Head Fake

Random Thoughts

In yesterday’s chart show (click here to watch on YouTube), I spent a lot of time discussing the nuances of volatility. One of those nuances is the fact that the first move is often a false one—a “head fake” so to speak. And, that’s exactly what has happened in the Ps (S&P 500) so far.

So, so far, so good-The Ps tacked on nearly ½% and this is enough to have them closing at all-time highs. As usual, there’s never an “all clear” when it comes to the markets but this is certainly a positive development.

The Quack (Nasdaq) gained nearly ¾%. It is now just shy of 14-year plus highs. So, so far, so good here too.

The Rusty (IWM) continues to bring up the rear. For the day, it gained over ½%. It still has a ways to go to reach new highs. The good news is that when this index decides to move, it can do so swiftly. So, a few good days would make all the difference in world here. I’d feel a lot better about the overall market if it could make it to new highs. One day at a time I suppose.

For the most part, the sector action looks good. True, there are a few areas like the Real Estate, Energies, and Gold that are stinking up the joint. For the most part though, the sector action is looking good.

Many of the areas that were shy of their prior peaks are now at or near those peaks now. The Semis, for instance, gained over 1% yesterday and are now just shy of decade plus highs.

Speaking of new highs, it’s no surprise with action in the Ps that many areas have made it to all-time highs. These include but not limited to the Trannys, Drugs, Hardware, and Health Services.

The state of the market is good.

So what do we do? Well, it’s old the new high pullback thing when it comes to setups. When the market is making new highs, you don’t get many setups. When it pulls back, you do. So, hopefully (oops, did I say hope?) the market follows through to the upside and then has an orderly correction. Should that occur, we should see a plethora of new setups. In the meantime, keep an eye out for shorts in areas at high levels that have recently turned down such as the Energies and REITS. Overall though, don’t fight the tape. Do manage your existing portfolio. Enjoy the ride, take partial profits as offered, and honor your stops.

Best of luck with your trading today!

Dave