Keep it simple redux - NVDA, bearish engulfing, gaps

Posting this chart and annotations found on X as a follow-up to this post - the market does not have to be so complicated.

NVDA had a tough reversal yesterday 3/8/24 and lost an amazing amount of market cap in 3 hours (about $260 billion IIRC from a different X post I read).

Will it fill the gaps noted in the graphic and in the process become a good long candidate after that?

I’ll never know because I don’t pay attention to anything other than strength. Not saying the gap can’t be important information, it just isn’t material information for me and my system so I ignore it and certainly do not spend any time labelling it as one type of gap or another.

The point of my system is the market does not have to be so complicated. I’m purposely judicious in what I heed so I’m that much better at reading exactly what is important to me. Along the lines of the Bruce Lee quote about fearing not the man who has practiced 10,000 kicks one time each but rather the man who has practiced 1 kick 10,000 times.

Some chartists will note the bearish engulfing candle and proclaim “the top is in!” Paving the way for shorting this previously runaway freight train, which could easily resume its runaway freight train characteristics even after the rough outing it had yesterday.

(I’d never short such a beast - I prefer stocks already proven weak, in weakening sub-industries when the market is in “No New Longs” territory. A stock that has fallen 50% can certainly fall another 50%+, and is significantly more likely to do so than a leader like NVDA, whose holders will be ecstatic to get better prices at which to increase their holdings.)

SMCI recently put in a bearish engulfing candle. (See upper chart.) And it was not The Top. This may be part of a topping process, but for this one stock sample size that SMCI bearish engulfing candle was not (isn’t yet) the kiss of death for this rally.

Others can look at this and say “buy.” Others will say “short.”

I say ”ignore” is an option. You don’t have to swing at every pitch. There could be a better possibility in some random rising sub-industry that I could be missing were I just to focus on NVDA and SMCI. Since the current Market Strength Score is positive, we are in “No New Shorts” territory so a new long position would be acceptable.

If there weren‘t currently a better option in terms of a specific stock, staying in cash is always a possibility.

Bottom line, just because you see a situation doesn’t mean you have to do anything about it. In my system one must consider the market and sub-industry context on top of the individual stock situation.

(Not saying that others don‘t prior to posting their detailed annotated stock charts… of course they might.)

AKA stack strength at as many levels as possible. And from there deploy stringent risk control actions.