The best thing that most investors could have done was go to cash positions in their retirement accounts as the 200-day SMA failed in late 2015. This helped me avoid a correction in my biggest account.
With the speed, chop, and volatility so far in 2016, the traders that are making money are likely day trading or holding positions for a few days at a time.
This market has many conflicting signals. This makes it difficult for swing traders and trend traders to catch any sustained move before giving back their profits.
For the past 52 weeks, $SPY is down -8.56%, $DIA is down -9.1%, $QQQ is down -5.63%, and $IWM is down -17.17%. The stock market as a whole hasn’t been accumulated in over a year. $SPY is at the same price level as it was in late October of 2014. The stock market as an asset class is being traded and not accumulated.
2015’s favorite growth stocks, FANG, have seen profit taking in 2016: Facebook up -.09%, Amazon down -20.86%, Netflix down -21.99%, and Google -7.18%. The 2016 correction has brought down some of the strongest stocks.
Consumer staples ETF $XLU is up +.69% year to date and the Utilities ETF $XLU is up +6.75% YTD. The $GLD ETF is up +15.89% YTD and $SLV is up 10.99% YTD. This shows the defensive nature of the stock market, with lots of risk off trades in 2016.
Speculative stocks like $YELP, $TWTR, $LNKD, and $GPRO are all down dramatically over the past 52 weeks. This demonstrates that the bubble phase of the Dotcom 2.0 has already passed as earnings expectations are not met.
The moves up in $SPY continue to be on lower volume which show a lack of accumulation for a sustained uptrend.
It is crucial to trade smaller than usual in this market to account for the expanded average trading ranges.
The best strategy is to create good short term risk/reward ratio trades at key overbought and oversold levels, because there is not much of a trend to catch before it changes.