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On the close of December 13, our stock market timing system shifted from “buy” to “neutral” mode. This means we now have no firm bias with regard to near to intermediate-term market trend for swing trading.
The lack of substantial bullish follow-through in leading individual stocks in recent weeks, the absence of leadership in most ETFs (other than international ETFs), and the bearish pattern on the weekly chart of the S&P 500 Index (below) are all valid reasons to avoid the long side of the market now. Nevertheless, recent price action in the stock market has not yet convincingly confirmed the balance of power has shifted back to the bears, so we are a bit cautious about aggressively jumping in the short side of the market just yet.
Below is a longer-term weekly chart pattern of S&P 500 SPDR ($SPY), a popular ETF proxy for trading the benchmark S&P 500 Index. Notice that $SPY will likely print a bearish “shooting star” candlestick pattern for the week. This is a topping pattern that often indicates near-term bullish momentum is running out. Since a weekly chart is a longer-term interval than a daily chart, the formation of this shooting star pattern on the weekly chart is more important than if the the same pattern occurred on a daily chart:
Notice that the formation of the shooting star candlestick also occurred as $SPY “overcut” resistance of its downtrend line from the September high. This overcut of the downtrend line is significant because it sucks in new buyers, just as institutions are starting to sell into strength. This creates additional overhead supply that subsequently increases the odds of a resumption of the dominant downtrend. This would be confirmed if $SPY breaks below the horizontal price support shown above, which is merely a move below the low of its current weekly candlestick.
Although the weekly pattern of $SPY looks a bit ominous, at least in still trading above technical support of its 20, 50, and 200-day moving averages on the shorter-term daily chart. That’s more than one can say about the Nasdaq 100 Index, which sliced back below its 50 and 200 day moving averages yesterday. As you can see on the daily chart of $QQQ (an ETF proxy that tracks the Nasdaq 100), a break below yesterday’s low would coincide to the Nasdaq sliding back below its 20-day exponential moving average as well:
We concluded yesterday’s technical commentary by saying, “Given the lack of explosive price action in leadership stocks and the late day selling in the averages the past two days, the market could be vulnerable to a sell off in the short term…We are not calling the current rally dead, but we do not mind stepping aside for a few days and monitoring the price action.” To coincide with this statement, we made a judgment call to take profits on all long positions in our model trading portfolio by selling at market on yesterday’s open. Given that the broad market subsequently trended lower throughout the entire session, this worked out pretty well. Now, we are back to “flat and happy,” sitting on the sidelines 100% in cash.
One big challenge for swing traders right now is that volume levels in the broad market will likely begin heavily receding next week, as we approach the Christmas holiday. As we have warned several times in recent weeks, swing trading in low-volume environments is challenging because day-to-day price action tends to be more erratic and indecisive. Therefore, we’re not in a hurry to enter multiple new positions (either long or short) ahead of the holidays, but will still consider new stock and/or ETF trade entries (possibly on the short side and/or inverse ETFs) with reduced share size if an ideal trade setup with a firmly positive reward-risk ratio presents itself.
We do have one new setup to possibly sell short iShares Nasdaq Biotechnology ($IBB) on a slight bounce in today’s session. Review this recent post on our trading blog to see the bearish setup for $IBB. Our exact, preset entry, stop, and target prices for this swing trade setup are available to regular subscribers of The Wagner Daily swing trading service(risk-free subscription available to try it out).
Do you use a market timing system? What are some of your favorite indicators to determine your overall market bias? We’d love to hear your thoughts, so drop us a line below.
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We think you may enjoy these posts:
- Our stock market timing model shifts to “neutral”
- Our market timing system shifts to “buy” mode as market breadth improves
- How To Handle A Choppy Stock Market With “SOH Mode”
- Why Our Stock Market Timing Model Is About To Trigger A “Sell” Signal
FAQs
If you engage Neutral at every traffic light, you'll be subjecting the driveline to unnecessary shock when you re-engage Drive. The exception to this rule is if the stop is on an incline. Then you should throw it in Park and use the parking brake.
Why does my transmission keep going into neutral? ›
With an automatic transmission, slipping into neutral could be a couple different things. It could be something relatively simple, such as a shifter cable/linkage adjustment. Or it could be a worn or failing controller, or even an ECU problem.
Is switching from drive to neutral bad? ›
Revving the engine in neutral whether you're moving or not will not hurt it. But putting the transmission back into gear while moving can put undue strain on the transmission.
When should I switch my automatic transmission to neutral? ›
N - Neutral: If you're stopping at lights or in traffic for a couple of seconds, you should put the car in Neutral. Just be sure to use the brake/handbrake too to avoid rolling. D - Drive: Used to go forwards, the car will automatically switch to second, then third and so on providing you're moving fast enough.
What is the difference between neutral and drive? ›
D – Drive: This is the default position for most cars. When your car is in "D," it means that you're in drive mode and can begin moving forward. N – Neutral: If you want to take a break from driving or need to coast downhill, you can put your car into neutral.
What is the difference between parking and neutral? ›
When you place the gear shift lever into Park you lock the transmission so the wheels will not roll. When you put the lever in Neutral the transmission is not connected to the engine and the car will roll if on an incline. Putting the lever into Park when you shut off the engine is a safety measure.
Can a bad neutral safety switch cause transmission problems? ›
The switch prevents the engine from starting when not in park or neutral. This eliminates the risk of starting an automatic car in drive or reverse mode. Located in the linkage or the transmission box, a bad neutral safety switch can cause irreversible damage to your car's engine and transmission.
Does transmission still spin in neutral? ›
If vehicle is stopped and in neutral, transmission is still, although engine flywheel will be spinning if engine is idling.
What happens if you switch to neutral while accelerating? ›
What happens if you switch from Driver to Neutral while accelerating at full throttle going at 80 mph? If you move the transmission into Neutral from any other gear (excluding Park) then what you are doing is disconnecting the engine from the wheels so the engine will no longer send power to the wheels.
What happens if you drive with neutral? ›
Trying to drive in neutral is dangerous because while your car is in neutral you can't operate the gas pedal and you'll be relying purely on braking to modulate speed. You lose nothing by staying in drive and gain additional control in the event of the unexpected.
Practically the engine is running on idle and disengaged from the gearbox. The disadvantages are the wheels are rotating freely and only the brakes are possible to control the speed. So it may have a slip if road conditions change and extra wear on the pads.
Is it better to idle in park or neutral? ›
Seems like the most optimal choice, until you end up “neutral dropping” your transmission trying to get up and going as quickly as possible from a stop. At any rate, leaving it in park, drive, or neutral is not really a big issue. It's how you use your car that might cause some longevity issues in the future.
Do you have to hold the clutch when shifting to neutral? ›
The oversimplified answer is yes, the technical answer is no. When you press the clutch pedal in, you disengage the clutch, which is the link between the engine output and the transmission input. With the clutch disengaged, the wheels and drivetrain are free to turn irrespective of the engine speed.
When neutral gear is engaged while driving? ›
It's a bad idea to change to Neutral from Drive when the vehicle moves or coasts downhill, and it's something you should stop doing if driving an automatic vehicle. Shifting into Neutral is recommended when the vehicle is stuck or the gas and brake pedals are not working.
Which gear to use in traffic? ›
The 1st gear has the most amount of torque which helps the vehicle in crawling forward easily. The 2nd gear can be used for moving where there is some traffic but still, the speed is above single digit. The third gear can be used when there is an open stretch of road ahead or the speed is more than 40-45 kmph.
Can you shift from drive to neutral without breaking? ›
You most certainly can , and it's made to go into neutral without going all the way into reverse. If you slam the gear selector from drive it will only go into neutral. It's a safety feature on cars equipped with the standard gear shift selector.
