Your first clue that things aren’t exactly right is the failure of leading names to hold constructive pullbacks to logical areas of support. Since we seek to buy stocks on such pullbacks and then keep risk to a bare minimum by then using that same area or line of support as our selling guide, these failures to hold support will quickly and naturally force us out of any new positions we take.
This is a concrete, lower-risk approach, and as with anything in this market, its failure or success constitutes real-time feedback that we should pay close attention to. As a number of stocks on my long watch list have come under pressure, the NASDAQ Composite Index has built a short bear flag.
Strong action in Apple (AAPL) kept the index righted as it formed a wide price range and closed roughly mid-bar on higher volume. On its face, it looks like big churning action, perhaps masked by the action of AAPL, which has a large index presence on the NASDAQ Composite and the Dow Jones Industrials Index. It is also a large S&P 500 Index component.
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