Yahoo Finance How to handle market highs
Breakouts everywhere!
Charts aren't the be-all end-all of trading or investing, but they are undeniable. Managers can fudge numbers and accounting standards can vary to the point of noise in the hands of a good CFO. A chart, on the other hand, is simply a historical record of the price of an asset at a particular date. Time runs left to right, price goes up and down. If you buy something that subsequently forms a pattern moving from the lower left to the upper right corner you win.
Everything else is just noise.
So while Fed Chair Janet Yellen blathers on and computers trade back and forth based on key words I think this is a good time to look at the number of good looking charts we have out there and how to play them.
Start with our buddy the S&P 500. The index for grown-ups is making yet another new high today. I'm starting with this one because it has the cleanest breakout. That means it also has the most obvious support. Remember when we broke out above the 2014 highs at 2090? That's now a bottom. That means technicians will be looking for buyers to come in if, and when, the S&P 500 pulls back to those old peaks.
This has played out perfectly since we got our breakout on February 12th. Every day for the next five straight trading days the market made lows within five points of 2090. For context, the market had been moving an average of almost 2% a day going into February and it found a bottom within 0.2% of the same level five days in a row.
You can call it a coincidence. I don't much care. Anything that accurate can be traded.
Technicians also like to see confirmation from a bunch of different sectors. We're pretty bullish on that front as well. Look at the Russell 2000, also making new records today. These are small cap stocks, the thesis being that they have most their business in the U.S. where currency doesn't kill them.
Then of course you have my sweet, sweet Nasdaq. I've been talking and writing about Nasdaq 5000 for a year. I've actually got a side wager on it at least touching 5000 before the close next Friday. So, yes I'm biased but I'm also talking my book. Would you rather I talk about sectors I don't like enough to buy?
Ok... I can do that. Here's the fly in the ointment.
The Transports are in decent shape but still below where they were trading last November. If and when these breakout the bearish case against this market, at least on a technical basis, will be pretty much discredited.
Of course then we'll be forced to talk about the fact that earnings growth for the year is expected to be less than 3%, down from 8.2% on January 1, but we'll cross that bridge when we come to it.
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