The Daily Brief | May 12, 2022

Your Most Essential Trading Tool in a Down Market

With the markets in the crapper, we’ve been pounding the table over confirmation.

In fact, as we’ve noted, “What investors need to do is wait for confirmation of trend change here. Just because futures are pointing to a higher open means nothing. Wait to see if any new rally is sustainable first. If not, you could get burned by a fake move, as some traders have learned the hard way.”

Sure, the 300-point gain in Wednesday futures was exciting. But it wasn’t sustainable, with inflation data. And no one had any business going long without waiting for confirmation. Not only did the Dow give up that 300-point gain, it would fall another 326 points on the day.

When we talk about confirmation, it simply means you want to wait a few days to see if a rally has steam. You never want to buy just because there’s a quick one-day pop, as we saw just yesterday. Be patient with confirmation, or it could cost you.

Trading Tips

Along with technical indicators such as RSI, MACD, Williams’ %R, Money Flow, and Bollinger Bands, keep an eye on candlestick patterns, too. Many times, these can pinpoint potential reversals. Let’s look at doji crosses for example.

Doji crosses are a sign of indecision of bulls and bears. When found at the top or bottom of trend, it can indicate that a reversal in the other direction may be nearing. However, as with any technical indicator, confirmation is key. Typically, when we see a doji at the top or bottom of trend, it can be a sign of indecision among the bulls and bears.

Or, we can also look for the “Hammer.”

When found at bottom of trend, the Hammer can indicate exhaustion of the bears and likely upside. In simple terms, it’s a signal of capitulation among the sellers and an indication of potential trend change. The signal doesn’t always mean that bullish investors have taken control of a stock, but it does mean that sellers are exhausted and buyers are waking back up.

Insider Buying: Opko Health (OPK)

CEO and Chairman Phillip Frost just bought 400,000 shares of OPK for $1.13 million. Vice Chairman and President Elias Zerhouni also bought 89,6000 shares for $250,396.

All after the OPK stock hit a 52-week low of $2.66, which also now puts the stock at double bottom support dating back to June 2020.

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