The Song Remains The Same

By All About Trends

Yesterday we said:

“IF we are going higher we are going to need some sort of digestion or consolidation of gains via sideways (preferable) or slightly down (orderly pullback) before we can

get another surge higher IF we are on our way here.”

1-3 As you can see since peaking here we are consolidating at the highs which is a positive short term. Make no mistake though we are extended and so are tons of names so feel free to prune some holdings and raise SOME cash because that is what you do when the market rips. Buy the dips and sell the rips right?

Right now we find ourselves asking the question of whether this run off the November lows is going to end up being just an ABC up (which is what we currently are showing) or its going to end up being an ABCDE (which is the same thing as saying 5 waves up) affair. IF we are going to go the full tilt ABCDE 5 waves up then we've got waves D and E yet to rear their heads which means digest gains (D) then a final thrust higher (E).
IF this is just an ABC (3 waves up) ? then we'll stall and chew around here put in some sort of topping pattern then break hard to the downside.

Notice the full stochastics are getting overbought here?  We also said:

“More often than not when we are this close to retesting a high, in this case a retest of 2012 highs those highs can tend to act as magnets.”

1-4-2013  When you look at the SPX you can actually say mission accomplished aside from some intra-day spikes into the 1470 levels back in April/May of last year. However,  because we are consolidating at the highs here in an orderly digestive fashion we wouldn't be surprised to see the 1470s in the short term.

So if we can continue to work off this recent gap and go via time odds would favor another thrust higher before its all done, or we just go straight up there without consolidating and overbought gets more overbought. No matter, though as it's slim pickings here on the long side from low risk entry points which should come as no surprise.

Should a full blown retest of highs occur it brings up another interesting point we want to make and this is to be aware of a shake and bake shake out high into new highs, remember the new highs and dies scenarios we've talked about in the past? We'll touch on more of that the closer we get IF we get there.

So what are we buying today? Nothing as we don't chase buses. As usual those who were willing to take the risk are the ones who got paid and that's always the way it is. We're all for going long but we're not seeing anything right here that makes us want to stand up and take notice.

A digestion and consolidation of gains over the next few days ought to relieve the short term overbought status and THEN we can look for some hit and runs.

We do have some short sells setting up inside our watchlist and we stress setting up.

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Posted In: MarketsTrading Ideas