After consolidating in a sideways range for five days, the Nasdaq Composite broke out to a fresh six-month high yesterday. Leading stocks outperformed the broad market as well, enabling the swing trading stock and ETF picks of our premium newsletters to surge higher. But now, recent price action in the broad market has been perfect for attracting what we refer to as the "late to the party Charlies" ("LTPC").
The LTPC are retail investors and traders who don't believe the power of a rally while it's happening, so they watch stocks move higher and higher. Meanwhile, they say to themselves, "I will get into the market when we eventually get a pullback." But when the pullback doesn't come, or is very minor, such as a sideways correction by time instead, they begin to feel strong feelings of regret. When stocks subsequently make another leg higher, without having undergone the pullback they were expecting, the feeling of regret turns to fear of missing yet another move higher, so they finally give in and decide it's time to start buying.
When the LTPC finally start buying, the market has usually already made the bulk of its momentum-based move, and a short-term top is near. Typically, the LTPC get in the market just in time to suffer through a significant correction. The daily chart of the Nasdaq below shows why the LTPC are probably starting to enter the market now:
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