If you have never read Reminiscences Of A Stock Operator, I would urge you to do so immediately, because in this book you will find one of those enduring trading quotes from the great trader himself, Jesse Livermore. And the quote is simply this ‘ Stocks are never too high to buy, and never too low to sell’, and whilst as traders or investors, our mind is often our biggest enemy, in the current environment for US equity markets, we would do well to heed these words and simply trade what we see on the chart. The big short will come, but not just yet, and for many who trade or invest with an opinion, these are deeply uncomfortable times as the primary indices continue their never ending ascent higher.
As I have referenced several times before, and indeed mentioned at the time of the US election, the extreme volume and associated price action was a clear and unequivocal signal of one thing. Buying by the big operators and market makers, and buying on an industrial scale.
Since then we have seen all the primary indices moving higher, and for the NQ emini, in a series of rounded tops as the index rises, pauses, reverses on relatively low volume, before continuing higher once more. This phase of price action has been marked with moves through several key levels. The first of these was the breach of the 4870 area, where a well developed ceiling of resistance had helped to cap previous advances in 2016, and indeed was tested several times, post the election, and denoted with the red dotted line on the accumulation and distribution indicator. This level was duly taken out in mid December, before a retest very late in the year. Solid volumes then helped to push the index higher still, thereby creating clear water below to the volume point of control which remains in the 4800 area, before moving quickly through the low volume node at 4975.
The high volume node in the 5050 area then created a temporary pause point, and with a low volume node now above in the 5120 area, this too has been breached as the index closed in bullish mood on Friday at 5162.50. The trend monitor has remained firmly blue throughout and only reflecting the temporary pause points of early in the month, and with the solid platform of secondary support now in place below in the 5075 area, any reversal or pullback should find this holds.
The NQ emini is once again leading the other US indices higher, and with the US economy now rotating out of late recession and into an early expansion phase, stocks in this sector are likely to perform well, as investment in IT infrastructure increases, with financials, consumer discretionary, technology and industrials leading the way.
And of course, if you follow the VIX then you’ll know where this is heading with the fear index now heading down into single figures on a technical breakaway of its own!
By Anna Coulling