Sunday, July 31, 2016

Market Update: higher again?

Stocks have been range bound for 2 years. Now, is there an upside breakout?

Let's look at the QQQ ETF. Here is a 2-year daily chart:

My interpretation of the current situation in the QQQs is strong upside breakout from a 20-month diamond pattern that continues this historic bull market that started in March 2009. One of the most difficult things to accept about this interpretation is that stocks have been on such a historic and powerful run, gaining around 250% since early 2009. Since stocks have gone up so much, could they continue to go up? This diamond interpretation of the price action says yes.

It is so difficult to accept what is in front of us. Of course I could be wrong and this continuation diamond pattern interpretation can fail. You don't have to be persuaded by the diamond interpretation. What you should not do is trade based on what you think stocks "should or "must" do. There is no should or must. There is only what is, and one interpretation of the current situation is a strong breakout from a large continuation pattern. You don't have to agree. You don't have to trade. Sitting on the sidelines is often the most profitable thing to do.

If you want to go short, your opportunity will come. Until then, wait.

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