As discussed on Friday, you can’t get too frustrated at why a market did something. You have to get over it and get back to the charts. With that said:
The S&P closed at all-time highs. Ditto for the Rusty. The Quack closed at decade plus highs.
The market is making new highs. As a trend follower, you can’t fight it.
This does not mean that you jump right in and buy a bunch of new positions though. The market is overbought and due to correct. As I have been saying lately, overbought environments create a damned if you do and damned if you don’t dilemma. If you buy, the market corrects, if you don’t, the market becomes even more overbought.
I suppose correction or continuation is the $64,000 question. Although some areas continued to plow ahead like Biotech, I’m seeing some action in many others that suggests we might see the correction soon. Quite a few areas started strong but ended week. This included but wasn’t limited to: Insurance, Materials & Construction, Health Services, Telecom, Foods, Banks, Chemicals, and Energy. This action suggests that the overall correction is beginning—at least in those areas that lost steam on Friday.
Considering the above, I still think keeping your hands in your pockets is the best course of action for now. The good news is that since the methodology requires a pullback, there aren’t many meaningful setups at this juncture. Wait for setups. When they occur, wait for entries. Once triggered, honor your stops. These simple techniques will help to keep you on the right side of the market and take you out when you are wrong. See recent webinars and columns on portfolio ebb and flow.
Futures are firm pre-market.
Best of luck with your trading today!
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