Did The Bull Switch Get Flipped?

Random Thoughts

You know me, I take things one day at a time. Coming into Monday, the market looked a little questionable. The market didn’t care what I thought though (don’t laugh, it doesn’t care what you think either).

The Quack managed to tack on just over 1 ¼%. This action has it breaking out of its sideways trading range and closing at multi-year highs.

The Ps managed to put 1% on the board. So far though, they still only appear to be pulling back from their recent slide. Also, they would have to clear 1700 decisively to negate the potential double top that still looms. One day at a time though. A percent a day would certainly keep the bear away.

As you would expect, technology did well as evidenced by the Quack. Biotech was the big standout. It broke out past its prior peak very nicely.

Outside of tech, there were a few areas that did make new highs decisively such as Resorts & Casinos. Energies also managed to close at multi-year highs. The Service stocks here were especially strong.

Although things improved internally, other than those aforementioned strong areas, I’m still not seeing a whole lot to get excited about. Again though, take things one day at a time.

Make no bones about it, Monday certainly scores as a positive. Duh.

Will the breakout in the Quack stick is the $64,000 question. As you might know, breakouts are often prone to failure–at least initially. If they always worked, then our job would be really easy. This is why we don’t buy the breakout but sit back and play “show me.” If the index can follow through, then we will look to play the first pullback. And, if it doesn’t, we’ll continue to sit on our hands here.

I don’t think the bull switch got flipped on Monday. I do think we should pay attention. If the market comes right back in (see OGRe talk below), then all bets are off. If it can continue to follow through, then we’ll look to get aboard as good little trend followers.

So what do we do? I would still hold of longs except in those areas that can trade contra to the overall market such as Gold and Silver and the Energies. I’m still not seeing many longs setting up anyway. This is normal since the methodology does require a pullback. I would continue to keep some shorts on the radar but only pull the trigger on a trigger-i.e. wait for entries. If the rally can sustain itself, then this simple technique can keep you out of new trouble. I still think the previous high fliers that have fallen from grace such as Retail could provide opportunities here. No matter what you do, honor your stops on existing positions. And, at the risk of more beating of the dead horse, wait for entries. As I preach, letting the ebb and flow of position management—often with just those 2 simple techniques-can help to keep you on the right side of the market.

Futures are very strong pre-market.

For the nimble and aggressive, watch for an opening gap reversal (OGRe). I did a walk through on this in last week’s webinar.

Best of luck with your trading today!

Dave