Good evening StockBandits!
The major averages have largely been “on the fence” for the better part of the past 3 weeks, but that all changed Friday with a decisive decline. In the process, the recent breakouts failed (sans NAZ), placing price squarely back into the recent trading ranges.
Over the past several sessions, there was not only lackluster price action but also some real indecision. One way to interpret it was that the bulls had produced a breakout but weren’t yet ready to build on it, which was my view. Another was that the lack of upside follow through after such a big breakout to new all-time highs in 3 of the 4 indexes was perhaps a warning signal. After all, if we can’t run higher, then the path of least resistance must be down, or so said that logic. Obviously, the latter proved true, so it’s back to the drawing board now for the bulls.
I think it’s important to distinguish here the ramifications of this failed breakout. It’s a fine line between “bearish” and “not bullish,” and I want to remain as objective as possible here. In the shortest timeframe, it’s bearish because we’re trending lower (see the hourly chart of the S&P, for example). In the intermediate term, however, this so far is just a dip from the high. To become bearish there would require failed bounces that produce lower highs, and additional momentum on the downside. We’ve yet to see that.
My plan going forward doesn’t really change based on last week’s breakout failure, as I had been cautious with new longs until we could see better market strength. I am long several swing positions and they aren’t immune to broad market weakness, so I’ll adhere to my stops in those. And when it comes to new positions, I’ll stay picky. There still is not an abundance of bearish stocks, as you might expect coming right off all-time highs, so an aggressively bearish posture will have to wait – both for better bearish setups, as well as additional market deterioration.
Let’s get to the charts.
Bullish Watch (click for charts)
Bearish Watch (click for charts)
Trade Like A Bandit!
Jeff
