Should You Buy Because The Indices Are At New Highs?
Looking to the indices, on Monday, the Nasdaq rallied
sharply in early trading. Then, after drifting sideways to higher for much of
the day, it resumed its rally going into the close. This action breaks puts it
at new highs for the year and breaks it out of its trading range.
The S&P also put in an impressive rally.
So what do we do? Monday’s performance was
impressive–it was a broad based rally throughout virtually all sectors.
However, I would exercise caution for a few reasons: First, the indices are
overbought. Of course, this doesn’t mean that overbought can’t become even more
overbought. It’s just that buying an overbought market is usually not prudent.
Second, many of the strongest areas remain cyclical stocks including chemicals and commodity related
stocks such as energy and metals & mining. Gold appears to making a
comeback too. Third, my database generated very few meaningful setups tonight.
As I’ve said before, most of the time, this indicates that conditions are
not favorable for trading. Therefore, manage existing positions (e.g. trail
stops and take profits if offered) vs. establishing new ones.
No setups tonight. Be patient, if all sector continue to
perform as they did on Monday, we will see numerous setups on the first
pullback.
Best of luck with your trading on Tuesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
P.P.S. Learn my 10 best swing trading patterns and strategies in my new book.
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