Caution

Random Thoughts

The Ps had a modest up day. This action keeps them right at their previous old highs and keeps the potential double top in place. As I implied yesterday, it is not always that cut and dry:

“Unfortunately, double tops rarely unfold in a textbook fashion. The market stalls well short of the prior peak, or it zooms past it like butter sucking everyone in and then it fails.
The Quack and Rusty have recently taken out their prior highs. This doesn’t mean that this is a fakeout. It’s what happens next that’s important. If they correct, stabilize, and begin to rally then it is possible that there might be a new leg in the works. ”

Looking at yesterday’s action, both the Quack and Rusty ended higher on Wednesday but they are losing a little steam. This is especially true in the Quack, even though it did manage to close at multi-year highs.

I’m not a big fan of markets that drift higher. I like to see markets accelerate higher then correct by pulling back. When a market drifts or “wedges” higher it can often suggest that buying is waning and a correction is looming.

There are patterns I observe and patterns I act on. Overbought markets, double tops, and upward “wedges” are examples of patterns that I observe. These are caution flags vs. bona fide signals.

So what do we do? Not much has changed: The markets still remain overbought. As I’ve mentioned ad nauseam, this is a dangerous environment to be trading. If you buy, it corrects. If you don’t, it continues on without you. Therefore, I’m still in the “sit on your hands” camp. If this is the real deal, they’ll be plenty enough time to buy along the way. Ideally, I’d like to see the S&P break out decisively past its prior peak. And, I’d like to see the Rusty and Quack accelerate higher. Once this occurs, an orderly pullback would be awesome, followed by a nice resumption of trend. That’s what I want. The market doesn’t care what I want though and will probably give me something else. This is why I’m a day to day kind of guy. So for now, I remain cautious. The good news is that there are very few meaningful setups. This is usually a sign that I should be patient.

Futures are firm pre-market.

See you at the chart show!

Best of luck with your trading today!

Dave