The short-term bullish trend came under pressure. As noted (Weekly Market Analysis for May 16, 2009), the SPY closed below its trend-line but found support at the 20-Day SMA. Meanwhile, the long-term trend re-established the bearish trend marked by the decline in the MACD. This environment needs to be played carefully.
Under the Triple Screen system, the long-term trend has turned bearish. Therefore, you should be looking to enter trades on the short-side. Look for stocks in your watchlist that is trading above the overbought line in the stochastics, but starts to turn lower. Place your sell stop below the previous day’s low as long as the stochastic is above the overbought line and rising.
Be very careful with your positions. Although the long-term trend has turned negative, the short-term trend remains a bit ambiguous. The 20-Day and 50-Day SMA tell us that the trend remains bullish. However, the short-term trend broke the trend-line but has support at the 20-Day SMA. Be sure to keep very strict (more strict then normal) risk management policies. If the short-term trend cannot maintain the 20-day SMA, be prepared to close out long positions.
If you are looking to enter positions this week, follow the long-term trend with shorts. If you have long positions, consider tightening stops.
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I am an amateur trader and investor with over 15 years experience in the stock market. I was bred to be a fundamentalist and followed fundamental analysis until 2009. Following the 2007-2008 bear market, I began to shift from a buy-and-hold strategy to trend-following techniques.