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We are looking at some more broad market week this morning, as it has become apparent that Monday’s attempted breakout higher on the Russell 2000 index was nothing more than a trap, if only for this week. Of course, the pertinent issue for traders then becomes whether we are looking at a more nefarious trap than merely the market needing more time to consolidate before breaking out. Thus far today, the Russell is still above all of its daily moving averages, despite a gap down.
As I discussed in my market video recap last evening, I believe this market has entered the “acceptance” phase, where the majority of participants have now come to terms with the notion that we are in a bull run. The “wall of worry” initial phase tends to be a sharp, steady trend, whereas the acceptance phase becomes a bit less tidy as the market is not going to make it so easy for obvious buy-the-dip situation to present themselves. Instead, you can expect some mini-traps here and there, even if we are far from a major top. Make no mistake, I am not interested in calling the top to this market, but I do think what we saw in the Russell 2000 this week might become a more frequent occurrence.
Overall, though, we remain in an intermediate-term uptrend. The bears were able to push the S&P 500 below 1400 this morning, and I am looking at 1390 as the next logical reference point, before we even come close to the rising 20 day moving average. I would also look at 5,200 on the Dow Jones Transportation Average as an important level to hold.
In sum, I am respecting the rules of the road that this market presents as it has entered the acceptance phase. As we move forward, it will become even more important to maintain your trading discipline, which includes not only cutting losers, but not getting shaken so easily out of stocks for which your stops were too tight. We work on these skills every single day, around the clock, inside the 12631 Trading Service. Click on the 12631 link to check us out.
They should post those signs everywhere.
Where do you find pictures for your blog? Ha! DOT should use some of these signs