Use This One Simple Rule to Predict Market Moves

Most people who use technical analysis to predict the movement of a stock price overcomplicate the process…

You see, price patterns may not be the predictor of performance that many believe. In truth, many of the price patterns you’ve heard about are more likely self-fulfilling prophesies.

Think about it… If enough people use the same techniques, they can have a substantial impact on the markets. Many times, staring at a bunch of lines crossing on a chart is a complete waste of time.

On the other hand, the “Keep It Simple, Silly” (KISS) mantra has served many investors well. Remember that stocks, futures, and currencies can only go up, down, or do nothing for a period of time. Technical trade indicators are relative and only give clues to where the markets might be headed.

There is no holy grail indicator that will tell you when to buy or sell. If there was, everyone would use it. But using an indicator that you understand and that is accurate more than 50% of the time can lead to better and bigger portfolio of winners. It takes discipline to be successful!

Here’s a way you can cut through the clutter and pinpoint your next winning trade…

Just use my 50% KISS Rule. 

This technique couldn’t be simpler:

Step 1: Pick a Stock or Futures Contract

Step 2: Look for the halfway mark of the last major move. Calculate the midpoint of the low to high or high to low and see if it holds or folds.

The Key: How the price behaves at the 50% retracement will tell a lot about if this was just a pullback or a true reversal in the trend.

Action: If the stock or commodity holds, it was just a pullback and you should consider going long (buying). If it falls through the 50% level, look to short or exit your position.

The halfway measure can be used on any time frame from monthly charts to five-minute bars.

The timeframe is irrelevant. Learn to spot these key levels and you’ll be well on your way to finding your own profitable plays.

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Chart of the Day: What happened to work-from-home?

Greg Guenthner

This Barron’s headline pulls no punches:

Zoom Is Selling $1.5 Billion of Stock. Its Shares Are Down 40% Since October.

What else do you need to know?

Zoom Video Communications Inc. (NASDAQ:ZM) was one of the first of the now-beloved “work-from-home” stocks to break out to all-time highs during the earliest days of the pandemic. The stock closed at new weekly highs during the first week of March and didn’t look back, gaining nearly 500% in the months that followed.

But the ride suddenly stopped in late October. Out of nowhere, ZM shares started to tumble. The downside momentum has continued now for almost three months.

It’s impossible to say whether Zoom’s incredible story is over. But I don’t think the company, which has become the backbone of the white-collar work-from-home movement, is fading out anytime soon.

Let’s go to the chart to try to find some answers…

zm

It looks like ZM has a date with its 200-day moving average – which just also happens to be where this stock was resting before it gapped higher in early September after reporting earnings.

ZM might have fallen out of favor during the fourth quarter. But the stock will have a chance to prove itself again if it can bounce at this important area of support. If you’re looking to take a shot at this one on the long side, waiting for a bounce to confirm near $315 would provide the perfect low-risk entry point.

— Greg Guenthner

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Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

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