We did a little work in the TL Notes yesterday showing that HUI ticked its higher high, which we very much want to see for the forward bullish view. I did some profit taking on non-core items. A pullback seems likely today, but we’ll see how it shakes out.
I also did a bit of profit taking in broad market items and there too a pullback is indicated in pre-market. I’ll stand ready to do more because as we’ve been noting lately, the risk vs. reward (RvR) is now much worse than it was in mid-March. The daily VIX shows how greatly compromised the RvR is now.
Yesterday SPX poked through the upper end of the resistance zone we’ve been watching. If that was real the sharply declining SMA 50 and a gap at that level would be next. Beyond that, the SMA 200 and a gap around the 3000 level await. But now it gets more difficult for a bullish stance because any pullback comes against that worsening RvR. Speaking personally and with my contrarian hat on, it’s a lot harder for me to be brave than it was a month ago.
The markets gapped up yesterday and unlike HUI for example, they did not fill that opening gap. They never even made a hint of it. So today they are re-thinking that. Any pullback is now a concern, but by the same token a gap fill would not represent any appreciable technical damage. Within that context today’s implied pullback is just normal, and just noise.
NDX was relatively strong and its gap lurks well lower than the implied open. I think it is worth watching this index for its leadership signals, whether positive or negative. It filled a gap yesterday while also leaving yesterday’s opening one. As with SPX, there is no technical damage implied by the open.
Bottom Line
For me it’ll be a matter of what do I want to sell and what do I want to hold. The rally is ongoing until it no longer is, but personally I caught myself feeling satisfied and greedy yesterday. I thought I was smart. The cure for that? Take profits! They were earned because I bought while many were terrified. I may or may not raise more cash today. But the above gives you a view of an unbroken rally that has been at increasing risk. They are broader indexes – and my holdings tend to be strategic for the times – but the best measure we have to go by is the broad market, speaking for the US at least.
