Momentum Monday – Pullback Mode

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September came and volatility has picked up with it.  Last week we saw quite a few breakouts reversing and good setups breaking apart. It’s about time some would say. We have become so accustomed to the slow grind higher than even a 1% down day seems like a big selloff. It’s all about perceptions. Pullbacks are a normal and even desired part of the cycle because they make every trend more sustainable and provide much better risk/reward entry points. We should not be afraid of them. We should welcome them. 

The S&P 500 seems on its way to test its 50-day moving average for the 8th time this year. Guess what happened in the previous occasions. Just when most became comfortable with the short side, SPY bounced fiercely and made new all-time highs. This behavior won’t continue forever but as of right now there’s little reason to believe that dip buyers won’t show up again. QQQ is still above its 20-day moving average. The semiconductor ETF – SMH made new all-time highs on Friday, albeit it finished weak near its lows of the day. The industrial metal ETF – XME, also tried to break out but ended near the lows of its daily range. Most importantly, we continue to see a strong market reaction to earnings reports. AFRM, LULU, MDB, ICUI, RH are just some of the big breakout examples from the past two weeks. The market sentiment is still bullish and dips are likely to remain buying opportunities. With that in mind, I am holding a large cash position and will focus on quick short-term trades for the time being.

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