This week the market showed us why maintaining the 10,000ft view is so important. Keeping the longer term timeframe of the market (monthly time frames) is one of the big things that helped keep us in the game.
For the last few weeks we’ve highlighted major support on the on the monthly timeframes. Last week, the market rallied straight off of them and the Russell, NYSE, and Dow each hit fresh all time highs. The S&P 500 isn’t far behind but the NADSAQ continues to lag for the moment. Still, it found support on the monthly timeframe as well. View the monthly chart of the indexes here.
When we zoom down a little bit and look closer at the weekly timeframes, it starts to become clearer just how much the Dow, Russell 2000, and NYSE lead the charge last week. The S&P 500 rallied and is just below all time highs. While the NASDAQ is below its own 10wk line for the 3rd week in a row. Be that as it may, I consider it to be in a sideways trend as the last 2 weeks on the NADSAQ have shown supportive price action. We discussed why its supportive action during today’s deep dive. See the video below (around minute 15) for the explanation.
On the daily timeframes we saw lots of distribution. On the S&P 500 the distribution day count ran up to 12. That’s the highest we saw since last March when the market imploded. We ahd a very different outcome this time around and is one of the reasons why I continue to emphasize that everything must be taken in context. Yes we had a ton of distribution, but the market was getting support, the longer trends were up, and a fair number of stocks were holding up.
The Russell, Dow, and NYSE are extended at this point. The action on the NADSAQ makes this even more interesting. Have a look at this daily chart. Should the NADSAQ break the ascending trendline, on the surface it would look like a bearish move. However, with the other indexes extended, it would give them reason to pull back and with the market in bull mode, a short-term pullback could be met with buyers (kind of like the action we saw on Friday when the market opened about -1% lower and closed at its high).
I’ll be on the lookout for price action like that.
The number of stocks making new highs are ramping up. On Friday the NASDAQ saw 326 stocks hit fresh highs (remarkable considering its trading below the 50sma) and the NYSE saw 297 new highs.
A pattern I’ve seen in my trading is that when the market is in uptrends across the board like this, existing trades can run further. However, new trades need to be selective. If the market is at new highs and we’re looking at stocks in bases, by definition they are currently lagging. It doesn’t mean that won’t work, but it does mean we want to be selective. Pick your spots. Volume is a great confirmation tool on a breakout. If the breakout has volume, I’ll be a little more aggressive with sizing.
Final thought. We don’t need a ton of trades. Just a few and we can keep on going back to the well. Even for swing trading. We’ve traded BTC 3 times since December and are up a collective 200%+. Not bad for three months.
Checkout the charts of the indexes below for a closer look at the action.
MONTHLY CHARTS (indexes) Overcall Direction = Up: https://www.tradingview.com/x/NOWcvtmi/?aff_id=15325&offer_id=10
WEEKLY CHARTS (indexes) Overcall Direction = Up: https://www.tradingview.com/x/b7HgzZL1/?aff_id=15325&offer_id=10
DAILY CHARTS (indexes) Overcall Direction = Up: https://www.tradingview.com/x/5R6tIOQG/?aff_id=15325&offer_id=10
(on the lower right is the image of stocks hitting new highs vs new lows on the NASDAQ & NYSE)
Deep Dive Video