence?

The trading world is weird because we create all of these convoluted terms for simple things. In this case, a momentum divergence means that price and momentum (which is basically the rate of directional price change) tell a different story.

Imagine a popular nightclub. At midnight, there are hundreds of people lined up to get in the club and hundreds more inside.

When 3 am rolls around, there are still hundreds of people inside of the club, but far fewer standing outside waiting online to get in. This is basically a momentum divergence.

The amount of people in the club is still increasing, but the rate at which new people enter the club has declined precipitously. Common sense tells us that the most active part of the night for this club has ended.

The concept is similar in the stock market, except it’s never as obvious as the nightclub example.

The price of a stock in an uptrend might still be going up, but the rate at which it is going up relative to recent history is slow. That’s a momentum divergence. 

We can use momentum divergences to get clues about the strength of a trend.

t the very least, a momentum divergence in an uptrend might lead us to conclude that a stock might simply stop rising, rather than immediately assuming an imminent reversal to the downside. 

Using Momentum Divergences to Enter on Retracements

Oftentimes, when trying to enter on a retracement, it makes sense to see what the stock looks like on a lower time frame.

In this case, if we’re trading on the daily chart, looking at the 15-minute chart might make sense to get a more granular look at the price action. 

In the midst of a daily chart retracement, the 15-minute chart typically looks quite bearish, and in a downtrend.

Trend traders hate trading against the trend, so this sort of multiple time-frame analysis can lead to confusion, and result in analysis-paralysis, allowing the trade to pass you by.

But that’s not the focus–we’re not looking for the lower time-frame to be in agreement with the higher time frame, we’re instead looking for clues that the bearish price action on the lower time-frame is clearing up. 

A great potential clue is a momentum divergence. It’s a sign that the selling is slowing down and that the bears are losing their control over the short-term price action.

See the chart below of SONO. The left side is a multi-day pullback within the uptrend on the daily (right of the chart). 

Until the 28th, the stock was moving pretty directionally, high-to-low, albeit with a ton of noise. After that, the short-term price action began to shift upwards, but not decisively.

But we really see a change of character in the beginning of February-where. On the 1st of the month, the stock opened at its lows and reversed and had a strong close, gapping up slightly the next day.

 

This shows the problem of applying simple mental frameworks like the nightclub example. If you’re bullish on the daily chart, there’s no lower time-frame entry that is screaming out at you to buy.

The price action on February 2nd would serve as a signal to many, but the stock had already moved away from an ideal entry point by then (see the daily chart on the right).

However, perfection is the enemy of good. There were multiple points on the 15-minute chart that were false signals; they didn’t lead to imminent reversal back into the prevailing daily chart trend.

But if the trade idea is good, all this multiple time-frame analysis does is help you put the odds a little bit more in your favor, nothing more. 

Bottom Line

Some questions to ask yourself when trying to enter on a trend retracement are: is the dominant trend fleeting? Is this a brief upswing in the midst of a longer-term range or downtrend?

Many times we are led astray by how much data is on our charts. If we’re only viewing the last 20-30 bars, that view can make us think we’re approaching the blue skies of new highs.

In some cases, a quick zoom-out of the chart tells us there’s significant bag holder overhead supply from previous highs reached just months ago. 

Conversely, sometimes we can get too excited amid a very strong trend. If the chart is increasingly looking like a hockey stick, we should consider that the current rate of change can’t last forever.

As stocks get extremely stretched and start to significantly deviate from average prices, the odds for successful trend pullbacks, bear flags, etc., begin to decline.

The post How To Tell if a Stock is Bottoming Out appeared first on Warrior Trading.

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Are Voters Recoiling Against Disorder?

Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super…

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Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super Tuesday primaries have got it right. Barring cataclysmic changes, Donald Trump and Joe Biden will be the Republican and Democratic nominees for president in 2024.

(Left) President Joe Biden delivers remarks on canceling student debt at Culver City Julian Dixon Library in Culver City, Calif., on Feb. 21, 2024. (Right) Republican presidential candidate and former U.S. President Donald Trump stands on stage during a campaign event at Big League Dreams Las Vegas in Las Vegas, Nev., on Jan. 27, 2024. (Mario Tama/Getty Images; David Becker/Getty Images)

With Nikki Haley’s withdrawal, there will be no more significantly contested primaries or caucuses—the earliest both parties’ races have been over since something like the current primary-dominated system was put in place in 1972.

The primary results have spotlighted some of both nominees’ weaknesses.

Donald Trump lost high-income, high-educated constituencies, including the entire metro area—aka the Swamp. Many but by no means all Haley votes there were cast by Biden Democrats. Mr. Trump can’t afford to lose too many of the others in target states like Pennsylvania and Michigan.

Majorities and large minorities of voters in overwhelmingly Latino counties in Texas’s Rio Grande Valley and some in Houston voted against Joe Biden, and even more against Senate nominee Rep. Colin Allred (D-Texas).

Returns from Hispanic precincts in New Hampshire and Massachusetts show the same thing. Mr. Biden can’t afford to lose too many Latino votes in target states like Arizona and Georgia.

When Mr. Trump rode down that escalator in 2015, commentators assumed he’d repel Latinos. Instead, Latino voters nationally, and especially the closest eyewitnesses of Biden’s open-border policy, have been trending heavily Republican.

High-income liberal Democrats may sport lawn signs proclaiming, “In this house, we believe ... no human is illegal.” The logical consequence of that belief is an open border. But modest-income folks in border counties know that flows of illegal immigrants result in disorder, disease, and crime.

There is plenty of impatience with increased disorder in election returns below the presidential level. Consider Los Angeles County, America’s largest county, with nearly 10 million people, more people than 40 of the 50 states. It voted 71 percent for Mr. Biden in 2020.

Current returns show county District Attorney George Gascon winning only 21 percent of the vote in the nonpartisan primary. He’ll apparently face Republican Nathan Hochman, a critic of his liberal policies, in November.

Gascon, elected after the May 2020 death of counterfeit-passing suspect George Floyd in Minneapolis, is one of many county prosecutors supported by billionaire George Soros. His policies include not charging juveniles as adults, not seeking higher penalties for gang membership or use of firearms, and bringing fewer misdemeanor cases.

The predictable result has been increased car thefts, burglaries, and personal robberies. Some 120 assistant district attorneys have left the office, and there’s a backlog of 10,000 unprosecuted cases.

More than a dozen other Soros-backed and similarly liberal prosecutors have faced strong opposition or have left office.

St. Louis prosecutor Kim Gardner resigned last May amid lawsuits seeking her removal, Milwaukee’s John Chisholm retired in January, and Baltimore’s Marilyn Mosby was defeated in July 2022 and convicted of perjury in September 2023. Last November, Loudoun County, Virginia, voters (62 percent Biden) ousted liberal Buta Biberaj, who declined to prosecute a transgender student for assault, and in June 2022 voters in San Francisco (85 percent Biden) recalled famed radical Chesa Boudin.

Similarly, this Tuesday, voters in San Francisco passed ballot measures strengthening police powers and requiring treatment of drug-addicted welfare recipients.

In retrospect, it appears the Floyd video, appearing after three months of COVID-19 confinement, sparked a frenzied, even crazed reaction, especially among the highly educated and articulate. One fatal incident was seen as proof that America’s “systemic racism” was worse than ever and that police forces should be defunded and perhaps abolished.

2020 was “the year America went crazy,” I wrote in January 2021, a year in which police funding was actually cut by Democrats in New York, Los Angeles, San Francisco, Seattle, and Denver. A year in which young New York Times (NYT) staffers claimed they were endangered by the publication of Sen. Tom Cotton’s (R-Ark.) opinion article advocating calling in military forces if necessary to stop rioting, as had been done in Detroit in 1967 and Los Angeles in 1992. A craven NYT publisher even fired the editorial page editor for running the article.

Evidence of visible and tangible discontent with increasing violence and its consequences—barren and locked shelves in Manhattan chain drugstores, skyrocketing carjackings in Washington, D.C.—is as unmistakable in polls and election results as it is in daily life in large metropolitan areas. Maybe 2024 will turn out to be the year even liberal America stopped acting crazy.

Chaos and disorder work against incumbents, as they did in 1968 when Democrats saw their party’s popular vote fall from 61 percent to 43 percent.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.

Tyler Durden Sat, 03/09/2024 - 23:20

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Government

Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The…

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Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The U.S. Department of Veterans Affairs (VA) reviewed no data when deciding in 2023 to keep its COVID-19 vaccine mandate in place.

Doses of a COVID-19 vaccine in Washington in a file image. (Jacquelyn Martin/Pool/AFP via Getty Images)

VA Secretary Denis McDonough said on May 1, 2023, that the end of many other federal mandates “will not impact current policies at the Department of Veterans Affairs.”

He said the mandate was remaining for VA health care personnel “to ensure the safety of veterans and our colleagues.”

Mr. McDonough did not cite any studies or other data. A VA spokesperson declined to provide any data that was reviewed when deciding not to rescind the mandate. The Epoch Times submitted a Freedom of Information Act for “all documents outlining which data was relied upon when establishing the mandate when deciding to keep the mandate in place.”

The agency searched for such data and did not find any.

The VA does not even attempt to justify its policies with science, because it can’t,” Leslie Manookian, president and founder of the Health Freedom Defense Fund, told The Epoch Times.

“The VA just trusts that the process and cost of challenging its unfounded policies is so onerous, most people are dissuaded from even trying,” she added.

The VA’s mandate remains in place to this day.

The VA’s website claims that vaccines “help protect you from getting severe illness” and “offer good protection against most COVID-19 variants,” pointing in part to observational data from the U.S. Centers for Disease Control and Prevention (CDC) that estimate the vaccines provide poor protection against symptomatic infection and transient shielding against hospitalization.

There have also been increasing concerns among outside scientists about confirmed side effects like heart inflammation—the VA hid a safety signal it detected for the inflammation—and possible side effects such as tinnitus, which shift the benefit-risk calculus.

President Joe Biden imposed a slate of COVID-19 vaccine mandates in 2021. The VA was the first federal agency to implement a mandate.

President Biden rescinded the mandates in May 2023, citing a drop in COVID-19 cases and hospitalizations. His administration maintains the choice to require vaccines was the right one and saved lives.

“Our administration’s vaccination requirements helped ensure the safety of workers in critical workforces including those in the healthcare and education sectors, protecting themselves and the populations they serve, and strengthening their ability to provide services without disruptions to operations,” the White House said.

Some experts said requiring vaccination meant many younger people were forced to get a vaccine despite the risks potentially outweighing the benefits, leaving fewer doses for older adults.

By mandating the vaccines to younger people and those with natural immunity from having had COVID, older people in the U.S. and other countries did not have access to them, and many people might have died because of that,” Martin Kulldorff, a professor of medicine on leave from Harvard Medical School, told The Epoch Times previously.

The VA was one of just a handful of agencies to keep its mandate in place following the removal of many federal mandates.

“At this time, the vaccine requirement will remain in effect for VA health care personnel, including VA psychologists, pharmacists, social workers, nursing assistants, physical therapists, respiratory therapists, peer specialists, medical support assistants, engineers, housekeepers, and other clinical, administrative, and infrastructure support employees,” Mr. McDonough wrote to VA employees at the time.

This also includes VA volunteers and contractors. Effectively, this means that any Veterans Health Administration (VHA) employee, volunteer, or contractor who works in VHA facilities, visits VHA facilities, or provides direct care to those we serve will still be subject to the vaccine requirement at this time,” he said. “We continue to monitor and discuss this requirement, and we will provide more information about the vaccination requirements for VA health care employees soon. As always, we will process requests for vaccination exceptions in accordance with applicable laws, regulations, and policies.”

The version of the shots cleared in the fall of 2022, and available through the fall of 2023, did not have any clinical trial data supporting them.

A new version was approved in the fall of 2023 because there were indications that the shots not only offered temporary protection but also that the level of protection was lower than what was observed during earlier stages of the pandemic.

Ms. Manookian, whose group has challenged several of the federal mandates, said that the mandate “illustrates the dangers of the administrative state and how these federal agencies have become a law unto themselves.”

Tyler Durden Sat, 03/09/2024 - 22:10

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The Coming Of The Police State In America

The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now…

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The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now patrolling the New York City subway system in an attempt to do something about the explosion of crime. As part of this, there are bag checks and new surveillance of all passengers. No legislation, no debate, just an edict from the mayor.

Many citizens who rely on this system for transportation might welcome this. It’s a city of strict gun control, and no one knows for sure if they have the right to defend themselves. Merchants have been harassed and even arrested for trying to stop looting and pillaging in their own shops.

The message has been sent: Only the police can do this job. Whether they do it or not is another matter.

Things on the subway system have gotten crazy. If you know it well, you can manage to travel safely, but visitors to the city who take the wrong train at the wrong time are taking grave risks.

In actual fact, it’s guaranteed that this will only end in confiscating knives and other things that people carry in order to protect themselves while leaving the actual criminals even more free to prey on citizens.

The law-abiding will suffer and the criminals will grow more numerous. It will not end well.

When you step back from the details, what we have is the dawning of a genuine police state in the United States. It only starts in New York City. Where is the Guard going to be deployed next? Anywhere is possible.

If the crime is bad enough, citizens will welcome it. It must have been this way in most times and places that when the police state arrives, the people cheer.

We will all have our own stories of how this came to be. Some might begin with the passage of the Patriot Act and the establishment of the Department of Homeland Security in 2001. Some will focus on gun control and the taking away of citizens’ rights to defend themselves.

My own version of events is closer in time. It began four years ago this month with lockdowns. That’s what shattered the capacity of civil society to function in the United States. Everything that has happened since follows like one domino tumbling after another.

It goes like this:

1) lockdown,

2) loss of moral compass and spreading of loneliness and nihilism,

3) rioting resulting from citizen frustration, 4) police absent because of ideological hectoring,

5) a rise in uncontrolled immigration/refugees,

6) an epidemic of ill health from substance abuse and otherwise,

7) businesses flee the city

8) cities fall into decay, and that results in

9) more surveillance and police state.

The 10th stage is the sacking of liberty and civilization itself.

It doesn’t fall out this way at every point in history, but this seems like a solid outline of what happened in this case. Four years is a very short period of time to see all of this unfold. But it is a fact that New York City was more-or-less civilized only four years ago. No one could have predicted that it would come to this so quickly.

But once the lockdowns happened, all bets were off. Here we had a policy that most directly trampled on all freedoms that we had taken for granted. Schools, businesses, and churches were slammed shut, with various levels of enforcement. The entire workforce was divided between essential and nonessential, and there was widespread confusion about who precisely was in charge of designating and enforcing this.

It felt like martial law at the time, as if all normal civilian law had been displaced by something else. That something had to do with public health, but there was clearly more going on, because suddenly our social media posts were censored and we were being asked to do things that made no sense, such as mask up for a virus that evaded mask protection and walk in only one direction in grocery aisles.

Vast amounts of the white-collar workforce stayed home—and their kids, too—until it became too much to bear. The city became a ghost town. Most U.S. cities were the same.

As the months of disaster rolled on, the captives were let out of their houses for the summer in order to protest racism but no other reason. As a way of excusing this, the same public health authorities said that racism was a virus as bad as COVID-19, so therefore it was permitted.

The protests had turned to riots in many cities, and the police were being defunded and discouraged to do anything about the problem. Citizens watched in horror as downtowns burned and drug-crazed freaks took over whole sections of cities. It was like every standard of decency had been zapped out of an entire swath of the population.

Meanwhile, large checks were arriving in people’s bank accounts, defying every normal economic expectation. How could people not be working and get their bank accounts more flush with cash than ever? There was a new law that didn’t even require that people pay rent. How weird was that? Even student loans didn’t need to be paid.

By the fall, recess from lockdown was over and everyone was told to go home again. But this time they had a job to do: They were supposed to vote. Not at the polling places, because going there would only spread germs, or so the media said. When the voting results finally came in, it was the absentee ballots that swung the election in favor of the opposition party that actually wanted more lockdowns and eventually pushed vaccine mandates on the whole population.

The new party in control took note of the large population movements out of cities and states that they controlled. This would have a large effect on voting patterns in the future. But they had a plan. They would open the borders to millions of people in the guise of caring for refugees. These new warm bodies would become voters in time and certainly count on the census when it came time to reapportion political power.

Meanwhile, the native population had begun to swim in ill health from substance abuse, widespread depression, and demoralization, plus vaccine injury. This increased dependency on the very institutions that had caused the problem in the first place: the medical/scientific establishment.

The rise of crime drove the small businesses out of the city. They had barely survived the lockdowns, but they certainly could not survive the crime epidemic. This undermined the tax base of the city and allowed the criminals to take further control.

The same cities became sanctuaries for the waves of migrants sacking the country, and partisan mayors actually used tax dollars to house these invaders in high-end hotels in the name of having compassion for the stranger. Citizens were pushed out to make way for rampaging migrant hordes, as incredible as this seems.

But with that, of course, crime rose ever further, inciting citizen anger and providing a pretext to bring in the police state in the form of the National Guard, now tasked with cracking down on crime in the transportation system.

What’s the next step? It’s probably already here: mass surveillance and censorship, plus ever-expanding police power. This will be accompanied by further population movements, as those with the means to do so flee the city and even the country and leave it for everyone else to suffer.

As I tell the story, all of this seems inevitable. It is not. It could have been stopped at any point. A wise and prudent political leadership could have admitted the error from the beginning and called on the country to rediscover freedom, decency, and the difference between right and wrong. But ego and pride stopped that from happening, and we are left with the consequences.

The government grows ever bigger and civil society ever less capable of managing itself in large urban centers. Disaster is unfolding in real time, mitigated only by a rising stock market and a financial system that has yet to fall apart completely.

Are we at the middle stages of total collapse, or at the point where the population and people in leadership positions wise up and decide to put an end to the downward slide? It’s hard to know. But this much we do know: There is a growing pocket of resistance out there that is fed up and refuses to sit by and watch this great country be sacked and taken over by everything it was set up to prevent.

Tyler Durden Sat, 03/09/2024 - 16:20

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