At the end of each week, I like to look at some weekly charts to get a broad view of the market action. The past three months has seen some fantastic action on many stocks and on the Nasdaq 100. Tesla ($TSLA), CrowdStrike ($CRWD), Zoom ($ZM), Draft Kings ($DKNG), Spotify ($SPOT), and Nikola ($NKLA) are just some of the stocks that have doubled during that time.
Market favorites Apple ($AAPL), Microsoft ($MSFT), and Amazon ($AMZN) have also gone large runs.
When looking at these stocks and the Nasdaq 100, it appears like a period of consolidation or basing is needed and likely. This is something that is to be expected after a long period of gains. In addition, the summer months are usually weaker for the stock market than winter season (November to February). If the market pulls back, new bases will be built offering the opportunity for new entry points.
Remember, the market can pull back sharply as it did in March or it can consolidate calmly through sideways action as major moving averages catch up. Just as a runner needs to rest, the market cannot sprint forever. Periods of rest are both needed and a springboard for future gains.
The key is to not get overly bullish just because the stock market has been strong the past three months. I've encountered quite a few new traders who have made serious money over the past three months. It's always unwise to confuse genius with a bull market. The key is to think from a long-term perspective, realizing this is just a season and discipline and good trading go hand and hand. There is no need to force any trades. There's no need to worry about missing out. The market will always be there. However, traders who don't have the discipline to wait for proper entry points won't be.
Patience is a virtue in life and in the stock market. If you are sitting in some big winners with proper position sizing and excellent entry points, you will be able to calmly sit through pullbacks without having to worry. If you didn't have your position size in check or bought extended stocks, these pullbacks will seem anything but ordinary.
With some nice gains, I'm content to sit through some normal pullbacks as long as my stop losses aren't hit, but I feel no pressure at all to add positions in extended stocks. Some time away from the computer screen never hurt anyone.
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