Buy-and-hold investors are no doubt pleased with today’s new all-time highs. A review of the past two years, however, shows that traders who are tempted to chase stocks here should be very careful.
This is the 4th breakout to new highs since January 2018. The figures below show limited upside in the days following each breakout compared to the losses incurred once the breakout failed. The average cycle gains averaged only 1.29% while the subsequent losses averaged 8.30%.
If ES were to top out here at 3083.75, it would represent a 1.79% gain above the Jul 26 highs — right in line with previous breakouts. A drop to the TL connecting previous lows, slightly below the SMA200 at 2891, would produce a 5% loss — the smallest of the four previous cycle drops.
There’s something different about this breakout, of course. ES just completed an Inverted Head & Shoulders Pattern targeting 3717 — a 20% gain from here, if today’s new highs hold.
So, what happens next is critically important to the outcome for the coming year. Is the market really breaking out in pursuit of another 20% gain, or is this merely an exercise to ramp the Dow up to new highs? There are a lot of folks who need such a headline.
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