The Ps stalled right near their old highs. This has many looking to the prior peak and asking if there is a possible double top in the works. Unfortunately, double tops rarely unfold in a textbook fashion. The market stalls well short of the prior peak, or it zooms past it like butter sucking everyone in and then it fails.
The Quack and Rusty have recently taken out their prior highs. This doesn’t mean that this is a fakeout. It’s what happens next that’s important. If they correct, stabilize, and begin to rally then it is possible that there might be a new leg in the works.
It all sounds a little imperfect–if this, then maybe that, or the other. Well, it is. Chart reading is more of an art than a science.
So, how do you operate in this imperfect world? You look for re-occurring patterns. For me, it’s mostly pullbacks in trend. I wait for entries to help ensure the trend is truly resuming. And, I used stops just in case I’m wrong—shocking, a guru that can be wrong? Trust me, if I was always right you’d never see my fat ass again. Naaah, I’d probably come back to (in my best French accent) “taunt you a second time.”
Seriously, we all can be wrong at times-you, me, the guy behind the trend, and yes, even that guy who screams at you on TV. It is an odds game at best.
So what do we do? The markets still remain overbought. As I’ve mentioned ad nauseam, this is a dangerous environment to be trading. If you buy, it corrects. If you don’t, it continues on without you. Therefore, I’m still in the “sit on your hands” camp. If this is the real deal, they’ll be plenty enough time to buy along the way. Ideally, I’d like to see the S&P break out decisively past its prior peak. And, I’d like to see the Rusty and Quack accelerate higher. Once this occurs, an orderly pullback would be awesome, followed by a nice resumption of trend. That’s what I want. The market doesn’t care what I want though and will probably give me something else. This is why I’m a day to day kind of guy. So for now, I remain cautious. The good news is that there are very few meaningful setups. This is usually a sign that I should be patient.
Futures are firm pre-market.
Best of luck with your trading today!