A Period Of Melt-Up For Stock Prices

The Short-Term Trend

The short-term trend continues. Buyers keep coming into the market and pushing it higher despite overbought technicals and overly bullish sentiment. I'm not complaining, though, because strong bull markets are what we want as traders, even if it is a scary ride.

I raised some cash early in the week by trimming stocks, but then the remaining holdings continued to indicate buy signals, so some of the cash went back into those stocks. Also, the market participants continued to expand, bringing in even more of the "re-opening" stocks, so I felt compelled to purchase initial positions in a few of these new leaders, as well.

Did I do the right thing by redeploying some of the cash at the time when the breadth indicators say to reduce exposure? Of course, I don't know for sure, but I really don't like to fight the market, so I think my current cash level of about 20% is a reasonable compromise for now. If stock prices insist on going higher, as a trader, I have to ride higher along with them. But, if stocks start to swoon, I'll need to admit my mistake and quickly reduce exposure again.

Below is a look at the PMO index. It has been at the top of the range for a longer period than usual, which is a basic signal not to chase stocks and that I need to have some uninvested cash in my accounts.

As I mentioned, breadth indicators are overbought and bullish sentiment is way too high, and that has existed for several weeks -- I think everyone is aware of it now. However, the case for owning stocks is just too compelling, so stock prices just keep moving higher. So there is no point is showing these charts again.

Maybe our time is better spent looking at the bigger picture via the inter-market charts. For instance, the US Dollar made a major move lower this week, which sends a clear signal to traders that inflation-sensitive and rate-sensitive stocks should be in our accounts. A weak US Dollar often favors owning emerging market stocks.

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Disclaimer: I am not a registered investment adviser. My comments reflect my view of the market, and what I am doing with my accounts. The analysis is not a recommendation to buy, sell, ...

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