Snip from Tonites Rambus Weekend Report :

There are a 1000 reasons on why the stock markets have to top and crash , which I won’t get into right now because its the price action that trumps everything else. This may sound too simplistic, but in a strong impulse move indicators or whatever method a person is using to identify a top or bottom will miss most of the impulse move by getting you out too early. Technical indicators work great during the consolidation phase of a bull or bear market, but during a strong impulse move you will see negative divergences and overbought or oversold conditions staying overbought or oversold, depending on which direction the stock is moving, staying that way for much longer than one would think possible.

If a person could isolate themselves from all outside influences and just study the price action of a particular stock or market they’re interested in, during an impulse move, you will likely capture much more of the move vs if you got out during the first overbought reading you get. Remember a stock or stock market does only one of three things. It’s either building out a reversal pattern, a consolidation pattern or is in an impulse move. It’s during these impulse moves that one really needs to pay attention to the price action.

This weekly combo chart below shows me that this impulse move we currently find ourselves in still has a ways to go. This past week on Thursday, when it looked to many that this move was going to end, we got some completed backtests on the RUT, SPX, and Transports. That is strongly suggesting for some sectors the impulse move is really just getting started.

One last important point we’ve gone over many times is that when you see a consolidation pattern that slopes in the direction of the main trend, in this case up, it tells you the trend is very strong and to be respected, regardless of all the reasons the price action should not be going up. Every sector on the combo chart has now broken out which includes the small caps, micro caps, technology, Transportation Average and your big cap S&P 500 type stocks. This is a well rounded bull market

One of the biggest lessons I learned over the years is not to fall in love with any stock or stock market sector. I invested exclusively from the spring of 2002 till the end of 2011 in the PM complex because it was in a strong bull market. Once I knew the top was in place in the PM sector it was time to look for another bull market which just happened to be the stock markets which was also in a bull market. In July of this year I started to buy into the commodities bull market after many of the necklines gave way to the upside. As long as those necklines continue to hold support I will stay with the new bull market until proven otherwise.

In regards to the PM complex they still have some more work to do before I start to commit capital to this sector in a big way. Until they have turned around like the commodities complex I will continue to make most of my investments in the stock markets which we know 100% for sure is in a bull market because it keeps making new all time highs one after the other. I have also committed some capital to the commodities complex as well but not as much as the stock markets yet.

I know how frustrating it can be to be in one sector doing nothing while watching another sector going nuts to the upside. Being flexible and opened minded when it comes to the markets is very important to understand. The magnitude of the rally we are experiencing in the stock markets over the last couple of years doesn’t happen all that often in ones trading career. There are rallies and then there are RALLIES.

Have a great week. All the best…Rambus