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Good afternoon traders.
I don’t have a lot I can add today.
In sum, the market is strong here, and it’s exceeded my estimates for where I expected a top in both time and in price. There are 3 places where a market may be very strong:
- Coming out of a major low, or
- In the middle of a very big markup, or
- At a market top.
We can rule out the first. We’re unsure whether it’s 2 or 3, but I have been expecting that it is 3. If it is 3, we would like to see momentum indicators diverge from price at a high, and we have that:
We have excellent divergence between price and momentum at this high, as measured both by the MACD and the RSI on the daily.
We may also expect to see short squeezes, which we’ve seen. We first saw one in early June, as a lot of “shitcos” rallied very strongly. That was a good sign and it was enough, but we’re seeing the shitcos squeeze again. This is one reason why breadth feels strong here. There’s a lot of garbage participating. I don’t necessarily think that’s “healthy” breadth, as short squeezes in bear markets tend to occur right before the market begins a new decline. Now we’ve had two of them, and it’s ridiculous, but it could just be yet another sign that we’re ready.
We would also like to see some of the market generals begin to falter. We have that with some important names such as Apple and Microsoft, which led this tech rally in its early stages, but which now are not making new highs with the rest of the market. My views on Apple (here) remain the same as they were. It remains at risk where it is at now.
And finally, we would like to have a wave count and good fibs that are compatible with a high. And we have that, too.
So, we still have everything we need here. As far as tops go—if that’s what this is—it’s ridiculous in both time and price, especially on the Nasdaq 100. But, tops are silly and difficult and so I’m not particularly surprised by any of this. It’s difficult to endure, and I look a little foolish at this point, but I think that’s a normal feature of a topping process and I’ve gotten used to looking silly for a moment during these times.
Now you’ll hear folks often say you “shouldn’t pick a top,” but that’s sort of silly. They say that typically to bears who are seeking a top during a period when attempts to do so are in vain. But don’t forget, bulls also need to pick a top, too. At some point they need to get out, and it sounds like fun and games to not pick a top until the market turns, and then everyone wishes they had tried to pick a top. Sometimes you can reverse a month’s advance in a few days. So, anyways, this part is difficult and silly, but it’s a natural feature (the difficulty) and I think it will pass soon.
I like the momentum indicators, I’m glad the short squeezes on the garbage may mean those stocks are free to fall again, I like the relative weakness in some market leaders, I like the wave count and its wave balance. And I love the VIX.
I hope everyone has a good evening.