I thought that today’s selling would mark an end to the bullish trend making it yet another sold off attempt of new highs. But when I looked at the chart later at the end of the trading session to my surprise it didn’t change the bullish trend at all and we are still in an uptrend.

Although an intraday trading didn’t look like that at all:

Early in the morning stock market was moving up, but then, suddenly out of blue a selling started. Media say, it was because of Greece and worries about earnings.

I think it is a nonsense. All this still looks like that we are dealing with a distribution phase.

What is a distribution phase?

A distribution phase is a major market topping phase. It means that the markets are about to reverse from a bullish trend into a bearish one. But do not worry. This phase takes a long time to complete. It doesn’t mean that the reversal happens overnight.

This phase can take from a couple of months to a year or longer before the market reverses and heads down. In 2008, this phase took almost two years. It started in early 2007 and ended late in 2008 before the market dropped hard.

How do you know that we are in this phase?

One of the signs is that markets struggle to move higher and whenever it moves higher, it does so on a low volume and it is followed by a violent sell off on a high volume. Every time the market tries to make a new high, it is sold off. Sometimes markets make new highs, but they are weak and immediately sold.

It means that big players are getting rid of their stocks and raising cash. And who is buying? Uninformed investors.

How does this affect my trading? As of now it doesn’t. I trade too short term positions to be worried. All I need to do is to assess correctly where is the market heading for the next week and position my trade that way.

Where is SPX going tomorrow?

My outlook for tomorrow is still bullish. I plan on opening a new trade tomorrow, but to do so I need to wait for tomorrow opening to see whether today’s selling was really a reversal (which it doesn’t look like that at all) or just a short ease off before new uptrend continuation.

As you can see above the candle for today is still green and that is a good sign that the trend really hasn’t changed yet. It is also a way above 21 day EMA and the slope of EMA is upwards and actually strengthening. MACD is also pointing up. Although this still may change on a dime, the trend for tomorrow is still up.

Happy Trading!