When the Market Just Won’t Drop

Watch the Top

The stock market had yet another great day on Thursday, May 14th. The S&P 500 closed at another record high, indicating that the economy is healthier than ever. When something like this happens, traders often think that getting ready to go short the next day on major stocks is a good plan. Sometimes it is, sometimes it isn’t. When highs are hit, they are often a point of resistance, and stocks, and subsequently the indices that reflect their value, will sometimes drop down until enough confidence exists to push prices back up. But in some situations, it doesn’t work like this. In fact, when the market is very strong, sometimes prices will just keep going up for a few days at a time. Is this recent development in the markets and the S&P in particular a situation where the resistance point will force down prices? Or, will prices just keep going up? Really, only time will tell, but there are a few things that you can look at to give yourself a basic idea of what will happen on Friday.

It is quite possible for the market to remain in full bull mode for days at a time. When conditions line up so that the resistance line of a technical indicator chart is there, but that psychology is pushing forward even more strongly saying that things can keep moving forward, there’s no reason to believe that the market will go down. This is a judgment call on your part,but the more you observe the markets, the better your judgment will become. This is why education and experience are so important to your success as a trader. This is certainly true in the binary options market, too, where timing is a vital component of your profitability. The better you are at timing trades in anticipation of psychology overpowering technical indicators, the better at taking profits during times of transitioning markets. Anyone can ride a trend, but knowing when trends will stop, or knowing when trends are likely to overstay their “welcome” is going to give you better advantages in the market. This is when the average trader loses money, but you don’t need to.

You should also pay attention to what the major stocks are doing at the beginning of the day. This is usually indicative of consumer sentiment because it shows what people were thinking overnight. If there are news events that change this during the day, that’s one thing, but knowing that traders believe that a stock should open at a certain price is another, especially when nothing has changed event wise from the close of trade the day before. This is another small nuance that experienced traders will pick up on and turn into a profitable opportunity for themselves.

There are a few nagging factors that need to be resolved for the market to go as high as it could right now, though. Transportation stocks are lagging behind the rest of the bull market, and the train derailment in Philadelphia earlier this week is not likely to help this sector. Things like the U.S. dollar being too strong and oil prices being too low have been cited as the cause of this, but the reality is, when a major sector is lagging, there is always a slight suspicion that it could pull the entire market downward. Where transportation is falling behind, things like technology are pushing forward. Keep an eye on these sectors if you are trading indices short term, such as with ultra short term binary options, in order to make sure that the push of tech stocks is overcoming the pull of the transportation stocks.