We are now probably at most one to three weeks away from a top in the stock markets. As we approach the coming reversal, dramatic moves in a few stocks may make the rally appear more durable than it really is. For every stock like PCLN there are many stocks that are lanquishing. The Bullish Percent Index for the Nasdaq Composite stands at 50.99 today. The Nasdaq 100 to SP500 ratio is well below its June high with lagging momentum, as is the Russell 2000 to SP500 ratio. These are not indications of a strong market.
So far, everything about this rally smacks of a B wave. Some say it's a 2nd wave, but that view is premature. Although I think the rally has more to go in time, I don't think it has to much more to go in price. Any new high next week would be sufficient to complete the wave count as a zigzag with an ending diagonal, though it probably won't be that easy. The market will probably tread sideways a bit longer, but the point is that the risk of a sharp downside reversal is rising.
I will be looking for the SP500 to make it to 1140, the Qs to 47.68, IBM to attempt a breakout and GOOG to make it to 520 to 540, among other clues, to tell me that it is time to bail on this rally. If I'm wrong, I am really not worried. I'd rather be wrong than get caught on the wrong side of wave C down. Just because you are a trend follower doesn't mean you have to wait around for the obvious.
Today I sold NFLX for a gain of 14% after buying it near the 38.2% retracement of its 2010 rally. I will be looking to sell, not buy, over the next two weeks as stocks and indexes approach expected targets.