Breadth Still Pointing Higher

  • Posted by
  • on August 30th, 2011

We’ve rallied 500 points on the $DJIA since Friday morning.  A rally of that size warrants a rest, but my evidence is quite clear in favor of continued strength.  I’m under-positioned for this because I’ve been Pavloved into not chasing price 3 days into a rally or selloff, but we all know stocks move way further than we ever think they will.  I still have the same Long Oct/Short Sept call spread I had then, with some tweaks along the way but not nearly the aggressive stance to match the overwhelmingly bullish evidence.

I intentionally ran my numbers near the lows today, to ensure that the essence of trend was still higher despite the day’s weak start.  The numbers are still yelling “Bullish” at me; I hate that part of me that screams back “Bull….” but can’t help but recall the nasty July/August breakdown looming overhead. Regardless, I have 98 stocks passing my long screens against only 3 shorts.  It spans across sectors from stocks like $MSFT to $COG to $LTD to $MJN.  Pause, sure, but that’s just not how it looks when we’re about to plunge.

Call it a flaw in my methodology but I have no way to predict the end of this emerging strength; I only know how to recognize when it no longer exists.  It might end today, or it might last for months like real bull runs do.  If I can’t maneuver in and out before the big tankers do the same, that is my fault not the method’s.

Too late?  Shift the starting date and you could say we’re flat over the past 2 weeks.  Go back a little further and we’re down 10% in 5 weeks.  And we all know the tale of zero progress since 1998.  Overbought and oversold are fictional terms to me…we’re all inclined to sell bounces & buy selloffs too early and this bounce looks like it has more to go.  I mentioned the $SPX 1250 level last week as a potential target, and that still seems plausible.  That’s way higher than seemed logical at the time, but not that far down the road from here.  Risk/reward isn’t nearly what it was, but until we show signs we’ve reached our “To” this is still a “From the Lows” rally with a ton of energy behind it.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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