Big Down Day? The Warning Signs Were Already There
Nobody should be shocked by today’s price action.
We still have to see how the market closes, but after the type of run we have had, a sharp pullback should not surprise anyone.
I wrote about this in the Big Picture Market Pulse over the weekend.
The biggest takeaway was that the Nasdaq 100 had flashed an ATR extension signal from the 50-day moving average, something that had not happened since January 3, 2000.
That does not mean the market has to crash.
It does not mean the bull move is over.
It simply means the market had become extremely extended after a powerful six-week run, and when markets get that stretched, volatility should be expected.
The Nasdaq 100 was not the only area flashing extension.
Technology, through XLK, also became extended. Semiconductors, through SOXX, have been flashing extension signals since April 24th, and that group has been one of the hottest areas driving the move.
This is why we study the big picture and market history.
William O’Neil talked constantly about the importance of understanding the general market. The “M” in CAN SLIM stands for market direction for a reason.
Strong markets create opportunity, but extended markets create risk.
That does not mean you panic.
It means you pay attention.
You watch how the indexes close.
You watch volume.
You watch whether leading stocks hold up or start breaking support.
You watch whether this is normal digestion after a powerful move or the beginning of heavier distribution.
Momentum trading is not about being surprised by every red candle.
It is about understanding the environment, knowing when the wind is at your back, and recognizing when the market is stretched enough that a pullback becomes normal, not shocking.
That is exactly why I do the Big Picture Market Pulse every weekend.
