Analysis, Perspective, Trading Strategy
Don’t Touch that Dial.
By Joe Duarte on August 26, 2018
The late Madeline Khan,
playing the wild west saloon songstress Lilly von Shtupp in a hilarious
and memorable moment of the Mel Brooks classic “Blazing Saddles” famously
drawled: “I’m tired, tired of playing the game, ain't it a crying shame?
I'm so tired... I’m tired. I’m kaput.”
Certainly one can parse the true meaning of Ms. Khan’s famous lines,
but it’s hard to argue with the universality of the statement she made
and whether anyone can relate to that feeling of exhaustion after a
hard day’s work. Indeed, her words are especially prescient at the
moment when we are trading in the longest bull market in history during
what may prove to be the most remarkable political period of the past
I can’t sing like Ms. Khan once did, but after a long day of staring
at the bots doing their impression of Pacman gobbling up a nickel here
and a dime there on my trading screen, I can definitely identify with
her general feeling of exhaustion. Of course, the general market trend
remains up, which is what keeps me and everyone else coming back for
more. Yet, at the end of every trading day, I wonder how much more
drama this stock market can take given the political gyrations, the
natural disasters, the actions of the Federal Reserve and what may
lie ahead, especially as the midterm election nears.
Perhaps the most ironic aspect of the daily grind is the faithfulness
of the robot traders to that old Wall Street adage which simply says:
“bull markets climb walls of worry.” And while I hate to add to the
drama, in my 30 years as a trader, I’ve never seen a wall of worry
or a bull market that can compare to what we are living through at
the moment. So if the bots remain faithful to their programs, we are
still likely to see higher stock prices over the next few weeks to
months because there is certainly no shortage of things to worry about.
NYAD Says Rally is Just Beginning
A few weeks ago I noted the NYAD was likely setting up for a breakout
to the up side. And so far, the most accurate indicator since the election
of Donald Trump has been right on the money with yet another new high
which has been confirmed by a new high on the S & P 500 (SPX) as
I note further below.
What this means, at least in the short to intermediate term is that
the bull market still has more room to rise until proven otherwise
as the wall of worry continues to spur the algorithms.
Bull Market Remains Intact as Indexes Confirm Bullish Market
The unthinkable is now the mundane as the U.S. stock market continues
its bullish run. Witness the new highs in the S & P 500 and the
Nasdaq 100 (NDX) confirmed by the NYSE Advance Decline line.
As a result of these technical developments it’s clear this is a
spectacular momentum run. And while all momentum runs end badly, any
trader worth his salt knows that to miss a momentum run is to miss
a big trip to the bank as long as greed doesn’t get the best of him.
All the same, it’s hard to ignore that volume remains sluggish in
this market and that eventually this will likely be the market’s downfall.
But for now, it’s not a good idea to fight the general up trend in
Hang on for the Ride
I’m tired but I can’t take my eyes off the screen. Indeed, the more
the pundits and experts call for the decline of Western civilization,
World War III, and a stock market crash, the wall of worry rocks on
and stock prices just keep moving higher. And since that’s what we’ve
got, that’s what we trade.
Still, since nothing stays the same forever, I suspect that someday
we’ll look back and wonder how this whole thing happened. But fret
not. There are certain assurances in this world. One is that Michael
Lewis will ferret it all out. And those of us who survive the eventual
and historic decline in stock prices which will follow this crazy bull
market will be able to learn how it was all done by reading his next
“Liar’s Poker,” “Money Ball,” “The Big Short,” “Boomerang” or “Flash
Boys” style book as we wait for the fallout from the sequence of events
that will end this bull market to clear.
Until then, stay awake. Trade in small lots. Hedge all bets. Use
options when possible. And don’t lose any sleep. You’ll need to be
well rested when the brown stuff finally starts flying around and piling
Don’t touch that dial. There is so much more to come.
Joe Duarte is an active trader and author of Trading
Options for Dummies , now in its third edition and The
Everything Investing in your 20s and 30s. To receive Joe’s exclusive
stock, option, and ETF recommendations, including trade results,
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