Is the rally over?

July 27, 2006 · Print This Article

After several months without a signal we resumed our profitable ways in the ETF Extremes strategy. We made 13.3% on the trade in just over a week and are now up 23.9% YTD. We have stated several times over the past few months that we were not going to be pressured into a trade in our ETF Extremes strategy. Patience and discipline are the key ingredients to the success of this strategy and forcing a trade is, in most cases, detrimental to any strategy. Our exact words on the website: “This strategy requires patience coupled with a disciplined approach. The strategy will make approximately, on average 1 to 3 recommendations a month with holding periods of 1 to 15 days, however, there will be some months when no recommendations are made. The key to this strategy is patience. Waiting for the appropriate scenario to recommend trades with a high probability of success is what makes this strategy a success.”

After several months without a signal many of you seemed impatient. Believe me, we would love to have potentially profitable signals on a daily basis, but that just isn’t reasonable with this strategy. We will never make apologies for our system and why should we, with a win ratio of 100% YTD and gains of 23.9% YTD we feel confident in the strategy and its ability to produce long-term returns. While we were sitting on the sidelines for the last few months the market was experiencing an absolutely horrible 2nd quarter. It goes to show that sometimes sitting on the sidelines is the best trade.

After a nice short-term rally over the past week the market (with the exception of DIA) pushed lower today as the maket lost steam with several failed attempts at moving thorugh key resistance levels. I mentioned yesterday that a troubling aspect of this rally is the lagging tech-heavy QQQQ. The Nasdaq 100, which usually leads the charge in a sustainable move up/down has been running in place while the rest of the market has climbed upward. I also stated my hesitation, at least over the short-term, going forward and how we could tarde around support levels before resuming any type of directional move. The key level is at 1260 for the S&P. If we can hold here I think a resumption of the move higher looks highly probable. We are entering a seasonally bullish period (end of July/beginning of August) so if we do move lower tomorrow look for a decent bounce early next week.

RSI Wilder (5) for July 27, 2006