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New High . . What’s The Problem ? November 2, 2019

Posted by Tom in Thoughts.
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Nov. 1, 2019 – OK, the markets are at / near all time highs so what is there to worry about?  Maybe nothing, but then again maybe there is at least some concern.  I’m changing the perspective and the time frame of the regular chart of the NASDAQ Composite Index (below).  The daily bars show us one thing but weekly bars can provide us with a different perspective.

I’m taking a liberal view of what a “top” is on this chart so bare with me.  The chart goes back about 17 months and the area over a year ago (mid Sept., 2018) is labeled “1”.  Thereafter we see labels at the swing highs / peaks of 2, 3 and 4.  Each time the market gets near the current level it has pulled back, and sometimes very quickly and significantly.  Presently many of the indicators are positive, thus indicating strength and continued prices moving higher.

Now I’m not saying that the market has to correct and head lower, it’s just that we’re once again at / near an inflection point.  I am currently “long” this market because in the short term it is headed higher as far as we know.  From a historical perspective one could have gone to Cash over a year ago and not missed much, and actually come out ahead.  The question to ask is what makes this top, top #4, different?  Or perhaps we’re in a very broad trading range and need to be quick on our feet to make any type of head way.

In any case we will have a much better idea within a few weeks.  Either the markets will continue to trend high after this current breakout, or it will confirm a “shake out” of the last buyers “holding the bag”.  I’ve read where the big institutions are very reluctant to buy into this market at these levels. The point being that we are closer to the top, than we are to the bottom.  It’s been a while since the trend bottom; an unusually long period.  I feel it’s a good time to be nimble and extra careful because the next minor correction could be more than that.  Let’s watch the bar action and confirm them with volume.  Signs of a rush to the exits are wide range down bars on high volume.

In the mean time here’s a table of short term sector strength –

Have a good week.      ………  Tom  ………..

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