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I hate to read too much into a holiday shortened week but as a chart purist, I have to accept and not justify what’s actually there. The market, basis the Ps (S&P 500), hasn’t done much since the 18th. Traders don’t usually agree for too long. When volatility begins to compress like this, you usually see a large move—one way or the other. So, I’d brace for a big move soon. What does that mean? Well, just follow your plan but make darn sure you honor your stops just in case. Do take partial profits if blessed, especially since the first move can often be a false one. This could be the proverbial calm before the storm.
The Ps have stalled short of their shorter-term highs and are still shy of their all-time highs/multiple peaks. It’s interesting that the market is pretty much were it was around Thanksgiving last year. It’s too soon to know if this will be the top we’ll be talking about years from now (and many gurus will have claimed to have called—predict early and often) but you certainly can’t argue the fact that great bull market since 2009 has slowed a bit.
The Quack (Nasdaq) is a little more wide-and-loose than the Ps but has put in a somewhat similar pattern—not much forward progress shorter-term/longer-term and volatility compressing.
Recently, I’ve been complaining about the internals. The Ps and Quack have been hanging in there while most stocks have headed lower. However, I’ve actually seen just the opposite in more recent times. In going through my several thousand stocks nightly, many have improved lately. I suppose you can look no further than the Rusty (IWM) which managed to break out to multi-month highs last week.
So, yes, things have improved shorter-term but this market still has its work cut out for it. Many sectors remain in downtrends and others, like the major indices, have stalled short of their prior highs.
So What Do We Do?
As you know, I’ve been preaching to be prudent. And, I’m going to keep preaching that unless/until this market breaks out to new highs and stays there. My gut is that we could see the mother-of-all fakeouts soon. I don’t trade off my gut though. I just follow along. Right now I’m not seeing much produced by the database. If you’ve only read this column for the last year you’d probably think this guy is like Mikey-he hates everything. I can assure you that in great conditions you’d think that this guy never met a setup that he didn’t like. Again and unfortunately, conditions aren’t great right now. So, be selective, wait for entries, and honor your stop once triggered. In other words, follow your methodology.
Best of luck with your trading today!
Dave
*Damasio, Shull
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