Subscribe to Entrepreneur for $5
Subscribe

Correction Not Over: Indicators to Watch for Capitulation

Lots of bottom-callers are wishing it was over, but the pain has hardly begun.

By
This story originally appeared on Zacks

Here we are with my fifth consecutive Cook's Kitchen weekly video on the map and roadsigns for the correction in progress.



Today, I do a special dive into breadth indicators you should be watching and learning how to use to tell you when the bottom is close.



I also review the Top Buy List I gave you last week in this piece...



Hunt for a Red October: Stocks to Buy During the Correction



Lots of investors were calling a bottom last week and then they woke up to another big, red Monday.



And so far, Square SQ was the only buy that got triggered inside my suggested range of $215 to $225.



But The Trade Desk TTD and Shopify SHOP were awfully close on Monday with lows of $65.32 and $1286.



All three of these beauties in my Four-Tress of stocks are strongly higher off those lows. NVIDIA NVDA is the fourth member and not getting close to my $175-185 add zone. Same with AMD.



The strength of these stocks gives me some pause and optimism about how and when the correction ends.



It's good to see they are leaders on the "up" days. And maybe the bottom is now at hand.



But when I look at the index charts and the breadth charts, they tell me that most stocks have more downside work to do.



TQQQ Sees a Lot of Early Dip Buyers



Another market reading that caught my eye this week was reported by Bloomberg's excellent ETF watcher Eric Balchunas.



I shared his post on Twitter Tuesday morning where he observed the big money flows into the ProShares UltraPro QQQ ETF TQQQ.



This was another of my Top Buy Targets in the $105-110 area.



But Eric's data shows the inflows have been occurring for over 2 weeks! Here was the text of his tweet...



"Your #1 ETF Flow-Getter for the past week is none other than $TQQQ, which has now taken in over $1b two weeks in a row, $2.5b over past three weeks (most intense period of flow-age its ever seen, a Vgrd-esque pull). People just do not want this party to end."



This makes me think of my primary theme: the pain trade has hardly begun.



Because if speculators are so complacent that they are piling into 3X-levered tech/growth ETFs on any dip, then the capitulation is yet to come when these dreams get shattered.



The only thing worse than complacent speculators is careless and overzealous ones. That's why the weakest hands and most fragile profits haven't left the building yet.



Be sure to follow both Eric and myself on Twitter @EricBalchunas and @KevinBCook.



Finally, in the video I reiterate my views on trend lines and why they are mathematically absurd. Do you follow the crowd and use arbitrary, subjective, non-statistical lines on charts?



Then you don't want to miss my thoughts in the video where I displayed two more great arguments against trend lines in the space of 5 minutes on Twitter -- and the sources came to me completely randomly.



That's the thing about science and stats. Their wisdom is everywhere if you know how to see it.



Disclosure: I own shares of NVDA, SQ, TTD, and AMD for the Zacks TAZR Trader portfolio.

- Zacks


Zacks’ Top Picks to Cash in on Artificial Intelligence

This world-changing technology is projected to generate $100s of billions by 2025. From self-driving cars to consumer data analysis, people are relying on machines more than we ever have before. Now is the time to capitalize on the 4th Industrial Revolution. Zacks’ urgent special report reveals 6 AI picks investors need to know about today.

See 6 Artificial Intelligence Stocks With Extreme Upside Potential>>



Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

 

NVIDIA Corporation (NVDA): Free Stock Analysis Report

 

Shopify Inc. (SHOP): Free Stock Analysis Report

 

Square, Inc. (SQ): Free Stock Analysis Report

 

ProShares UltraPro QQQ (TQQQ): ETF Research Reports

 

The Trade Desk Inc. (TTD): Free Stock Analysis Report

 

To read this article on Zacks.com click here.

 

Zacks Investment Research