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Last Push Higher
www.oneoption.com
The market has been making new all-time highs. Scale out of longs.
PRE-OPEN MARKET CONDITIONS MONDAY – If you’ve been following my advice, you’ve been adding to bullish swing trades for over two months and now we are gradually taking gains. You should be out of two-thirds of those positions and we will ride the remaining third until we see a gap up to a new all-time high. That is when we have the greatest risk of a gap reversal that turns into a bearish trend day. I believe that $620 is a possible year-end high, but there is resistance at the $617 level.
“If you believe that $620 is possible, why are we exiting bullish swing trades?” The price action during this final leg of the rally has been lame. The candle bodies are tiny and the volume is light. We can see that there have been many dips in the last half of the year and there is no reason for us to grab nickels in front of a steam roller. The upside rewards are smaller than the downside risk. It’s as easy as that and we are playing the odds.
We had incredible gains from November 2023 through June 2024 and we took gains then. In July the market dropped 10% in a few weeks. We didn’t know the nature of the dip back then and we didn’t care… we were in cash. Traders that decided to hold through that period took a lot of pain and three months worth of gains were wiped out. Then we evaluated the bounce in August. It was fast and tall and that’s when we knew it was “safe to go back in the water”.
We aren’t completely out of swing longs and we will still ride this move. We can also day trade to capture the remaining move without taking a lot of overnight risk.
If you wait for selling pressure to surface before you take gains, you are subjecting yourself to mental anguish. When the selling surfaces it will be fast and furious. Instead of setting high targets and having buyers reach for your order, you will be smashing bids and trading from a position of weakness. Instead of feeling good about the profits you took, you will be upset that you didn’t do it earlier. Instead of being in control of the situation, you will be reacting to an adverse move.
I’m not bearish, but given my opinion that the upside potential is fairly limited, I could see taking some day trading shorts if the D1 and M5 price action warrant it. As the market stretches for that final high, some stocks are already rolling over. They are out of gas and once they reach that point, profit taking can create some nice sustained moves.
The news is really light this week. I do view a lackluster reaction to a bullish jobs report as a warning sign. The market established an all-time high early and it backed off the rest of the day. The market should have been able to rally on that news. When it didn’t, it told me that resistance is building. CPI and PPI will be released this week. The next big news is the FOMC Statement a week from Wednesday.
Reduce your swing exposure and consider a more balanced day trading approach.
Support is at $606.30 and $605. Resistance is at the high from Friday.
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