Here are some excerpts from my Weekly Strategy Session, which I published and sent out to members earlier on Sunday. Keep in mind, the following is just a very small portion of the full Strategy Session. I also provide specific trading ideas and levels to watch on the indices.
Turning to the S&P 500, our updated weekly chart analysis illustrates that the 10-week moving average (light blue line) held true as valid support in recent weeks. Despite the wild price swings, bulls remained resilient. As we had noted previously, it was awfully tough to become aggressively short (e.g. north of 50% of a swing trading portfolio positioned short) the market, as a general proposition, with that under-watched 10-week moving average having not been breached. Also note price could push higher yet before touching or puncturing its upper weekly chart Bollinger Band, which would only then be a sign of quite overbought conditions.
Headed into this week, it would behoove bulls to now turn those 1597 prior highs into support. Doing so would also throw a wrench in the ‘”blow-off top” thesis, since a true blow-off would likely come crashing down through 1597 just as soon as it blew off.
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4. Charts of Interest
Treasuries continue to look vulnerable to the long-term topping thesis. They have been in a secular bull market for decades. However, as you can see on the updated weekly chart below, despite how difficult it is time a major top, Treasuries have struggled to regain sustained upside momentum since last summer.
For several quarters now, Treasuries have floundered. Friday’s aggressive downside rejection away from the potential right shoulder of a head and shoulders topping pattern (denoted by light blue lines on my chart) could be coming to fruition now. Furthermore, the bearish rising wedge (purple lines) we discussed in these Strategy Sessions dating back to last summer has yet to be negated by bond bulls. Recapturing $124 on the TLT ETF would be a blow to the topping thesis, however.
Also note that discipline remains paramount for breakout plays, even in a market where the major averages are printing all-tme highs. As an example, consider a stock like Shutterfly. The breakout higher was ephemeral, and subsequently reversed sharply lower. The best strategy when this occurs is to quickly take a loss and move on. The stock need not fall apart. But technically-driven swing traders are playing for the upside breakout momentum and must stick to that philosophy, as opposed to locking up precious capital in a stock at least in need of more time and consolidation before a true breakout occurs.
Finally, the “alternative thesis” we have looked at for a few weeks now is still under pressure but has not yet been fully negated. The alternative thesis focused on three sectors in the market which had led the way up and were now bearishly diverging from the major averages.
Those were some excerpts. To read the full Strategy Session, please click here.
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