Feels Like A Bull

Random Thoughts

Trend followers follow trends. They don’t fight them. So, as I said last week, when a market is at or near new highs, we don’t fight it.

What is a trend? An uptrend is a series of higher highs and higher lows. Period. So, if you ever find yourself plotting that 15th oscillator, take a look at the chart that lies beneath and as yourself: “Is the right side* higher than the left? “Is it making higher highs and higher lows?”

*And, if you find a broker that will let you trade off the left side of the chart, please LET ME KNOW!

The Ps closed at all-time highs. So, is this a trend? Shorter-term and much longer-term, yes. Intermediate-term, not just yet. The index isn’t that much higher than were it was in May but it is certainly improving. Follow through will be key. Ideally, I’d like to see it blast higher and then have some orderly pullbacks along the way.

The Quack looks even better. It recently broke out to multi-year highs and began to accelerated higher on Friday.

As I said last week, step one is a new highs, step two is follow through.

Internally, things are shaping up nicely. There are a few areas stinking up the joint but for the most part, most sectors have been trending nicely. Most tech is strong as you would expect on the heels of the Quack. Internet is behaving like it’s 1999 (anyone here remember how much fun it was waking up to see how much money you made overnight? Ahhhhhh….I digress). Even the banks are acting like the ole dot coms. Energies are banging out new highs. Ditto for the Transports. Selected areas within larger weaker areas like the Steels are shaping up. I can go on and on. Do your relative strength sorts (watch my new Youtube video) or better yet, just look at all of the sectors.

Dare I say that this market has a bull feel to it?

As I said last week, my only concern is that the recovery is a “V” shaped on at high levels—the market sold off hard then went straight back up. When this occurs, the market is already overbought when it takes out its prior highs. There’s always something to worry about.

So what do we do? The market continues to improve but nothing has changed just yet, so I cntl-a, cntr-c,cntrl-v (one of you nerds out there will understand that): Since new highs are crucial for an uptrend, you certainly don’t want to fight it. Therefore, continue to avoid any new shorts for now. On the long side, even though the market is banging out new highs, I’m not seeing many meaningful setups. This is perfectly normal since the methodology requires a pullback. Considering this, now is the time to enjoy the ride on any leftover longs that you have in your portfolio and wait before establishing any new positions. Don’t fret. If this is the start of something bigger, there will be plenty enough opportunities to get on board.

Best of luck with your trading today,

Dave