Well, the time finally came.
I sold out of all of the long positions in S&P 500 and Tech that I accumulated between May 31 and early June (I posted my exits on my Twitter last week). It was a great run, with the markets pretty much powering higher week after week. As I expected the whole way up, no dip really lasted more than a few days.
So now what?
Well, first of all, my Twitter and and e-mails might get really boring if you’re looking for big tradeable moves in the market. I’m on the sidelines, and as usual, I’ll wait for the market to tell me what to do. If I miss a little more of this rally (which is likely), that’s cool. If I miss the first few points of a tradeable correction, that’s fine too.
Keep it simple, people.
Don’t let my selling confuse you on my general market view though.
I’m still BULLISH. The big trend is still UP.
Look at that weekly chart I posted above. New all-time highs. MACD and DMI (and I’m sure whatever other technical indicator you might use) all confirming up, with no negative divergences. Support at many levels below. This is all textbook.
So if I’m saying the chart is still bullish, and I’m expecting it to continue, why did I sell?
Well, it was more of just a personal trading discipline to be honest. I wanted to take profits after a nice run, and was OK leaving some money on the table.
There are no signs yet of the market turning down, but it did hit a simple rule of thumb I have on when to get cautious on a rally: 4-6 weeks of MACD above its signal line. As we hit that 4-week rule of thumb, the market is showing very slight negative technical divergences (again, primarily only looking at the MACD) on shorter time frames like 4-hour, 2-hour and 30-minute charts. Again, nothing truly bearish on their own, but enough to signal potential weakness sometime in coming weeks.
Its also summertime and I wanted to relax a bit, especially after the easy money is probably behind us. Emotional comfort is underestimated in trading.
But be clear: This is still a very strong bull market. Accept it.
My gut tells me we’ll be playing this buy the dip game well into next year.
If you’re not interested in catching every swing, and have a multi-month or year time frame, the market is telling you should just sit tight and hold
5 THINGS ON MY MIND
1. I’m still leaning towards some rhyming of the 2016 scenario. I’ve posted this a few times on Twitter.
This is just a gut feeling, so let’s no go overboard and really expect this though. The market feels overbought, but when the market is so strong and sentiment stays stubbornly negative, those overbought conditions often resolve themselves with sideways action.
Going sideways annoys people. It tricks people. It chops people who try to trade into a million pieces. That’s why the market loves to do it.
2. If the SPX trades below 2,940, maybe I’ll consider a bearish view for a little while. I’m still not expecting any big downside, but trading below there at least changes the technical picture in the short-term.
3. Bitcoin is now breaking down from its choppy range and looks dangerous. After the latest failed rally attempt, and with technicals turning negative, my best guess is there’s more downside coming for a few weeks.
4. Cannabis stocks look terrible. I still believe in them, but they failed their chance at a breakout and now the path of least resistance is down.
5. Software/cloud super-growth momentum names (TEAM, OKTA, MDB, CRWD, etc.) would be my first sells if I get bored and want to short.
A CHART THAT CAUGHT MY EYE
|ATVI – Activision
One of my favorite chart patterns is playing out with ATVI.
If you’ve been following me or taken my course, by now you probably know exactly why I like this one.
We’ve got a juicy double bottom with multi-week positive divergence on my customized MACD. The MACD is turning up and positive, setting up for a potential multi-week run. DMI is also about to turn up.
Sentiment? As negative as you could get. Tech guys have been focused on the sexy software and cloud names, media guys on Netflix and Disney. EA recently sounded terrible on their latest APEX Legends game update. Sp expectations are low, just like how I like them.
Strategy: I’ve already nibbled a little, but its a more obvious buy if we break into the green area. I would stop out somewhere in the red range. Adjust to your own risk appetite.