Editor's note: Keep calm in this volatile market... During roller-coaster markets, like the one we're experiencing right now, many investors get scared and don't stick to their investment strategies. But according to Ten Stock Trader editor Greg Diamond, failing to keep your emotions in check can lead to devastating results for your portfolio. In today's Masters Series, originally from the July 29 Weekly Market Outlook issue, Greg details how you can maintain a rational mindset throughout this up-and-down market...
'Good' and 'Bad' Charts Help Us Stay Rational By Greg Diamond, editor, Ten Stock Trader When asked to define a great trader, Bruce Kovner – featured in Jack Schwager's Market Wizards – had two things to say... First, he has an open mind about what's possible in the markets. And second, he's rational and disciplined under pressure. This also describes how I approach technical trading... In Ten Stock Trader, I often write about the importance of keeping an open mind and running through different scenarios. The key is to remove any permanent bias you may have about the market... It doesn't matter what investors might want a market to do. We need to focus on what the market is actually doing... and likely to do. But many folks get caught up in the fear... Every time we go through a round of volatility, they call for the end of the world. I've seen this a lot recently on social media platform X. The bias of bearish investors is overwhelming... They constantly talk about a 1929-style market crash and another Great Depression. (My X handle is @DiamondTrader10, if you want to follow along.) But these investors don't have an open mind, and they aren't rational, which Kovner urges us to be. Ultimately, permanent biases can cost you dearly. So today, I'll outline how we can maintain a rational perspective... when looking at both "good" charts and "bad" charts in today's bull market.
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The big question is... How can we stay calm through all the recent ups and downs? The simple answer is, we can look at weekly price charts... They help us pinpoint the actual "damage" – what's really happening to a trend – after a round of volatility. You see, weekly charts aren't as "intense" as daily charts, which provide minute-by-minute price action. Weekly charts offer a broader perspective, which helps us stay rational amid the volatility. Let's start with the "good" charts. Here's a weekly price chart for the Technology Select Sector SPDR Fund (XLK), which tracks the overall technology sector. (I outlined this chart last week using a daily time frame.) There isn't a lot going on here, but that's the point. It's a simple weekly chart... The black dashed lines above show us that the uptrend is still intact. Now look at the relative strength index ("RSI") at the bottom of the chart. I've outlined a positive RSI reversal with the blue line and red circles. This is a bullish setup, and the weekly time frame offers a positive message for investors... Despite the volatility and calls for a market crash, weekly charts show us that things aren't as bad as some investors believe... This helps keep us rational. We can see the strong uptrend in the tech sector via XLK. Shifting gears to the semiconductor sector... It's no secret that the artificial-intelligence boom has fueled the rally in semiconductor stocks over the past couple of years. Leading chipmaker Nvidia (NVDA) is on everyone's radar. I outlined the technical setup in this behemoth last month. The stock still has a bullish setup as far as I can tell. Now let's review two underperforming stocks in this sector. The first one I'm looking at is Micron Technology (MU)... Unlike XLK, MU has broken its uptrend... The stock is down more than 30% from its June 20 high. (If you recall, that's a Gann time factor.) You can also see that the RSI is near oversold levels. (I'll discuss what this means in a second.) It's highly unlikely that MU makes a new high with the other "good charts," like XLK. A lower high into the time factor window signals more volatility ahead. Advanced Micro Devices (AMD) is another semiconductor stock I've discussed a lot recently, and its "bad" chart is worth outlining... As you can see, AMD has a big problem... The "C" wave formed a massive lower high from the March 8 top earlier this year. The stock also made a new swing low a few weeks ago, as labeled with the red arrow. Simply put, this isn't a bullish setup. And like MU, the RSI on AMD is oversold. So, what does all this mean? Here's how I see things playing out... The setups in XLK and NVDA are likely to climb higher. The uptrends in these "good" charts are intact, and we have bullish setups on the RSIs. MU and AMD – the "bad" charts – don't have long-term bullish setups. But they're likely to have significant bounces given the oversold RSI levels. If I'm correct about the next inflection point in late August/early September (based on my cycle work), we're likely to see new highs in the "good" charts... and much lower highs in the "bad" charts. And if that happens, we'll see volatility explode heading into the last few months of the year. For now, I'm staying rational and following the trend in the markets that haven't yet broken down. Best, Greg Diamond, CMT
Editor's note: Greg is no stranger to staying rational during difficult times. He called the 2020 and 2022 market crashes. Now, he's sounding the alarm with another urgent warning... He says a massive market move will hit around September 9. It could decide the U.S. presidential election... and open up the biggest moneymaking opportunity of 2024. Greg is going on camera on Tuesday to reveal how you can prepare for this historic turning point. Learn more here... | 
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