The ABCs Of Trend Trading

Random Thoughts

If a market is going from 5 to 20, it’ll have to pass through 10. In its simplest form, that’s technical analysis. So, if a market is going higher, it will be making new highs along the way. What is, is. There may be very logical reasons why it shouldn’t be at new highs but if it is, it is.

I gave up trying to outsmart the markets many years ago and just started drawing arrows. In the late 90’s, my drawing of big blue up arrows created quite a stir with those who were injecting logic into the situation. These people confused the issue with facts (https://www.donotconfusetheissuewithfacts.com). They also told me where I could stick my arrows and called me names such as a Trend Following Moron. That one stuck. I had buttons and T-shirts made and bought the domain https://www.trendfollowingmoron.com.

Although I have a lot of fun with this, it is a constant reminder not to fight the tape. If a market is going higher then it is going higher. Again, what is, is. Long after the fact we might discover the reasons why-if any. For now, if a market is marking new highs then it is making new highs.

The Ps (S&P 500) closed at all-time highs. Ideally, I’d like to see some acceleration higher but so far, so good. Its breakout remains intact. Ditto for the Rusty (IWM).

The Quack (Nasdaq) closed at its highest level since 2,000. We are almost to a level that challenges those who said we would never see 5,000 again. They have been right for 15-years.

Never say never?

The market is strong internally. Most areas are at or near new highs. Tool through the sectors when you get a chance.

I like the fact that the Semis are making new highs with vigor. I’m a big fan of having confirmation here.

Banks have stabilized and are making marginally new highs. This is a good thing because they look quite dubious not too long ago.

Metals and Mining overall had a decent day. So far, they still appear to be bottoming. Unfortunately, it appears to be more of a process than an event-typical for commodities. Ditto for the Energies.

So what do we do? Well, at the risk of preaching, don’t fight it. I’m seeing a few shorts setting up but I see no reason to be a hero. Therefore, focus on the long side. And, in case I get hit by a beer truck—which statistically is not totally out of the question for me–continue to focus on the long side as long as the market remains at or near new highs. Every moron knows that.

Best of luck with your trading today!

Dave