We do have a minor correction going now in the stock indexes, which at the moment appears to be just a garden variety pullback. Certainly our first look has to be to buy any pullback now. If for some reason a failed test of the highs develops, we could then consider shorts. However, shorts have been wiped out over the last 2 years, so at this moment I would not get too excited about doing that. There are some other things going on that may be tipping the hand of the market which I will get to in a second. The Bernanke 2000 above formerly known as the Russell 2000, has been the weakest of the 3 indexes operated by the FED. Even this one has not retraced enough to get my indicator into a buy zone yet. Perhaps this means we are going further, perhaps my indicator will miss this long, we just never know.
One theme I need to impart to readers here is the following, don't trade against the trends. I was on the phone with a fellow trader yesterday who is fabulously successful at many things in life. However, he has one really bad habit, he is always picking points against trends to fade them. Every market we talk about he is positioned against what I consider the trend to be. I just cannot understand this at all. It is true that during times like right at this moment, you will lose money in being with the trend. There is no perfect way to trade. However, if you go back and just look at charts you are going to see that by and large, the biggest moves happen in the direction of the underlying trends. I just reviewed my trades for the last couple of months and without a single exception, my lousy trades occurred against the trend in the market.
If and when we get into a market environment where the trends are more sideways, then a support and resistance type of method would be the appropriate choice, but more often than not something is always trending somewhere, so that is where you need to go. The next chart is that of Copper. I mentioned this a couple of weeks ago as being much weaker than the stock indexes, and that was one fly in the ointment. If you study it you will see this market has been a good indicator for stock movement.
As the Bernanke led indexes have been making new highs this market has been trending lower. I guess they ran out of money to trade Copper! The next chart is that of the Weekly Bernanke 500 with Copper overlayed in purple. I have marked off the divergences in recent times including the current one. This has been a pretty darn good indicator of what is coming next. Since I am looking for a big picture top in the next month or so, this is something I am watching closely.
We also interestingly enough have a potential trap pattern reversal if last weeks low goes this week in this market. We broke out above a consolidation last week and now are immediately retracing. This is important. If we trade below last weeks low it is a potential sell signal for really aggressive traders.
Until any breakdown is confirmed I still think it is buy the dips but stay tuned.