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With the market hitting a new all time high after a 30% market run and V bottom, I am reminded by a few classic trading adages.
"Never buy a new low, never sell a new high."
Zooming in too much often gives traders false signals. We have been trending higher since the buy signal April 24th and every single market test consistently gets passed. We had a few weeks of chop, crowd begins wondering if the top is in, we test support and absolutely rip. While we are a bit extended to the upside after 5 straight green days last week, we want to understand the underlying trend.
"Buy the first pullback after a new all time high."
The 2nd Quarter ends Monday, and with such a strong market rip into quarter end, some window dressing may be taking place. We know the 20ema is where the buyers lie. We have seen it over and over again within this trend. Buying stocks while we have been extended from the 20ema, as we will be heading into this week, has been a choppy endeavor. Buying pullbacks has continued to work over and over again in this trend, so we will continue to do so until the market changes course. The SPY closed at $615 Friday, the 20ema support is $15 lower at $600. If we chopped and digested or even pulled back at the start of the new quarter, it shouldn't take anyone by surprise because of the most recent extension to the upside. We don't want the market getting too overheated. The slow and steady rise will keep money rotating and setups pumping. If we do continue to rip higher at this rate, we run the risk of creating exhaustion later in the month. In these scenarios in the past, when we've gone on exhaustive runs, especially late summer, it has lead to months of broad market consolidation before the next move. I point to the 2023 example below. As always, we will take it one day at a time.
"Rotation is the lifeblood of every bull market."
Friday we saw market leader PLTR taken out to the woodshed selling off 9% while the QQQ pumped to new highs. Many will see this as a major cause for concern, but we are seeing great rotation under the hood. There is no reason this trend can't continue over the intermediate term. There will be 5% pullbacks along the way so it's of the utmost importance to understand where the market is trading in regards to its trend compared to where buyers/support are.
Summer trading? Not anymore!
The market used to move like molasses in the summer just a decade ago. Over the past ten years, the market has gotten its most accessible by a long stretch. I vividly remember sitting in the prop firm's office early July 2014 with the market just being absolutely dead. The SPY would trade in a 40 cent range for 6.5 hours, effectively watching paint dry. Nowadays, there is no real change between the summer and the rest of the year. We do have a holiday shortened week with 4th of July Friday where volume will taper off Thursday. Speaking broadly here though.
Overall, market is still within trend. These times show the power of swing trading and following the rules as sticking with names for the longer term move has been paying especially well. Keeping things simplest in regards to market outlook is typically the best approach. Keep an eye on market rotation in the coming weeks. An early July pullback would be a gift in my view.
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