Once Again, New Highs Would Be Just What The Doctor Ordered

The market rallied on Monday but ended off of its best levels.
The good news is that the 50-day moving average has continued to hold in the major indices. And, the major indices are less than 2% away from new highs.

That’s about where the good news ends.

 

Unfortunately, shorter-term the market has traded mostly sideways. On a net net basis, prices are where they were back in early May. Therefore, as usual, follow through is key.

Bonds resumed their slide on Tuesday. As I have been saying to my peeps on my trading service, it’s not the absolute interest rates it’s the delta (change) that’s concerning.

Shares outside of the U.S. look poised to make a new leg lower. Notice the EFA shares are set up as a Bowtie down. This is a major sell signal since the index is coming off of multi-year highs. Emerging markets (EEM), like bonds, continue to bang out new lows.

Although most sectors bounced with the overall market, most still appear to have rolled over or, at the least, have lost momentum.
With the market not too far from its old highs, a few big up days would be just what the doctor ordered. It would put the indices back to new highs and would likely drag the sectors with it. Until/unless that happens, you might want to remain in “show me” mode.

So what do we do? Continue to look to fire off a short or two but don’t get too aggressive just yet. And, once again: When the market is chopping back and forth you can’t get too caught up in the action. A big up day will look and feel great. A big down day will seem like the end of the world. You have to be careful not to chase your own tail. Being selective on new positions and waiting for entries will help to keep you out of new trouble. Honoring your stops on existing positions will help to mitigate any potential damage. Yet again, letting the ebb and flow of money management and portfolio management can help to keep you on the right side of the market/in the right issues—especially in questionable conditions.

I have a good friend/colleague coming in from Italy to visit so I’m going to take a few days off from the newsletter.

Futures are flat to firm pre-market.

See your Monday!

Best of luck with your trading today!

Ciao..a dopo,

Dave