PRUDENT INVESTORS MUST UNDERSTAND THIS ONE THING BEFORE MAKING BUY OR SELL DECISIONS IN THIS MARKET $AAPL $FDN $FB $AMZN $NFLX $GOOG $CRM $PYPL $TWTR $SNAP $AMTD $ETFC $SPX $SPY

Investors’ emotions have been running high, according to emails I’ve gotten over the past few days.

Emotions are a big enemy of investors. To control emotions, prudent investors must understand this one thing before making buy or sell decisions in this stock market. Let’s explore with the help of four charts.

Four charts

Please click here for an annotated chart of First Trust Dow Jones Internet ETF FDN.  My long-term readers know that normally when discussing the market’s direction, I use charts of the Dow Jones Industrial Average DJIA, the S&P 500 Index SPX, the Nasdaq 100 NDX, or the Russell 2000 RUT.  I also often use charts of popular ETFs such as S&P 500 ETF SPY, Nasdaq 100 ETF QQQ, and small-cap ETF IWM.  Why use this oddball internet ETF now to make a point? The answer will become clear as you read on.

Please click here for an annotated chart of Nasdaq 100 ETF QQQ. For the sake of transparency, this is the same chart that was previously published.

Please click here for an annotated chart of Facebook FB For the sake of transparency, this is also the same chart that was previously published.

Please click here for an annotated chart of Amazon AMZN.  For the sake of transparency, this is also the same chart that was previously published.

Please observe the following from the charts:

• The internet ETF FDN experienced an overshoot, as shown on the chart. An overshoot occurs when investors become overly enthusiastic. When investors get over-enthused, a situation occurs in which most investors who are going to buy have already bought. Afterward, since there are not many buyers left, the slightest negative news causes a big push down.

• The internet ETF FDN is important because it contains the market leaders. When market leaders fall, the risk in the market increases. Internet ETF FDN counts Amazon, Facebook, Netflix NFLX, and Alphabet GOOG, GOOGL, as its largest holdings. Of note is that Apple AAPL, is not among them. It also includes popular technology stocks Salesforce.com CRM, PayPal PYPL, Twitter TWTR, and Snap SNAP.  In addition to technology stocks, it contains popular online brokers E*Trade ETFC, and TD Ameritrade AMTD, which have been outperforming.

• The chart of Nasdaq 100 ETF QQQ was published by The Arora Report at the first sign of a failed breakout. Since then, important stocks have pulled back. In the pre-market on the day of the failed breakout, when QQQ was hitting highs, we shared with The Arora Report subscribers in the Morning Capsule that while the (momentum) crowd was aggressively buying, the smart money was lightly selling into the strength…..Read more on MarketWatch.

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