Is It Time To High Five?

Random Thoughts

Like life, in markets you want to take things one day at a time.

Just a few days ago, the Ps only appeared to be making a shallow pullback, the Quack remained stuck in a range, and most areas looked questionable at best. Fast forward a few days and most everything has gone straight up.

A few days ago only a few sectors were at new highs. As of Tuesday, there were dozens.

One has to wonder if the bull switch got flipped.

Well, let’s not start high fiving and kissing each other just yet.

Net net, the Ps are trading where they were over 3 months ago. They remain short of their prior highs. Ideally, I’d like to see new all-time highs here before getting too excited. This would negate the potential double (and now triple?) top.

Also, I’m not a huge fan of is “V” shaped recoveries at high levels. These occur when a market/sector/stock sells off fairly sharply then comes right back. This action has them already overbought as they make new highs.

Again, take things one day at a time. I don’t think they are going to make it as easy as flipping a switch. I loved the markets back in the late 90s when you couldn’t wait to see how much money you made overnight while you were sleeping. Nowadays, it’s not that easy. You have to work at it.
It’s times like these that you have to be careful not to get too caught up in the euphoria. Breakouts are prone to failure. This is why we trade pullbacks. We wait to see if the breakout sticks and then look to add on the long side on pullbacks. We are trend followers not trend predictors.

I’ll be doing a weinbar for Traders Exclusive.com on Wednesday, September 11th at 1:00 Eastern. Click on the graphic below to sign up.

So what do we do? I’m not seeing many setups on the long side. This is perfectly normal for a methodology that requires a pullback. Wait to see if the rally sticks and then look to get long when setups begin to show up. Of course, make sure you wait for entries when they do. Honor your stops on existing shorts. You know me, I’d much rather get stopped out of some crappy shorts (and who wouldn’t want to get out of crappy shorts?) and then participate in a rip roaring bull market. Until and unless that happens, continue to take things one day at a time.

Futures are soft pre-market.

Best of luck with your trading today!

Dave