In my 30-plus years in the markets, one of the biggest mistakes I have seen investors make is to not listen to the message of the markets.

Often investors tend to force their opinions on the markets instead of listening to what the markets are telling them. This is an important concept right now because markets are highly volatile, and not listening to the message of the markets can be disastrous.

When markets are highly volatile, it is usually better to buy after the cleansing, with the exception of short-term trades. Let us explore with the help of two charts.

Two charts

Please click here for a chart of the S&P 500 SPY. Similar conclusions can be drawn from the charts of Dow Jones Industrial Average DJIA,  Nasdaq 100 ETF QQQ,  and small-cap ETF IWM.

Please click here for a chart of S&P 500 futures published at the time of the market dip in February. For the sake of transparency, this chart is exactly the same as previously published.

Please observe the following from the charts:

• The recent rally is on low volume.

• The 1,000 DJIA point rally occurred from a condition that was not oversold, as shown on the chart.

• The recent market downdraft has been accompanied by low volume.

• The February downdraft was accompanied by heavy volume, as shown on the chart.

• During the February downdraft, the market rallied from an oversold condition.

• During the February downdraft, the relative strength index (RSI) formed a double bottom.

• During the February downdraft, the market formed a “w” pattern visible on the futures chart, linked above. A “w” pattern is short-term bullish. As the pattern forecasted, the market rallied in the short term.

Market has not been cleansed

The sum total of the observations from the charts is that the market has not yet been cleansed….Read more at MarketWatch.

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