September 13, 2010 at 11:32 am | | Comments 3

A Good Time to Lighten Up

As I watch the action today, there’s reason to be impressed. Heading into today’s session, the market had posted gains in 6 of the past 7 sessions, and had moved right up to (or through in some cases) key resistance zones.

That would have been a very logical spot for some profit-taking, or at least some rest to kick in, but so far today all we have is more strength as the market tries to make it 7-of-8. Each of the major averages have pushed through their respective resistance levels. The NAZ has filled its gap to 2277 from 8/11 and the August high isn’t much of a stretch from here. The S&P 500 has motored well beyond 1107 and is just a few points from big resistance near 1130. The DJIA is through 10,480 and only a short distance from former resistance and the broken uptrend line at 10,600. And the RUT is now well past former broken support at 639. Needless to say, the longer-term technical picture is looking far better than it was just a couple of weeks ago.

Look to the Left

But that doesn’t mean the bulls are in the clear. Not in the intermediate term, at least until the August highs are cleared. And not in the short term, given that this move is becoming extended.

Momentum in the market is a funny thing, because it can be completely absent and then suddenly dominate the tape. The buyers have momentum right now, and I’m not in a hurry to fade that. But at the same time, I’m also in no hurry to chase it. In the past several months, we’ve seen plenty of moves of similar magnitude to that which has occurred since August 31st, and a number of them have delivered at least short-term reversals. Piling on in expectation of immediate continuation has not been a strategy that has paid well.

As a technical trader, I let the charts guide me. I watch for patterns and trends, yes, but I also must monitor the overall behavior of the market – the habits of the price action, if you will. At some point, continuation beyond multi-day moves will become more commonplace, but if recent history is any gauge – and particularly with major levels looming just overhead – my inclination here is to be more cautious than aggressive.

A Little Caution Goes A Long Way

For those who are bulls, I think better prices will arrive for getting long. For those who are bears, there is no proof yet that this bounce is over. And all of that leaves me feeling that doing less here is best – at least until some rest is seen.

If you’re seeing some good trading opportunities out there for the shortest of timeframes, there’s probably no harm in taking them. But for a multi-day timeframe, I am not a buyer in these conditions and would much prefer to see a pullback or some rest before considering longer-lasting trades on the long side.

Here’s a look at the NAZ, which has moved more than 8% off support in just 8 sessions – is that really sustainable?


Chart courtesy of StockFinder

Be careful out there.

Trade Like a Bandit!

Jeff White
Producer of The Bandit Broadcast

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  1. I agree this move has extended to the point of exhaustion now. I would like to see a pullback to 1100 on S&P, before buying stocks.

  2. Will you post any individual plays that may come into focus if the market does retract a bit near term?

  3. Hey Ted,

    Thanks for stopping by! I may post an occasional setup here, but I reserve my daily plays for subscribers over at

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