Stocks closed out another impressive week with small gains overall on Friday with volume coming in above average overall. This time, however, stocks did not close at their highs and instead had quite a decent little reversal off of their intraday highs with Gold, Metals, and Oil stocks reversing on substantial volume and with greater force. Despite the reversal off the highs on Friday, it was yet another impressive week of gains as this market continues with its extreme moves up and down.
Our market models switched to an operational NEUTRAL signal across the board this past week. However, not surprisingly, since the switch the overall market switch we still do not have a lot of stocks either setting up or breaking out of well formed consolidation patterns when it comes to stocks in the technology and small-cap related areas of the market. In fact, the few stocks in the recent leading sectors (Metals and Oils) that were making spectacular right sides of consolidation patterns reversed hard on heavy volume on Friday.
This kind of price action, along with the sloppy v-shaped choppy volatile moves in most stocks that are breaking out to new highs, is further indication that something just is not healthy with this current market rally attempt. Now this is to not say that a lower volume consolidation lasting a couple of weeks at least can’t fix this issue. However, being realistic, considering how far we have come so fast on basically below average volume overall the odds of a quiet consolidation seem low. Still, this is March and I do not like betting against seasonality.
The fact that this market is so overbought short-term at least hints that stocks are going to have to pullback here. However, I want to remind everyone that markets can stay overbought longer than you or I think. So I would not be surprised to see us just keep on melting higher here retaking the 200 day moving average before starting a pullback. If that scenario does play out, and volume remains below average, you can be 100% sure that if we do take out that key resistance line and then fail it immediately (especially if there is higher volume) that I am going to push my short bets (maintaining buy stops obviously in case I am wrong).
Right now, it is all about how this market responds to the most recent ill-mannered V-shape move. If we pullback on lighter trade and I continue to see right sides or handles create themselves in individual stocks then I will look to get heavily long on the next rally. If we continue to do nothing or melt up on lower volume, I will be looking to get short this V-shape low volume move that will more than likely probably retest the February lows under its current technical condition. If instead we continue to just drift around between the January highs and the February lows on mixed volume up and down, then we will remain heavily in cash.
We have all of our bases covered and are ready for whatever the market wants to do here. We continue to stress the importance of keeping trading time frames short here if you are professional and to keep a heavy level of cash here–on and EOD basis–if you are a new trader. There is not enough clear evidence yet for one side to have an advantage over the other at this exact juncture in this extremely overbought market (see the McClellan oscillators). Like I said earlier, this leads to the belief that we will remain more range bound than anything else in the short to intermediate term. Patience is still warranted here.
Enjoy the rest of your weekend everyone. I’ll see you in the chat room on Monday. Stay positive and great luck this upcoming week. Aloha.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – SIGNAL DATE
ANFI long – +62% – 11/19/15
SWHC long – +42% – 12/4/15
AGRO long – +41% – 10/23/15
CLR long – +38% – 2/11/16
