A rally with conviction?
I guess you probably heard it by now. Dow closed at a new all-time high at 12,621.77 (+87.97); S&P 500 closed at a new six and a half year high at 1,440.13 (+12.14); but of course, the star of the day is the Nasdaq Composite which rallied nearly 35 points to 2,466.
At least now we’re seeing some real movements in the market. However, the devil is in the details. While many retail traders may be flooded by the media’s constant trumpeting of the highs of the market, we professionals always take a closer look under the hood. While indeed the Dow, S&P and Nasdaq did have a good rally on Wednesday, the overall volume of shares traded in the NYSE actually declined by 5%. What this means is the rally we saw is not because of the actions of those institution-players. In plain language, it means that the rally we saw can be easily neutralized. However, the Nasdaq did see an increase in volume by 8%. This makes yesterday’s rally in the Nasdaq is bullish accumulation day. So we will take Wednesday’s rally with a pinch of salt. Looking at chart 1, we can see that the SPX is closed just beneath the lower trend line, which was established since August of 2006. This lower trend line will act as a resistance. We will see how strong this resistance is in the coming week. So far, it has failed once trying to break that line.
Looking at the Dow (chart 2), we can also see the similar pattern. So, be careful going long because the rally to an all-time or 6 ½ year high does not necessarily mean the return of the bulls.
Some subscribers may be wondering why we haven’t been entering trades for the past 2 weeks. The easiest answer to that is of course, we can’t find any good trades. Don’t worry, we’re not skiving. The fact is, we are now 22 days away from Feb expiration and 50 days away from Mar expiration. It is too late to enter a trade for Feb and too soon to enter a trade for Mar. For those of you who just joined us, I’m sorry seems like you’ve missed the Feb boat. I’m sorry to keep you guys waiting but any trades for Mar will come about a week’s time. We are stalking some possible positions for Mar everyday but because it is still a good 50 days away, it is not worth the risk for us to jump into it yet. So, please be patient, you will know of a good trade once we spot one!
Good trading,
Gary
