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These days, overhead resistance is much like the Loch Ness Monster–There are legends of it existing, but it never shows up when you are ready for it. Just as many traders are throwing caution to the wind and adjusting their styles for the free-flowing stream of freshly printed U.S. Dollars running from The Fed into the capital markets, we continue to see longer-term charts running directly into serious supply.
Case in point: The small caps have sprinted from last summer’s lows to within a few points of all-time highs dating back to 2007. Now, I am fully aware of all of the arguments as to why we will simply blast through that line in the sand on the first try as if it did not exist. Frankly, that may very well happen, and the socially awkward nerds on the Twitter stream will be sure to call me out to “keep me honest.”
At any rate, if we continue to melt-up in perpetuity, then so be it. However, just know that initiating longer-term positions on the long side right here, right now is akin to to hitting on 17 in blackjack–It may have worked out marvelously for you a few times when the dealer was showing a face card, but in the long run it is a big money loser. Just as last summer it seemed as though the market was too sick to ever be healthy again, and just as last early/mid-April it seemed as though the bears would never seize control, the dynamics of the current market can change in a heartbeat.
With that said, inside 12631 I have alerted members to attractive long setups to keep an eye on early next week. The key is to not be so ideological that you miss out on an entire run, but that you acknowledge that you can have fun but be nimble. The IWM (actively traded ETF for the small cap-led Russell 2000 Index) monthly chart below illustrates the serious resistance we are running into here. While there could easily be some more upside left in the near future, a period of sideways/down action is knocking on the door, and each knock over the coming weeks will grow louder.
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best analogy yet for initiating new buys north of SPX 1300…
in this particular game – the dealer (FOMC) is also hitting until he goes bust, just hasnt happened yet
Indeed–Bernanke is pulling a ton of “5 Card Charlie” 21’s.
Thanks, Josh.
Chess – Great post as usual. I’ve traded through some huge tops, including 1987. Regardless of what people say after the fact, very few see them for what they are, or more dangerously after the top is in place they continue to trade as if the overall trend is still up. Regardless of whether we continue to move higher over the next few days or weeks, we’ve moved up very nicely off the bottom in March, 2009. Many of use have banked huge amounts of coin. Although I don’t see any signs of a new bear market on the horizon, a sharp nasty correction would surely punish the late comers to the party, and possibly set us up for another leg higher.
Right on, Yogi.
its like getting the notion of dow coming up to the sacred # of 14-14.5 before the fall, and everyone hot and heavy,or meander toward that #. its getting closer,so where does it go after it hits that mark of top resistance. does everyone sell off in an impending breakdown of that high,or will it be total jubilation breaking past that resistance. expectations of both are still there.
Most likely scenario is a sloppy period of consolidation after a brief correction. No indications that we are at a major bull market top. I still think we are mid-cycle. More like an intermediate top.
Great post as per norm Chess. I think your outlook and the risk/reward right here are spot on. For technical reasons, since late December i have been eyeing the mid-late Feb period as a short term top area. Nothing has happened to dissuade me from that idea. In fact, as we approach the bend in the river…I can here it…the siren song of Lorelei sweetly singing… luring us…perhaps right into the rocks of a gap fill near 1287. But I could be dead wrong and forecasting the future is usually a fruitless time waster. Which is why in the end…I revert back to your guidance on trading what you see. Had I not done that, I likely would have missed the run up that started around Labor Day.
(laughter) great title, Chess.