Friday, May 8, 2009

Price Rules All Other Indicators

This week saw the Dow and SP-500 close at new rally highs, while the Qs had their first down week after 8 straight up weeks. I keep reading commentary from all types of analysts who are trying to call the top in this rally. We read that the put/call ratio is bearish, there is a bearish wedge forming, the market is up so many weeks in a row, an ABC rally is now complete, sell in May and go away, the market is overbought, the SP-500 is at it's 200ma, the SP-500 is at resistance, oil is rising, etc, etc, etc, ad nauseum. I am not trying to say that these things are not important, because at times they are very important, but just not at the moment. In order for any of these things to matter, we must have not only a pullback, but a pullback followed by failed test of the highs, and then a break below the pullback low. This is the minimum requirement. Right now all that is happening is that stocks have been on a tear, and we can expect pullbacks to the rising MAs.

When the markets are at the beginning of a new "4 year" cycle and 10 month cycle, all of the above bearish omens will be present. All they mean is that the market is in a strong uptrend.
There was some weakness in the semi's today that bears watching, but overall the trend is intact. I do expect that we will see some more down days next week as we may have completed wave i of C or 3 in the SP-500.

Some leading stocks are breaking out. I added to my position in HANS today as it responded quite well to a better than expected earnings report. Other leading stocks are in short term corrections and consolidations building bases for another leg higher.

The current experience is what trend trading is all about, and it takes discipline to sit on your hands long while everyone else is taking profits and shorting. If you have some positions that are up 40% or more, by all means, sell part of them if reasonable targets have been met, and let the rest run, but the main point is -- let the remainder run.

1 comment:

dave said...

There's an old expression about that long list of "concerns" that you cite that many experienced technical traders are familiar with: "Things don't matter until they matter".