Dow: +65.19…
Nasdaq: +23.59… S&P: +4.84…
Investors have been buying stocks and selling bonds, betting that the Trump Admin. will usher in tax cuts, deregulation and fiscal stimulus, which they believe will support growth and inflation.
So far so good, but keep in mind that things are getting overbought by the day. Some stocks and sectors are still at reasonable levels, but for you chart folks that look at the underlying technicals, well, some scream sell, even if it is only for a 3% pullback.
Three percent might might seem like a big deal, but that means a 9% trade quickly in a 3X etf.
A good example would be the financials or XLF. Right now the technicals are stretched. When I refer to “technicals” I usually mean the reading on MACD and RS (relative strength). Sometimes things get and stay oversold, but eventually reality sets in.
Right now XLF ended the day with a stochastics reading of 96.2, usually 80 is where you lighten up. Its relative strength ended today at 81. Usually 70 is where you want to think about protecting profits if you’re long. So you get my meaning.
It doesn’t mean we reverse lower in dramatic fashion, it just means you may get a pullback. That pullback may not be more than 3%, it all depends.
Below is s a chart of XLF and you could also take a look at GS as a specific bank within the sector that is really stretched.
Goldman is off the chart right now with its readings. The stock probably goes to 375 longer term, but it depends on your time frame.
Bottom line, if you are a shorter term trader, you may think about monetizing some trades or t the very least raising stops to protect yourself.
Speaking off stops, I adjusted (raised) some tonight on the P&L, so if you are playing along at home, take look so you can stay current.
CPE triggered this morning and I added TEDU as a new long.
See you in the morning.