The theme in these posts has largely been the mixed messages that the market continues to flash. By now, it is fairly obvious that the small cap-dominated Russell 2000 index has noticeably underperformed all year, even during the uptrend back in the winter months. As you can see below on the first two weekly charts, while the mega cap-led Dow Jones Industrial Average made multi-year highs (as well as the S&P 500 and Nasdaq Composite), the Russell failed to come close out exceeding its 2011 highs. Note the negative divergence. I have been saying since April (actually late-March inside 12631), long before most caught onto the notion of prudence in this tape, that cash is a valid and powerful position for individual traders during corrective periods.
However, there have been quite a few actionable, long-term opportunities in the large cap space that I have covered in this blog over the past few quarters, such as Wal-Mart, Berkshire Hathaway, Discover Financial Services, and Target. With that in mind, see my notes on the third chart below, as TGT appears ripe for another entry on strength after its initial long-term breakout.
Bears will argue that the negative divergence in the Russell is sure to point to another imminent bear market. However, with the plethora of still-rising 200 day moving averages on the indices (including the Russell itself), the shorts would do themselves a favor by looking at how those “sure thing, can’t miss” short bets fared towards the bottom of each of the past two corrections, which just so happened to coincide with the number of cocky trolls who crawled out from their sewers sure they had the easy money trade figured out.
In other words, major bull markets–even mere cyclical bulls like this one–can take their sweet old time to form tops. Recall the summer and fall of 2007, where we saw a near-daily push higher that seemed to bankrupt bears on the right side of the fundamentals but on the wrong side of the tape until 2008 hit. Of course, the bears were right in the end, if they were still solvent or had not stopped out. Despite the small caps clearly underperforming, to rule out another sustained leg higher in the markets in the coming months could easily be a fatal error for many an ursine-natured trader. Consider that the long-term uptrend in the NYSE Advance/Decline line has yet to be breached.
Finally, even though the transportation sector as a whole has been weak over the past several session, note the continued relative strength in mega rail Union Pacific, on the fourth chart below.Mixed messages, indeed. But Union Pacific, the largest publicly-traded rail in the world, has not given any indication of an imminent bear market.
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I feel in this post more than any other you despise even the foot prints of bears.
…I like it.
@half: Not quite. I despise both permabulls and permabears. They are harmful to your portfolio over time.
… it always DUMBFOUNDS me at the complete lack of understanding that BOTH … BULLS and BEARS play … in the liquidity AND the movement of stock prices !!!
Quite revealing really … of the widespread ignorance that abounds !!!
SIGH. !!!
.
@alf: of course. It all depends on your timeframe and trading style
… yes !
Always !
—
Nevertheless … the “hatred” for perceived “BEARS” … is … palpable !!!
Sadly !
And, largely because of a lack of understanding about how “Markets” work !
.
Thanks for that follow up comment Chess. I wasn’t sure if you were a long only trader or what but your comment is great. And thanks for the daily vids I really appreciate them.
I can be as aggressively short as anyone with a declining 200 day moving average on the major index charts.