Focus On The Forest, Not The Trees

Random Thoughts

Let’s stick with the forest vs. the trees theme.

First, the trees:

On Tuesday, Ps started strong, dipped, but then managed to recover to end back in black. This action has them just shy of all-time highs.

The Rusty put in a similar performance. It was able to hold on to over ½% of its gains. And, this is enough to put it back to all-time highs.

The Quack finished up well over 1/2%–enough to keep it at multi-year highs.

Now the forest:

Longer-term, the market remains in a solid uptrend. Yes, shorter-term the Ps have traded sideways but you don’t want to argue with a market that is just shy of its all-time highs, especially when the trend to get there has been a solid one. Back your chart way out to 2012 and draw your arrows.

As I’ve been saying, on each minor down day or sideways movement, the bears come out of the woodwork. Yeah, they will be right someday. “Someday” is the key word in that sentence.

It is not our job to try to outsmart the market. Our job is to follow the market. Your life gets a lot easier once you let the market make decisions for you. And, as long as the big blue arrow points higher and the indices remain at or near new highs, you want to err on the side of the trend.

The strong sectors stayed strong on Tuesday. Drugs, especially Biotech, blasted to new highs.

As you would expect, with the indices at/near new highs, many other sectors followed suit. Trucking, Banks (especially Regional), Chemicals, Defense—to name a few, all made new highs

Aluminum continued to blast higher.

Speaking of the metals, Gold and Silver continue their rally. Ditto for Uranium. You’re welcome! We’ll take another look at the transitional patterns here in Thursday’s chart show.

Not all was rosy in the market. Copper and Steel were soft. Steel looks like it could be on the cusp of rolling back over.

Retail is close to forming a Bowtie off of all-time highs. These can often suggest major tops. Not every Bowtie (or other transitional pattern—e.g. First Thrust) will turn into a major top but every major top will have a Bowtie (or other transitional pattern).

Consumer Non-Durables appear to have topped out—forming a Bowtie down after all-time highs.

I think we can have a bull market without those two plus selected soft metals. As usual though, we’ll have to keep watch to make sure not too many other sectors begin to join in the fray.

Once again, back the chart way out and look to see the forest for the trees. More importantly, dig internally for clues. Look at thousands of stocks, hundreds of sectors/ETFs, foreign markets, commodities, bonds, and any other charts that you can think of.

Do all this and you’ll see that the big blue arrows remain intact.

So what do we do? I’m seeing a few setups on the long side, especially in stronger areas like Biotech. With Gold & Silver’s recent breakout, we should see new setups here soon (come to the chart show tomorrow and I’ll show you which one(s) we already have in the portfolio). Given the overall strength, continue to focus mostly on the long side. I still think it is okay to fire off a short or two in the aforementioned weaker areas just don’t go crazy bearish while the market overall remains in an uptrend. And, you certainly don’t want to attempt to short any of the stronger areas. As usual, wait for entries. As I preach, this can often keep you out of new trouble if the market/stocks fail to follow through.

Best of luck with your trading today!

Dave