All Clear (?)

Random Thoughts

As I often preach, when I market is hovering near new highs you have to be careful not to chase your own tail. Near the top of the range it will look like the market is poised to explode and near the bottom of the range it will look like the market is ready to implode.

You can’t anticipate the move too much. Otherwise, you’ll end up over weighted on one side, and, as Murphy would have it, it’ll be the wrong side.

Speaking of ranges, up until yesterday, the Ps and Quack have mostly been stuck in the short-term range. That changed on Wednesday. Both indices broke out nicely to new highs. Although breakouts are prone to failure and you shouldn’t trade them blindly, the fact that this breakout came from a Double Top Knockout buy signals (especially in the Nasdaq) suggests that it might just have legs.

Internally the market was strong on Wednesday. A lot of areas, too many to mention, banged out new highs-I suppose this isn’t a shocker with the Ps at all-time highs and the Quack at multi-year highs. Some weaker areas that looked questionable snapped back. Again, it was strong throughout. In market speak, the market had good breadth.

Is this the “all clear?” Well, in this business you never know for sure-if you did, you’d own the world. It does look like the indices are off to a good new start, especially since they are coming off the Knockout buy signal.

So, do we rush out and buy? Well, not exactly. I’m still not seeing a lot of meaningful buy setups at this juncture. This is perfectly normal. The methodology requires a pullback so until the market pulls back-and ideally, continues its rally first—we likely won’t see a lot of new potential positions.

So, what do we do? I’m seeing a few shorts setting up. No worries though. This is perfectly normal since the rising tide is lifting all boats (i.e. weaker stocks are pulling back). With the market at new highs—especially with yesterday’s vigor-you certainly do not want to fight it. Since there aren’t a lot of meaningful longs, now would be a good time to trail stops and look to take partial profits in any existing longs in your portfolio as the initial profit targets are hit. If this thing turns into the real deal, then you’ll still have a partial position and participate. And, if it don’t, then you scratch out of the remainder of the position for a better-than-a-poke-in-the-eye trade. Honor your stops on any leftover shorts. This money and position management plan-stops, trailing stops, taking partial profits-will keep you in the game a long time. It creates and portfolio ebb and flow. This helps to keep you on the right side of the market during trends and mostly out of the market during choppy conditions.

OH, BTW, how beautiful was Wednesday’s OGRE? You’re welcome! Come to the chart show today, I’ll walk you through it. Trust me though, they don’t always work out in such a textbook fashion. Ahhh, but when they do……

Best of luck with your trading today!

Dave