Small caps lead the way as the market rockets higher on massive volume showing institutions were out accumulating shares. There were plenty of doubters and today’s price action certainly proved this uptrend is strong. While we could certainly pull back and as long as leadership doesn’t break down in heavy volume. Back to Wednesday’s action, it pays to stay with the trend and when you have the leadership we do it is easy to see why the market continues to hit new highs.
If you have stocks moving more than 20% it is wise to take something off the table as most stocks will begin to form new bases after moving 20-25%. There are times when stocks simply continue higher, but the normal course is for a stock to form a secondary base pattern after moving more than 20% from a primary base pattern.
Normal bull markets or should we say uptrends can last anywhere from 18 months to 3 years. In this context we are roughly 13 months into this current uptrend, which by history standards is relatively young. Perhaps we could see a pullback, but history shows it’ll be a shallow pull back. January was a good indication of how leaders act prior to a pullback as many leaders will flash heavy volume selling breaking through support levels. As the market shook out worried longs in late January and early February we were witness to support and the continuation of the uptrend. The moral of the story, know your history and follow your leaders.
Chasing stocks here is an unwise move as the market can bear witness to sharp pullbacks that can shake you out of a potential big winner. We are beginning to see stocks begin parabolic moves, although early is usually sign the market may be nearing a correction. Parabolic moves can last quite a while and last much longer than you may think. However, when we begin to see blow off tops or island tops it is an indication leadership is weakening or in more technical terms supply is overwhelming demand. If you are trying to pick a top in this market you will fail more often than not and with the move we are seeing right now it is likely we have a few more weeks to the upside left.
Stick with the market leaders and forget trying to pick a top or turn in the market. Plenty of folks have been trying since March and have failed miserably. Enjoy this uptrend while it lasts!
