Bullish But Stretched

Bullish But Stretched

There is no doubt that the Bulls are firmly in control as this rally continues to set new records daily.  Both the DIA and the SPY showing impressive strength while the rally in the IWM has been nothing short of incredible.  I think even the most enthusiastic traders would have to admit at this point the market is Bullish but Stretched.  Could we continue going higher?  Yes, we absolutely could, but the likelihood of a profit-taking pullback is growing.  It’s my opinion that trying to enter this run now is like a dog chasing a loaded truck and at high risk of being run over.

On the Calendar

Before the market open, we have the ADP Employment report on the Economic Calendar at 8:15 AM Eastern.  The ADP has been missing the actual number for months, and I think has begun to lose credibility with traders.  The August ADP was 237K while the actual came in at 165K.  Obviously a huge swing and miss.  The September ADP is looking for 140K.

At 9:45 AM we get a reading form PMI Services, but the more important number is the ISM Non-MFG Index at 10:00.  The ISM forecasters are calling for the September number to come in at 55.5 vs. the August 55.3.  At 10:30 AM is the very important EIA Petroleum Status Report.  The current rally in oil stocks would suggest the market is expecting further declines in supplies.  We have a Fed speaker at 3:00 PM and then the Fed Chair speaks at 3:15 today.

Action Plan

Currently, the futures are suggesting a flat to slightly lower open this morning which should not be a big surprise after such a strong run.  I believe the market could begin to show some stress and as a result, profit-taking could begin at any moment.  Please understand I am in no way shape or form suggesting bearishness because there is no evidence of that in the charts.  The VIX moved slightly higher yesterday even as the overall market us rallying.  That’s odd but could be a small clue to the stress I mentioned above.

My focus as always will be on the price action, and I will be much more inclined to take profits today rather than entering new positions.  I love selling into strength!  Like the song says, know when to hold em, know when to fold em, know when to walk away and know when to run.  I think is time to consider putting some money in the bank and walk away from the table for just a little while.

Trade Wisely,

Doug