From the Trading Desk

Weekend Update: Headline News Wall Of Worry

Stocks staged a pretty decent follow-through, on Friday, to the Wednesday reversal and Thursday rally. Stocks did not manage to trend up the entire day but some selling in the final 30 minutes was accumulated into the close. The RUT started to lag around mid-day and the DJIA lagged around 2pm EST but overall a very decent follow-through session. It’s hard to argue the past week with the SPX, DJIA, COMPQ, NDX, and NYSE ADV/DEC line all closing at new all-time highs with the Russell 2000 leading on the week up 1.7% repairing a lot of the intermediate-term drama surrounding its currently developing megaphone/diamond pattern.

While the indexes are looking mighty strong, sentiment continues to be a mixed bag. It obviously would be much better for us, from a contrarian point of view, for the crowd to be bearish overall the mere fact it is not extremely bullish gives this market plenty of room to run on the upside from a sentiment point of view. The AAII survey only shows 27% bulls to 32% bears but the II survey still shows 50% bulls to 19% bears. The good news is bulls fell on both and bears rose on both in the past week. The CNN Fear&Greed index is only slightly greedy at 57 and the NAAIM exposure index is at 91.3%. Both of these also fell on the week. That’s bullish divergence across the board.

At the same time, however, the VIX is only at 9.75 around its all-time lows and the IBD Put/Call index closed the week at .81. The VIX is signaling extreme complacency but in the era of QE (Japan and Europe currently) it appears the VIX is broken (until it is not!) and overall the IBD Put/Call ratio is still trending toward its upper boundary of bearish sentiment and not near its lower bullish sentiment boundaries. The bottom line is that there is definitely a wall-of-worry in regards to the headline news and this hilarious/scary current administration in the White House.

No matter what comes out of the geopolitical arena all that matters is the price action of the overall market and individual stocks. In regards to the market, we know it is good. In regards to my current long positions, we know it is good. In regards to the setups developing in stocks I am not long, we know it is good. Until these start reversing I am going to continue to take measured long signals as they trigger. It would be nice to get some “near-perfect” to “perfect” setups but they have not really existed in the forms that I so truly loved since 2008 so to expect them to setup here would be madness. Instead, I will continue with my measured approach. It’s working.

Have a great rest of your weekend everyone. Hopefully, for the sake of my long positions, we can continue on with this uptrend next week. Reality suggest a pullback is needed here but I am pretty sure I said that last weekend and the weekend before that. Until the pullback actually starts, I will just keep on keeping on with my signals until they stop working. For now, all is well, and I don’t suggest trying to overthink it. Once again, have a great rest of your weekend and great luck in your personal trading during the upcoming week. If you have any questions or comments feel free to leave them below. Trade profitable. Aloha.

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