And the straighter up it goes, the faster it drops.<\/p>\n
That’s the problem with parabolic moves. They almost always end badly.<\/p>\n
And when they end, they wipe out a lot of the money of the folks who chased prices higher.<\/p>\n
For example, one of the most dramatic parabolic moves of our lifetimes occurred in Bitcoin in late 2017 – when Bitcoin rallied from less than $4,000 to over $19,000 in about three months.<\/p>\n
Here’s the chart of that move…<\/p>\n
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![\"Image\"](\"https:\/\/cdn.jeffclarktrader.com\/JMU\/images\/202306\/20230615-JMU-01_iqr141.png\")
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The black line on the chart shows the parabolic move. The rally started in mid-September 2017. Then, it gained momentum until the chart went straight up – parabolic – in mid-December.<\/p>\n
Then, bitcoin started to fall. And it kept falling throughout all of 2018 until the decline wiped out all of the gains from the parabolic move.<\/p>\n
Need another example?<\/p>\n
How about the action in AMC Entertainment (AMC) during the “meme” stock craze in 2021…<\/p>\n
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![\"Image\"](\"https:\/\/cdn.jeffclarktrader.com\/JMU\/images\/202306\/20230615-JMU-02_knq314.png\")
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Shares of AMC ran from $5 all the way to $40 in a parabolic move during the spring of 2021. Eventually, the market erased the entire move.<\/p>\n
Parabolic moves are not sustainable.<\/p>\n
The gains are almost always given back. And, that should be a concern for anyone buying consumer discretionary stocks at the moment.<\/p>\n
Take a look at this chart of the Consumer Discretionary Select Sector Fund (XLY) – an exchange-traded fund composed of companies producing non-essential but fun-to-have consumer goods…<\/p>\n
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![\"Image\"](\"https:\/\/cdn.jeffclarktrader.com\/JMU\/images\/202306\/20230615-JMU-03_knq315.png\")
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XLY is making a parabolic move.<\/p>\n
It’s not as extreme a move as the Bitcoin and AMC examples.<\/p>\n
But we’re not dealing with a speculative asset or meme stock here. This is a diversified basket of consumer goods stocks like Home Depot, Amazon, Starbucks, McDonald’s, and Tesla.<\/p>\n
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Free Trading Resources<\/strong><\/p>\n Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/p><\/div>\n<\/div>\n <\/p>\n It’s rare to see this type of action in an exchange-traded fund that is diversified among several industries. And, it’s a good indication that the current rally – in this group and in the broad stock market in general – has gone a little too far, too fast.<\/p>\n Once this parabolic move exhausts itself, consumer discretionary stocks will come back down.<\/p>\n They’ll likely give up most, if not all, of the gains for the past two months.<\/p>\n Traders should avoid the impulse to chase these stocks higher right here. We’ll likely have a better chance to buy them at lower prices a few months from now.<\/p>\n Best regards and good trading,<\/p>\n Jeff Clark<\/p>\n <\/p>\n![\"Signature\"](\"https:\/\/files.jeffclarktrader.com\/global\/signatures\/jeff-clark-signature.png\")
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