After Monday’s failed attempt, the major indexes managed to pierce through strong overhead resistance levels on Tuesday supported by positive economic news on a day where nobody seemed to care about Europe’s problems.
As the chart above (courtesy of MarketWatch.com) shows, there was no hesitation nor any reversal attempts, and the bulls remained in charge all the way into the close. As I mentioned yesterday, if there is a breakout and 200-day moving averages are conquered, more buying and subsequently further upside momentum may develop.
While that up move could very well be ephemeral in nature, as some columnists forecasted in “One More Rally,” topping at around 1,200 with the S&P; 500, you can never be certain.
Our domestic Trend Tracking Index (TTI) improved and has now moved above its trend line by +2.12%, while the international TTI rallied as well but still remains -0.67% below its respective trend line.
Establishing new positions at these levels reduces the risk quite a bit.
How?
We’re only +2.12% above the trend line, which means that, if a trend reversal occurs again—after you have bought back in—there is a good chance of the domestic TTI dropping below its long term trend line before your 7% trailing sell stop gets triggered. That would cause an all out sell signal prior to the sell stop becoming effective thereby reducing potential losses.
Barring any huge sell off in the morning, I will begin to nibble on some long positions; however, I will only use ETFs and not any 401k accounts limited to no load mutual funds due to short term trading restrictions.
I simply can’t see right now that last year’s bull market will resume with full force, so my approach will be conservative in nature and involve only a portion of our portfolios. If I am proven wrong, I can always add to my holdings.