Bullishness or Irrational Exuberance?

There is a very thin line between a bullish market and irrational exuberance.  After the 9^th day of rallying straight up, I’m not predicting irrational bullish behavior, but it would be foolish to think this kind of price action will continue forever.  Good earnings reports could continue to encourage buyers to pile on, and exuberance can continue much longer than anyone would expect.  So what is a responsible trader to do?  Trade with a plan!  It is only with a plan and the discipline to follow it that you can avoid predicting and emotional trading.  HRC and RWO have proved over and over that planning makes the difference in profiting consistently.  If you’re not planning I have to ask, What are you waiting for, an engraved invitation?

On the Calendar

The Thursday Economic Calendar begins with the Weekly Jobless Claims and the Philadelphia Fed Business Outlook Survey at 8:30 AM Eastern.  Labor demand remains very strong, and forecasters see jobless claims falling by 1000 to 246K last week.  Growth in the factory sector has been exceptional in the Philadelphia Fed index. The index came in at 27.6 in June with the July consensus at 22.0. Order readings are at extraordinary levels and points to an overheating at least in the Philly sample.  Leading indicators are at 10:00 AM, and after that, there is a pile of bill and note announcements.

Today is the first big day of the 3rd quarter Earnings Calendar with 128 companies expected to report today.  Some of the notable reports would be EBAY, MSFT, KEY, and V.  Make sure you are checking current holdings and potential new trades for earnings dates as part of your daily planning.

Action Plan

The Bulls showed some incredible strength yesterday stampeding higher with no fear.  The SPY was the strongest of the indexes with buying right into the close and yet another all time record high.  Bullish buyers even lifted the IWM which has lagged behind the rest of the market to new all time record highs.  With the 9^th straight day of gains, even the QQQ’s managed a new record high close having sliced through multiple layers of price resistance as if they were never there.

To me, the overall market seems to be displaying irrational bullishness.  That can continue as buyers continue to pile in feeling as if they are missing out.  However blind bullishness can also create some very nasty reversals.  Make sure you are protecting your profits and have a plan on every trade in case the market suddenly turns.  I will likely be more focused on taking profits today and tomorrow than looking for new trades in an over extended rally.  Having said that there are so many great looking charts setting up.  If earnings continue to attract buyers, it is entirely possible this rally can extend even more but if you do trade make sure you entering low-risk trades rather than chasing trades already will within their run higher.

Trade Wisely,

Doug