Today the Dow climbed to a new all time high and the Nasdaq resumed its rally. On this leg of the rally the Nasdaq has been leading with its trend clear. I made the case for a quick scalp on the downside, but other than that there was no reason to question the upside. However, the S&P was less clear. It was developing a series of lower highs and lower lows with declining momentum. Maybe this pattern was setting up as being too obvious, and what is obvious is usually wrong. I did suggest yesterday that unless the S&P could take out that pattern of three declining tops that it could back and fill for a while. As it turned out the S&P blasted through that pattern today. The downturn a couple days back probably encourages shorting and todays gap up probably sent them covering. The downtrend line has been clearly broken and momentum has turned back up. The Dow has an almost identical pattern. The problem with writing a commentary based on the close is it’s hard to change course when market conditions change during the following session. I don’t want to make this a daytrading blog and don’t want to be updating, at least at this point, during trading hours.
For now I would be only looking to the long side unless, of course, this breakout collapses. It is common for a breakout to return to retest the breakout line, so I’ll be looking at that for support and plan to buy any pullbacks. If support fails I’ll re-evaluate.