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Resistance Held – All Time High Fails


Last week I posted this chart showing the two levels of resistance that the market was facing.

There was lots of new this morning that the market was at an all-time – lots of talk about good times while ignoring the crappy economic reports that seem to abound. The pump and dump crowd was everywhere on TV today talking about how the market would simply run higher from here.

As the day wore on, very likely those same folks started selling and drove the market back below the resistance level that has stymied it all year.

The graph above is a two-hour chart – meaning that each of the bars you see represents the market’s price range for that two hour period. The final four bars on the chart show you the eight hours in today’s trading day.

Since we did move higher on the day into record territory, I executed some purchases for companies that were under-performing on the day.

On a positive note, a market will often have days like today where it flirts with breaking resistance then falls back only to take another swing at it, maybe fail again, then eventually close above resistance. We will have to see if that is how this market plays out.

The one thing I do want to show you, however, is the Year-To-Date performance of the Gold Miners Index compared to the S&P 500 Index:


The gold miners are up 26% so far in 2014 while the S&P 500 Index is down 0.4%. Gold is a contrary indicator for the stock market, and the miners are a higher beta play on gold. As long as gold is out-performing, the rule of thumb in investing is that stocks will under-perform. It is not a 100% perfect correlation, but it does have historical precedent.

Our strategy was outlined in the previous post, but we will (mostly) be waiting for a confirmation that the market has enough strength to break resistance or that it pulls back a few percentage points and execute the reinvestment part of our trade. We’ve put some cash to work in under-performing stocks as those tend to out-perform if we pull back as well as play catch-up if we break the resistance – but we have plenty of other purchases entered into the system that are ready to execute when the market shows us it is ready. This is a short-term situation that will be resolved one direction or the other within a few days.

Click here to watch today\'s video on YouTube