Quick Take: Tempted by the Punch Bowl?

By Andrew Nyquist
Are we there yet?  Are we there yet? Feels like an endless state of bliss. But partying at high altitude can be dangerous.  And the effects can be longer lasting (than one expects). If you are profiting handsomely, be sure to give yourself a reality check by revisiting (or creating) a game plan.  And as you lighten up, be sure to allow the stock market time to breathe when it decides to pull in.  And this doesn’t mean buying every small dip after you’ve lightened up. This is geared toward active investors.

You see, that is the difficulty stock market bulls and bears deal with when sentiment moves heavily in one way or the other. They get a bit drunk off the punch bowl, and there are lingering effects. For instance, after prolonged euphoria, many active investors/traders will not believe the pullback when it happens and try to test the waters many times because they are conditioned to buy the dips. Same thing goes with despair (remember summer/fall last year… no one believed the rally out of that morass).  Now, I’m not saying that there is going to be a huge market pullback.  Rather, I am giving examples in an effort to maximize profitability for investors.  Nothing is worse than losing a chunk of change a week after you bagged some nice profits. Just a friendly reminder to be patient and execute your game plan.  Re-evaluate often, and watch for lower highs to confirm a possible trend change.  Then comes focus and more patience.

With that, let’s turn our attention to the charts. Last week I wrote that if the S&P 500 took out 1333, it may have its sights set on 1365-1370 (a retest of the 2011 highs) based on an inverse head and shoulders pattern.  And although we are getting late in the bull march, note that the S&P 500 is on bar 6 of a daily DeMark sell setup, allowing for the possibility of one last push higher over the coming 2-3 days.

That’s the uber near-term skinny.  I’m looking for the stock market to begin a multi-week pull back in the coming days. Sentiment is frothy and the S&P 500 weekly charts are on bar 9 of a perfected DeMark sell setup. I added to my position in SH this morning and plan to add more over the next 2-3 days.
See annotated charts below.

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Position in S&P 500 related short index fund SH.

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.