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When Is a Trend Not a Trend?

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The tactic might win battles, but it doesn't win wars. Not without reinforcements.

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Each of last week's new S&P highs shared a common problem: no immediate, sustained follow-through. Instead, each session following a new high only ranged sideways, and the next session fell back to prior lows.

So, what? Fair question, since each of these three-day sequences was soon followed by another new high. Perhaps buyers are craftily keeping their exuberance in-check so as to avoid becoming extended, constantly refueling their efforts by discarding weaker buyers and trapping shorts.

Or, maybe that's what they WANT us to believe...

Navy SEALs are taught a Sun Tzu-like tactic that deceives the enemy into thinking their force is greater than actual. Essentially, a unit fans-out in a line that fires upon the enemy, while each SEAL takes his turn rolling from one end of the line to the other. The market has been employing this tactic, capturing higher and higher ground with no increase in force strength.

The tactic might win battles, but it doesn't win wars. Not without reinforcements.



So, have reinforcements finally arrived? Wednesday was the first session following Tuesday's new high. Optimism became more pronounced, probing much higher highs intraday than the previous post-breakout sessions did. But Wednesday's close was under the morning's high, essentially unchanged from Tuesday's close, despite heavy volume. This doesn't qualify as distribution. Neither is it accumulation.

If the market is just up to its old tricks, then the increased optimism might help to delay a third-day retracement to prior lows. And it might allow a shallower pullback before launching into another new high.

But the increased optimism means that buyers have finally shown "the whites of their eyes." Optimism's breakout raises the stakes AND also the requirements for maintaining the rally's momentum. There can't be any further delay in the trend finally acting like a trend and to actually start trending - no more retracements back down into prior sessions, and no more closes under the morning's high.

Bears know a few tactics of their own, and they might be laying an ambush, waiting for Bulls to roll unprotected into open ground.

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