I talk so much about daily trades because that is the time frame I primarily operate in. Above is a weekly chart of the SP 500, and the strength of the recent rally is loud and clear. I have marked on the screen what might be a pipe dream, but it never hurts to wish for something. A pullback of about 40 to 50 points would drop us into a very good buy zone. Will this happen? God only knows that. Every dip of even 15 minutes or so seems to be bought "aggressively." No sense spending any more time railing on this buying, readers know what I think is behind that. The big challenge is how to manage all of this.
If you step back and look at weekly charts a couple of things jump out. First, pullbacks against trends can provide great entry points to ride trends. Second, pullbacks in strong trends do not occur that often, so you need to be on them when they do develop. The stops are bigger so your size has to be smaller, but your gains will also be larger. If am hoping we pullback to the zone indicated above, and will at the very least look to aggressively buy stocks on daily charts if we get there. You can see how closely we are following the seasonal pattern here, so if that were to continue, a large pullback would not be likely. However, a pullback I think would surprise quite a few people, the world is certainly very bullish right now across the board on both stocks and commodities.
I am very surprised at how far some of the commodities markets have run, but as Howard Sterns father used to say to him, " I told you not to be stupid you moron." This is a planned escalation by the PPT so that is one explanation for why the crowded trades have worked for so long. I am a "dumb ass" for fighting this. In a normal cycle these excessive sentiments would reverse alot of these markets or create pullbacks in the trends. This is not a normal cycle. We just have momentum blow offs in quite a few of them. The problem that I see is that it is the weak hands that get involved late in things, which is what creates sharp reversals when they start. The weak hands tend to panic when they immediately find themselves losing money and push the sell buttons quickly. This can accelerate a reversal particularly at key points like 20 day lows.
It is very difficult to time when this will happen, and that is why reversal trading is such a difficult task. You take alot of small losses hoping to eventually catch big wins. The hard thing for me and most others, is that you get demoralized after a string of losses and therefore do not have the right mind set to hang on to the one big one you eventually get on the line. That is why I do not recommend trying to step in front of big trends. I have been run over my share of times trying to do it. So, for the average person, I think if you are not already long stocks, you should wait for a pullback, then get in aggressively. Today it appeared that one might be starting, but there have been alot of fakes and the PPT has made a habit of late day saves on all of these, so we won't know until a day or two from now if this is a pullback to look to enter on, or just another small wiggle that "they" corrected quickly. One of them will ultimately go down for a few days, but it is impossible to know which one in advance.
As a shorter term trader I am trying to play these, but have been kicked around a little trying to do so in the last month.