Strong consumer confidence helped push the market higher, but it may be anticipation of another round of QE pushing the market higher. Tomorrow’s Federal Reserve announcement is once again the highlight of the week for traders. Boil down the noise and it will come down to will the current QE end and if it does will anything replace it. The current rally of the October low is certainly in anticipation of either a new QE program or a continuation of the current program. New highs could be around the corner are you ready?
The flip side to new highs is the possibility of revisiting the lows set earlier this month. V-shaped rallies tend to be prone to failure and when they fail it is epic. Typically a new market low is not this violent and gains are digested as we push forward. Volume has not been in favor of the upside and now we are extremely overbought according to the McClellan Oscillator. Another ominous sign is how high Average True Range has risen. This market has certainly has moved to a point where something has to give. Will it be new highs or will we simply head lower? Stick with Big Wave Trading and stay tuned.
If we are to push higher we would love for the market to digest these gains over more than just a day or two. V-shape rallies typically do not produce great bases and we are still waiting for bases to set up. Sound bases help provide conviction where we can load up and take advantage of huge price moves. This market is making it quite difficult to have much conviction in either direction. Position sizing and exits are crucial.
What a crazy month October has been. Perhaps we will close out with more fireworks. At this point not much will surprise us here.
I’ve been incrementally cutting back on my holdings hoping to buy back in at lower prices, but the market won’t cooperate and keeps going up. It’s not like the Y2K tech bubble market. No irrational euphoria. More like slow, grinding, subdued euphoria. And no significant corrections in 3 years. That alone is indicative of ‘subdued euphoria’.
Instead of retesting the lows of the recent pullback (I can’t characterize it as a correction), it is now looking like the market will retest its recent highs. Another sign of ‘subdued euphoria’ in my book. The higher they go without a correction, the harder they fall. But it certainly can go higher…for a while. In that case, I’ll wait until Time or Forbes run a cover article titled “DOW 20,000?”.
Now that will be the signal it’s over.
Thank you… I agree.
I think V shape bounce shows conviction of big money. Otherwise, they would take it back up slowly.
Josh, what do you think of Alibaba?
I hear you and while I would agree with that if volume has huge. It simply is not. Conviction of big money? Or algorithms gone wild? The big money might have accumulated off the lows but the volume in the indexes and the futures markets has been below average to average the entire uptrend compared to very above average that previous downtrend. Until we consolidate this straight up V pattern, buying stocks here is dangerous. I want you to find me one V move like this that has ever sustained itself? I have done the backtesting. I can tell you right now. One single big V-move like this has N E V E R led to a sustained uptrend. You must back and fill. We have to see how we consolidate these gains. If we breakout higher after a consolidation, I will increase size in my new long positions. Until then, I don’t think the big money has really accumulated the market overall here. Still, this being said, I do see a ton of Biotech stocks that I love and want to buy hand over fist following any market consolidation.
As for BABA. We love BABA. However, just like this overall market. We need a base. This straight up move makes it way too risky for us to buy here. We want a pullback and subsequent pocket pivot point signal or breakout.
Aloha Dan. Now let’s get some bases!