I Like Bubbles

Random Thoughts

Way back last Friday, the Ps bounced back nicely in a “do over” from Thursday’s action, gaining 1 1/3%. This action has them finding support nearly their recent and December lows. It also keeps them above their 200-day moving average.

The Quack (Nasdaq) put in a somewhat similar performance.

The Rusty had a decent day. It bounced off of support/its 200-day moving average.

The fact that the market found support at the bottom of its range is a good thing. Now, let’s not start kissing each other just yet. As usual, take things one day at a time. With that said, it was good to see the market rally going into a long holiday weekend, especially given this event driven environment.

In the sectors, Gold caught a nice bid. This action has it banging out multi-month highs. So far, a bottom appears to remain in place here. Silver wasn’t quite as strong and didn’t make new highs but a bottom still appears to remain in place here too nonetheless.

Energies bounced a bit. So far, they have been finding support near their recent lows. However, this in and of itself isn’t reason to start bottom fishing. Wait for an emerging trend pattern such as a Bowtie before getting too excited—just like we did in the Golds.

Banks stabilized a bit but still look like they are in a lot of trouble longer-term. Ideally, I’d like to see them bounce back into their longer-term wide-and-loose trading range.

With the market range bound and not too far from new highs, I suppose it’s no surprise that a lot of areas have followed suit. Ideally, you’d like to see this sideways action turn into an upside breakout. Until then, remain cautious.

In the good news department, Drugs managed to close at all-time highs.

Speaking of new highs, Real Estate continues to act more like high tech than the sleepy area it normally is. It banged out new highs with vigor. This will probably turn into a bubble. That’s not necessarily a bad thing. Like the tang in Nemo, I like bubbles. In an ideal world, you ride them up, have a chair ready for when the music stops, and then ride them down. Ed Seykota spoke to us at the 2014 AAPTA annual conference. He said, given the current situation, there will be numerous bubbles created. I think that’s worth writing down. There are two secrets to riding bubbles: First, as I often say about trends, they go much further and will last much longer than most think. You cannot confuse the issue with facts. Logically, there will be no reasoning. Valuations will be totally meaningless. And, two, yes, they eventually end badly. Proper money & position management is key.

I could probably find a thousand reasons why this market should go down but so far, it hasn’t—at least not significantly. That’s the beauty of technical analysis. You avoid confusing the issue with facts. Speaking of facts, the fact that the market continues to find support suggests that it’s not going to be a rout lower. Now, as usual, take things one day at a time (have I ever said that?). Support must continue to hold and ideally, we’ll need to see some new highs, sooner rather than later. In the meantime, for the most part you want to let things shake out. There seem to be plenty enough bears out there counting on this market to fail. If it doesn’t we see new highs and blue skies. Keep in mind that just because things aren’t “all bad” doesn’t mean you should rush out and buy. Let things continue to unfold. It’s a lot cheaper to wait for the market to tip its hand than to anticipate and guess on direction.

So what do we do? Again, for the most part let things shake out. Draw your arrows. The market is just about where it was late last fall. Yes, I’m encouraged that some areas have made it back to new highs. And, we could see setups in those areas soon. Again, a bottom, so far, continues to remain in place in the Gold stocks. Therefore, continue to look for opportunities. Be warned though, the underlying commodity can be an efficient market. This means that the ride up will likely be a bumpy one. Watch last week’s chart show for a lesson on efficiency. I think the best advice for this market is to remain patient. Let it come to you.

Best of luck with your trading today!

Dave