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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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