Momentum continues to carry the Dow higher.

The rotation into blue chip stocks continues to propel Dow higher.  The sheer momentum of the Bulls continues to plow right through the Bears that tried predicting a top.  Although this momentum seems unstoppable at the moment, it is a reason to raise your caution levels.  If the SPY, QQQ and the IWM were participating in this move, I would be much more comfortable.  However, after nine straight days up in the DIA with all the other indexes not going along creates an unnatural imbalance.  Stay with the trend because as of now there is nothing to indicate it is over.  Focus on the price action because it’s there where we will first see the clues of reversal IF it does come.

On the Calendar

We begin this week with a very light Economic Calendar that slowly ramps up for a few important reports later in the week.  Today there are few insignificant reports along with bond auctions and announcements.  Then we have Fed Speakers at 11:45 AM Eastern and 1:25 PM to round out the day.

The Earnings Calendar starts off at full speed today with nearly 225 companies reporting results.  So, remain alert and keep those seat belts buckled as emotionally charged price action continues.  Do yourself a favor and find out when the companies you hold or are thinking of entering report results.

Action Plan

Friday was a light volume choppy day but a push right at the end of the day closed DIA just $0.03 off the high setting another record close.  Both the SPY and QQQ’s remain locked in consolidation while the IWM remains bearish below price support and trend.  Futures once again are suggesting a gap up open with the DIA leading the way.

It’s amazing how only a few companies in the Dow in have been able to hold up the entire market.  This kind of imbalance makes me very nervous and watchful of a reversal.  However, betting against this kind of wild bullishness is unwise as there is no telling how long it could continue.  With this being the 9^th day of the DIA run and the 8^th gap up one would naturally think a top is near a begin to bet against it.  Momentum such can last much longer they anyone expects and may actually gain energy, squeezing out short traders that tired predicting a top.  Thus I will continue looking for long trades, but I will also be willing to quickly capture gains or cut off losses if the price action begins to signal trouble.

Trade Wisely,

Doug