Let's jump right into the chart:
When I look at this chart I see a very bullish, yet mature uptrend. The market has been doing what it is supposed to be doing, which is stair stepping up - back and fill. This brings me to a very important concept - the 3 day rule.
Day one, smart, well capitalized, confident traders buy, effectively buying up the remaining stock for sale within a downtrend which then pushes the stock higher, creating a reversal candle. You can tell a candle is a reversal candle as it often forms a decent sized wick on the top or bottom of a candle. Look at the blue arrows on the chart above. Both of these candles have top wicks.
Day two is when the semi-smart money notices there is a tradeable bottom in place and jumps in, giving credence to the rally of day one.
Day three is when the tentative, often "retail" crowd buys - and guess who they are buying from? Day one traders.
Look at all of the circles on the chart. These are examples of the 3 day rule in action. Today, we rose for the third day and formed a top wick as the buying petered out. Normally I'd just make a mental note that we may be in for a little pullback and to buy after we retrace about half of the last leg up. This time however, I am on heightened alert because of the chart below:
This chart warns of a double top right here at 1407. We are pretty extended above the 200ema, and in a vulnerable position. The adage goes "loose lips sink ships"..One off comment could start a nice correction. Our corrections have been between 30-50 points each time since June. Ask yourself - is this the time to get majorly long in anticipation of a breakout?
Look at this chart with the fib's applied:
A normal retracement is 50%. Look to the left to see where the last ledge of support was - April 9-23. This would be the first target of a correction, SPX 1370, a nice round number and consistent with the point range of the prior corrections. It is a plausible theory.
Am I saying we're in for a 30-50 point drop starting tomorrow? No! I'm just saying before you click on the "confirm and send" button, give a little thought to where we are in this move. Nothing goes straight up or down, and we have a viable case for the market to take a little rest.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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