Analysis, Perspective, Trading Strategy
Cherry Red Camaros and the Highway to the Danger Zone
By Joe Duarte on September 4, 2018
In the 1980’s pop hit
“Highway to the Danger Zone,” found on the “Top Gun” soundtrack, the
now nearly forgotten Kenny Loggins sang: “ You'll never
say hello to you. Until you get it on the red line overload you'll never
know what you can do. Until you get it up as high as you can go. Out
along the edges, always where I burn to be. The further on the edge,
the hotter the intensity.”
We live in interesting times as each day brings us closer to the
next day where something huge seems to be ready to happen. Yet it never
seems to fully happen as each day just blends into the next. Meanwhile
as we wait for the inevitable, the news, the politics, and the bull
market steadily grind on in a seemingly never ending cycle of higher
crescendos from which there is nothing but yet another high in intensity
– “always where I burn to be.”
Moreover, just when you think it’s about over, here we go again –
“further on the edge.” It’s as if we are trapped in a never ending
album rock loop. You know you’re in the “danger zone.” You feel as
if you’re the “band on the run.” You know you “can’t drive 55” – “higher
and higher baby” – “red line overload.”
So we enter the month of September in the second year of the Presidential
Cycle; the month which is supposed to finally deliver a meaningful
correction for the stock market based on history. And, although the
emerging markets are burning down along with Rio’s historical museum,
and the currency markets are going nuclear, the jury is still out on
whether there will be a contagion or whether business as usual will
remain the norm.
Are we about to hit the wall or will this be yet another opportunity
to buy the proverbial dip? Only the bots know. And all we can do is
to wait and see what they do next.
Uptrend Remains Intact
For the umpteenth time in recent history the New York Stock Exchange
advance decline (NYAD), the most accurate indicator of the market’s
trend since the 2016 presidential election is pointing toward higher
stock prices. After its recent breakout and making a new high midweek,
NYAD pulled back but remained well within reach of yet another new
More important, NYAD is still not overbought while the ROC, which
measures momentum is still rising, suggesting that there is more to
Cherry Red Camaro - Indexes Throttling Up
The wall of worry is in near panic mode with hedge funds imploding
as wrong way bets are coming due but the S & P 500 (SPX) and the
Nasdaq 100 (NDX) indexes, channeling a cherry red Camaro, seem to be
throttling up and getting ready to move higher.
We may be in the early stages of what could be a significant move
to the up side in stocks. Indeed, here are three significant changes
in the market:
1) Volume is ticking up.
2) On Balance Volume (OBV) and Accumulation Distribution (ADI) for
SPX and NDX have broken out to the up side.
3) ROC is on the rise with room to move higher which suggests upside
momentum is building.
Momentum Builds as Bears Ratchet Up Bets
Unless something changes it seems as if the stock market is setting
up for another fake out. And this time may be different as bears, whose
wrong way bets are crippling their pocketbooks may finally throw in
the towel, given the bullish turn in key technical indicators just
as the wall of worry is rising to new highs.
I want to be clear. I don’t make predictions anymore. This is just
an analysis of where things ended at the end of August. Indeed, I am
as amazed by this market as any other trader. But it is a well documented
phenomenon that if and when the bears finally cave in to the bullish
trend, the odds of a real bear market rise. I may be wrong, but it
surely feels as if that’s where we may be headed.
So I just trade small, hedge my bets, use options whenever possible,
and see what happens next. Just the same, even if stocks embark on
a once in a lifetime rally which carries us into the November elections
don’t throw caution to the wind. I read somewhere that Kenny Loggins
is penniless and now a drives a beat up Honda Civic. I don’t know if
that’s true or not. But if it is true, it’s worth noting what can happen
if you take a wrong turn on the highway to the danger zone.
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
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