Trading against the trend is only considered when prices are extended — but even that can be a low odds trade. Extended can always become more extended. As mentioned in the last letter, the internal gauges have reached a bearish extreme but it’s unlikely that the broader markets will have a decline of any significance. I also said, “Their historical accuracy that has guided over the years should not be ignored.” What now?
Broader Market Charts
Since our update on the 12th, the broader markets were able to eke out one more day moving higher before starting to correct within the recent uptrend. Does that mean that the uptrend is over? No, it’s not over until it’s over; meaning, when it no longer meets the definition of an uptrend, which is higher highs and higher lows, then it’s over.
Right now, the pullback is simply one within an uptrend and typically that means buy that pullback. However, with the internals at a bearish extreme, the buy historically is low odds. So what should we do?
Well, the simple action is to do nothing and to start getting ready for the holiday coming this weekend. Happy Holiday’s to you all.
The other action is to buy at when the price pattern used signals to do so, and manage the trade. Another is to trade short-term options around compelling patterns. Although the VIX is low, shorting weekly bull/bear credit spreads can still be quite profitable.
All the above charts look higher. Finally, the Nasdaq 100 ETF QQQ moved to a new high and joined the party, that’s good. A retracement to Minor Support (mS), the green line, and or the 20-MA is where buyers should step up.
MULTIPLE TIME FRAME ETF MATRIX
The sector multiple time frame matrix above still has up trends in most sectors in the weekly and daily time frames. That's bullish.
As a general guide, those with weekly and daily up trends, but a down hourly trend, should be considering buying opportunities and vice versa for weekly and daily downtrends (but hourly up trends).
This assumes that trends in the higher time frames will resume.
We’ve added a + sign to signify a positive change from a prior trend in that time frame and a – to signify a negative change from a prior trend in the time frame. This will help you quickly see changes and take note of them.
The internals have not changed from the last update and we do have a bearish signal. As already mentioned, we don’t expect the market to correct significantly as we head into the holidays; however historically, with bearish internals the upside is limited.
Based on our MTF Matrix guidelines, The Pharmaceuticals ETF XLP that has been moving lower all year should set up the next move lower within the weekly and daily downtrends now that the hourly trend has turned up. However, the monthly time frame may be setting up a Retest and Reversal. It is not confirmed yet, but this might be a turnaround going into 2017. We’ll keep an eye on this in the New Year.
However, the monthly time frame may be setting up a Retest and Reversal. It is not confirmed yet, but this might be a turnaround going into 2017. We’ll keep an eye on this in the New Year.
If we don’t have another update before the holiday, we wish you Happy Holidays and warm wishes for you and your families, from Greg and Dan.
All the best,
Founder of The Pristine Method of Trading