The market is well into its second straight day of consolidation after an impressive run up over the past few weeks. In the short term, many charts became overextended and needed some backing and filling, at a minimum. I am still going to let this market prove itself to me first, before I start chasing momentum to the upside.
One thing to note is that just because we are consolidating in time, and not so much in price, that does not necessarily make it bullish per se. As an example, take a look at the daily $SPY chart that I have included below. Note how in mid to late June we had a string of dojis as well. Despite giving off the appearance of a bullish consolidation, we rolled over in swift fashion.
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This is why cash continues to be such a powerful position in this kind of market environment. No one knows for sure whether we are still in that range bound channel, or whether we have surely broken out to a new trend higher. However, one thing is for sure: Getting caught aggressively leaning the wrong way in the face of the next big directional move is going to be destructive to your capital.
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Thanks Chess. I always appreciate your objective point of view. So what do you think is the line in the sand now? How low can we go without “causing technical damage”? Are we looking at the 1056 area as a maximum drawdown?
1100 is the first line in the sand…and then 1056. You are correct. Good job pointing that out!
THX 🙂
If 1089 is breached I will re-evaluate my bull thesis and scale back on my longs. Enjoy reading your blog C&W … Let it Rip!