Trend Followers Not Trend Predictors

Random Thoughts

Overall, conditions continue to improve. About a week ago, most areas looked questionable at best and now many are at or near multi-year and even all-time highs.

The Quack ended lower but just by a smidge. It remains just shy of multi-year highs.

The Ps managed to tack on around 1/3%–better than a poke in the eye I suppose.

Foreign shares have been an Alicia Keys Market–on fire. I guess I might have to come off of my “we lead the world not the other way around” mantra.

There is always something to worry about though.

Longer-term , I still remain concerned about the action in the Ps. They remain shy of their May and June peaks (see yesterday’s column for more on this or come to the show). Net Net, they are only up 1 percent and change since late May-and that came over the last few days.

The Transports started strong but ended weak. This action has them stalling at their 2 prior peaks.

The other thing that is concerning is many areas have had “V” shaped recoveries at high levels. The problem here is that by the time the market gets all the way back to new highs (the right side of the “V”), it’s already overbought.

As usual, continue take things one day at a time. I like what I wrote yesterday:

“It’s times like these that you have to be careful not to get too caught up in the euphoria. Breakouts are prone to failure. This is why we trade pullbacks. We wait to see if the breakout sticks and then look to add on the long side on pullbacks. We are trend followers not trend predictors. ”

So what do we do? Not much has changed just yet. I’m not seeing many setups on the long side. This is perfectly normal for a methodology that requires a pullback. Wait to see if the rally sticks and then look to get long when setups begin to show up. Of course, make sure you wait for entries when they do. Honor your stops on existing shorts. And, as usual, continue to take things one day at a time.

If you are not busy saving lives, building buildings, repairing automatic transmissions, or doing other great things then come to the chart show. I’m going to flesh out all of the above out in detail plus, much much more. See Announcements on the right of this page.

Futures are flat pre-market.

Best of luck with your trading today!

Dave