Why This Market is En Route To New Highs

With the election now officially behind us, the Trump presidency saw an intense rotation into what we can now distinguish as pro-Trump sectors:

  • Financials

  • Defense, Military, & Security Stocks

  • Materials, Steel, Construction, & Copper

  • Biotech & Drug Stocks

These sectors were the rotational winners that have many names breaking out into new highs. Meanwhile, momentum stocks took the fizzle and faded hard & fast.

Let’s start off with a weekly chart of the Russell 2000 ETF (IWM) that is sporting a Cup and Handle formation with a bullish “V” recovery tone. Weekly chart posting ultra bullish formations:

As we can see, we have a cup and handle formation that has cultivated along with a V recovery off the lows of the cup, & a bonus inverse head & shoulder bottom. Further more, after the IWM came up alongside the top of the cup, we then retested buying interest with what was considered orderly, low volume selling that created a bull flag. That bull flag has now firmly broke out to the upside on heavy volume. This is exactly what you want to see. This formation can't get any more bullish when we have all 3 patterns in alignment. This is ultra bullish for sure. What it shows you is that bears have tried on several instances to take this down lower and have lost the battle to take this down. Everyone who is screaming for a market crash has zero clue about what's been/being cultivated here. We see these formations showing up on multiple indexes.

Let's look @ SPY weekly chart which is also showing 2 massive bullish formations.

So we also have 3 ultra bullish formations showing up on the SPY as well. Although we don't have a cup & handle like the IWM, we instead have a double bottom (W) formations that has been cultivated since late 2015. What's more, this W bottom formation also has an inverse head & shoulder tone to it. Again this is not a daily chart, but the weekly time frame which further reinforces the case for why this move is very much real. What especially makes it real is the retest we got off the upside break of the neckline (yellow line). We broke above the neckline and then retested this area in a downwards channel or bull flag. On this retest, just like the IWM, we broke above it on strong volume.

Banks have been very strong as interest rates are sure to be going back up & throwing out regulations start to look better with this new administration. Consider this one in the $76 area

This Financial ETF is on the move along with most Financials, $FAS. Notice on the daily, it too has cultivated an inverse head & shoulder breakout.

Next we have some Military stocks acting very strong. Northrop Grumman $NOC is consolidating after a huge move & with more rest it's looking to try for higher. Consider a few here @ $245-$248 area with stops at $244.

$LMT here is also pushing higher, but the previous formation gives us pause as what would usually happen is it would still struggle to cut through all this resistance & supply overhead. That and it's very normal for stocks to retrace a part of the move as it retests in formations where there was previously some very aggressive selling that led to deeper lows.

Meanwhile $NFLX continues to struggle after our sell signal back at the $127 area. The long wicks and some other leading indicators suggested it was time to get out. We may play this to the long side for a bounce but now is not the time

$BABA has been going through another pullback as it recovers from this double bottom W formation here on the weekly chart. It's normal to see this kind of pressure & pullbacks after a bottoming pattern that has cultivated for about 2 years. Long term this formation is still very much bullish, but it will chop until it gets through all the excess supply overhead.

Some of the greatest pearls shared by Jesse Livermore:

“Money is made by sitting, not trading.”

“The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money everyday, as though they were working for regular wages.”

“Buy right, sit tight.”

“Nobody can catch all the fluctuations.”

“There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”

“It takes time to make money.”

“Don’t give me timing, give me time.”

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