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Should we short the double top? It’s already too late.

Markets rose yet again on Monday and the action seems to be taking most folks by surprise (although when earnings are good you can’t be too surprised when stocks go up).

The SPY bears have shifted gears from “Head and Shoulders” to full-on “Double Top” mode… which would be somewhat of a shorting opportunity to think about except that while they weren’t looking, the index already negated that theory by closing above the weekly all-time closing high of 291.99.

Just in case, now is as good a time as any to go over the 2 principles of my trading philosophy: 1. Never short a bull market. 2. Whenever there’s a correction, refer to #1.

In the volume department today, overall volume surged 20% with heavy accumulation across the board. Our Heat Gauge sank 3 points in just under 3 hours (something I’ve never seen happen before intraday).

This brings to mind what could very well be capitulation like buying, as high volume usually occurs at either end of the market swing spectrum. I wouldn’t bet too highly on going all-in short, though (for the 2 reasons listed above), but what you can definitely put your money on is that after the “run-up,” there is always the “shake-out.”

During the run-up when there aren’t enough (or any) dips to buy, institutional investors get peeved that they didn’t get in sooner. After the MMs step in and drive the prices back down, the “buy-back” occurs in full force and the whole thing starts over again.

If you’re a trader, try not to let yourself get too peeved about it. The shaking out of the “weak hands” is a very natural process and ends up being good for everybody… well, everybody except for the weak hands, that is. In trading as in poker, if you’re sitting at the table and you can’t figure out who’s the sucker, then you’re it. -MD

Sentiment: HUNGRY – Markets are accumulating at an accelerated rate and big institutional buying is heavy and aggressive.

Volume: 20% – Today’s volume was higher than the previous session.

Real Feel: FRIGID – Bulls were in control of the session with a fair amount of selling under the surface.

Cycle: BEARISH I – Retail investors are uncertain and very light in their holdings.

Portfolio: HEDGE – The market is over saturated and long-term investments warrant some protection.

Next Day Move: SIDEWAYS – The probability that SPY will close positive in the next session is 54%.

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