Don’t Fight The Trend

By on January 18, 2013

The stock market never did take out the lows these past couple of weeks and sell off.

Instead, as you can see in the chart below, the market just ground higher like a zombie as I said last week.

My outlook hasn’t changed in that there is more room on the downside for the SP 500 here than to go higher, but I still caution against trying to short a top.

I’ve drawn two trend lines to watch on the SP 500 Index. As long as the market stays above that top trend line, I’d not recommend taking short positions, but once that line is broken, there is a lot of room down to the lower trend line.

It is not uncommon for the so-called Santa Claus rally to last into the third week of January, so that’s worth considering here, too.

Let’s face it, the markets liked the Fiscal Cliff deal and they like Bernanke’s Quantitative Easing even more.

There are some positive economic reports out this week, including the number of Americans filing new claims for unemployment hit a five-year low. Additionally, residential construction is up sharply, too.

So the bottom line is don’t fight the trend here on the stock market, even if all logic tells you that it should go down, wait for confirmation with a break of that top trend line.

Speaking of trend lines, Crude Oil broke above a trend line and looks to be headed to test $100 a barrel or higher.

That’s all for this week. Enjoy the three day weekend, US markets are closed Monday.

Good Investing!

David K. Miller
Managing Editor, Absolute Wealth

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