When we last left off way back on Friday, I was discussing how everything works better with trend. Simple trend following systems can work extremely well when a market is trending. I know, duh, but you’d be surprised how many people fight the trend instead of just following along. Many try to look smart vs. just being a Trend Following Moron. For instance, I get an email nearly daily from Mr. Bear. Mr. Bear is always bearish—and has been for as long as I can remember. His arguments are quite convincing and one day he’ll be right. In the meantime, the market continues to head higher. Don’t confuse the issue with facts (www.dontconfusetheissuewithfacts.com).
Yes, some day this trend will end. All of them do. That I can guarantee. Until it does, continue to follow along.
I suppose the Ps (S&P 500) haven’t been in the greatest of trends in more recent times but as I wrote last Friday, they do remain in a much longer-term uptrend–something evidenced by “daylight” above the 200-day moving average. Again, everything works better with trend (see Friday’s column). Continue to err on the side of the longer-term trend.
The Ps are closing in on all-time highs but obviously you still have to get there.
The Quack and Rusty performance on Tuesday wasn’t anything to write home about but they did manage to close at all-time highs.
At the risk of preaching, as long as a market is at or near all-time highs, err on the side of the trend. So far, these two have broken out nicely from their intermediate-term sideways ranges.
As you would imagine, with some of the indices at new highs, many sectors are following suit. A non-exhaustive list of those at or just shy of new highs includes the Banks (especially the Regionals), Drugs (especially Biotech), Selected IPOs, and Foods.
A lot of areas such as the Semis and Retail still remain stuck in sideways ranges but have been improving as of late.
Metals & Mining appear to be scraping bottom with possible double and quadruple bottoms forming. Don’t be a hero just yet though. It looks like the bottom here will be more of a process than an event so be patient. For now, wait.
All isn’t great in the world. Bonds are just shy of new multi-year lows and still look dubious at best. It’s not the absolute interest rate but the delta (change) in rates that tend to spook markets. So obviously, it’s important to see them stabilize or at the least, lose some downside momentum.
Real Estate, on the heels of falling bonds, remain in a downtrend.
The Trannies have recently rallied but they still appear to be in trouble.
So What Do We Do?
Well, ideally, I’d sure like to see the Ps join in the party. I suppose you can’t have everything—and “If you did, where would you put it”-Wright? For now, “2 out of 3 ain’t bad.” Further, the sector action continues to improve. Based on this, I stay that we stay long until we are proven wrong. It’s not rocket surgery, stops will keep us in until then. As usual, do be selective going in. And, of course, plan your trade and trade your plan. Focus on the process, not the outcome. The outcome will take care of itself (read this entertaining article for more on that).
Best of luck with your trading today!
Dave