Saturday, July 13, 2013

Outlook for the Week Ahead With Setups - "Looking for Rest, But Isn't Everyone?"

After another very strong week where stocks gapped up several times but did their best Energizer bunny impression anyway and just kept "going and going and going", it should be an interesting week ahead.   Lots and lots of people are looking for a pullback, either to get into the market more aggressively or simply because it makes sense for how far we've moved in a short period of time. Just because people are looking for a pullback doesn't mean it will happen however.

The Nasdaq has been now been up 12 of the last 13 sessions and is more than 2% above its 9 day EMA for the first time since January 1.   Oddly however, when looking at some of the other overbought indicators that I like to use, the market doesn't look nearly as overbought as it did back then.  I certainly think some rest is overdue and would be good for this market, particulary if the rest is similar to what we saw at the beginning of the year, when the market traded calmly and just slightly lower, which allowed the 9 day EMA to catch up to price and act as support for most of the next month. 

 RSI(2) Custom Indicator
 T2106 from Worden

I am still seeing quite a few setups that look good and the market timing score is as high as it has been all year, so there is no reason to not take setups as they trigger.   Again, rest would be good and I would not chase extended stocks at all - let those ones set up some flags - but the market can rest and individual stocks can still go up.  Breakouts were a little tricky last week (at least for me) as I saw many that reversed and gave back all of their gains either the same day as the breakout attempt or a few days later, but there were a lot that did work well.  If the market doesn't rest early in the week, I might look at selling into breakouts a bit more, but if we get some rest and stocks breakout well, then holding them tight is the best play. 

All Charts from TC2000, Courtesy of Worden Brothers, Inc.

Good luck going forward - an ideal week of trading would see the market trade calmly throughout the week and move sideways to just slightly lower on the indexes while individual stocks still made nice moves each day underneath the surface.   Throw in a few nice earnings pops as the season is going to start up again in earnest this week, and we would have a perfect trading week.   Too bad it probably won't happen that way but we can dream.   Take care and best of luck.

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