Trading after strong distribution days, which have the potential to change the nature of the market, isn't easy. For me, it's the toughest period to trade. Since we don't know if this is a correction or a change in trend, we must be ready for either event. I do this by following a strict game plan.
The Game Plan:
1. Identify major support levels in the indexes and see if they hold.
2. Watch volume patterns. Are bounces on strong or weak volume? Are dips supported buy underlying strength? Do this for indexes and stocks of interest.
3. Monitor stocks that are doing well in the face of market sell offs. Place these stocks at the top of your bullish watchlist.
4. Make a list of short candidates. Stocks in the midst of downtrends should lead this list. A weak market bounce is the time to enter stocks from this list.
Later tonight or tomorrow morning I will post a list of stocks from my focus list that are bullish candidates based on their action the past two days.