Coming Soon: Look For One Of These Types Of Pullbacks
A busy schedule is forcing me to keep things short today,
but I thought I would quickly follow up on Wednesday’s remarks. At that time I
mentioned that the market was due for a pullback, and that if it occurred,
traders should look to get long. What occurred last week was a very strong sign
for the market. Rather than pulling back, the S&P simply consolidated sideways
for a few days before moving higher. (I would not define the action as a
pullback on the daily bars because a lower low was never made.)  The Nasdaq’s
sideways consolidation DID include a one-day pullback (11/10 with a lower high
and lower low than the previous day).
In strongly trending markets,
pullbacks can sometimes be very brief. It is not usual that you will see a nice
looking 4-day pullback on declining volume that is halted right at an obvious
support level. Very strong markets (both up and down) many times will offer
little opportunity for entry. This is what I saw last week. The market became
overbought and started to drift. Everyone was expecting a pullback due to the
overbought condition, and because of the true strength of the trend, all it did
was pause before starting a new leg up.
So does this mean the market is
never going to pull back? Of course not. The S&P looks as if it may be
beginning to pullback as I write this. What it means is that the trend is
strong, and therefore, pullbacks may be quick and difficult to catch. The next
one or two pullbacks will most likely take one of the following forms 1) Very
shallow, allowing little opportunity similar to what was seen last week 2) Very
sharp and scary but brief as the Johnny-come-lately’s get whipsawed out before
seeing the market reverse sharply again and make new highs.Â
Don’t chase the market because
you’re afraid it is running away from you, but when the next pullback occurs,
make sure you’re ready for it. Have an entry plan (with stops as part of that
plan), and trade that plan. Don’t hesitate to enter a planned trade, because if
you hesitate, you may miss your opportunity.
Best of luck with your trading,
Rob
Â