Don’t Out Drive Your Headlights

Random Thoughts

The momentum has slowed a bit in the Ps (S&P 500). True, they did close at all-time highs and you shouldn’t argue too much with that. They have just slowed in their recent melt up. As mentioned recently, a market can’t go up 11% every 12-days forever.

The slowing in momentum is a little more obvious in the Quack (Nasdaq). Net net, it is virtually unchanged since Monday.

And, it is even more obvious in the Rusty (IWM). It had an okay day but so far, it is down this week.

It’ll be interesting to see Friday shakes out. A modest down day would have the indices negative for the week. Psychologically, this would put a little pressure on “Johnny-come-latelies” who have recently literally bought into the fact that THIS market just goes up.

Getting back to the Ps, my other concern is that we haven’t cleared  the September and July peaks decisively just yet. I’m amazed that there are some that are giving the “all clear” just because the market is higher than it was then. I wish it was that easy.

Also, the major indices still remain overbought. It’ll be the correction from this overbought situation that will be telling. If it’s modest and brief, or just a sideways consolidation, then we could have the makings of a new leg higher. Anything else would be concerning.

Debacle de jours continue to abound. These aren’t just in obscure small cap volatile stocks. Bigger cap more “household” names like QCOM, GNW, and NSM were hit hard.

With the market at new highs, as you would expect, the sector action is generally good: Retail had a solid breakout to new highs. The Trannies also had a solid day, accelerating to new highs. Ditto for Software, Consumer Non-Durables, and Health Services.

Banks stalled a bit but most of the Regional sub-sectors here forged ahead.

Gold the commodity ended flat. It has been in a free fall after recently breaking down out of its multi-year base. Although Gold and Silver stocks bounced a bit, avoid the temptation of catching a falling knife here. See yesterday’s chart show for more on this. Missed it?  No worries, check videos (now free!). If you can’t find a video, notify me directly and I’ll get it uploaded.

So, overall, for now, things are generally okay. There are a few things to worry about but that’s always the case. As I preach, each day brings new clues. If we start seeing more negatives, then we will have to become more and more concerned.

Speaking of each day, as usual, continue to take things one day at time. That’s the great thing about life and markets, it comes at you one-day-at-a-time. You don’t have to see too far out. If you’re in New York, your headlights can’t illuminate L.A. In fact, according to the National Highway Safety Administration, they only shine approximately 160 feet. Yet, in spite of this you can make the journey at night, 160 feet at time.

We don’t have to figure it all out today. Besides, predicting the overall market is much tougher than predicting individual issues. The great thing is that the database is telling us what to do. Since the methodology requires a pull back and the market hasn’t pulled back significantly, there aren’t many meaningful setups.

So what do we do? Well, for now, the database is saying that we should continue to wait. If you’re just tuning into this column you might think, does this guy do anything but wait? Yes, we take a lot of action but only when necessary. We shorted with both fist in ’07-’08, we shorted with one fist during the recent downturn, we bought like it was 1999 in 1999, and have mostly bought stocks since 2009. I can go on and on. Just draw your big blue arrows and you’ll have an idea about how we have positioned ourselves. Anyway, again, let’s listen to the database and wait. If this turns into the mother of new bull legs then I promise you that there will be ample time to get on. And, if it doesn’t then no capital was put into harm’s way.

Best of luck with your trading today!

Dave