Breadth is still running positive, and we have a good number of stocks moving up more than 10%, but we are finally seeing some mild profit taking and consolidation. Strong markets tend to stay sticky to the upside as dip buyers who fear missing out provide support, but the longer the action stalls, then the greater the risk that profit-taking will accelerate.
The bear market bounce off the low that we had back in May produced an eight-day trading range after the big run. Eventually, the support that was created during that trading range failed, and we sold off very fast, and the indexes made new lows.
I don't know how this bounce is going to develop from here, but I believe it is likely that we will see another trading range that will resolve itself, depending on economic data. Earnings season is winding down quickly, and August tends to be one of the toughest months of the year as volume fades during vacation season. There has been very little talk about seasonality recently, but we are heading into the heart of the worst time of the year just as the indexes become very overbought.
I mentioned yesterday that I sold down quite a few positions and raised some cash. I am putting myself in a position to navigate whatever develops next. At this point, there aren't many easy entry points left, so I'm willing to give charts some time to develop. If the market stays strong, I'm not at all concerned about finding new opportunities. I see no reason to tie up more than half of my capital right now.
My best advice right now is don't give in to fear of missing out (FOMO). Stay disciplined and wait for the stocks you like to develop better charts. For example, I mentioned UBER (UBER) this week after its good report. I established a position at that time and want to add more, but I'm not going to buy it right now as it is up for the seventh day in a row. It is just not a good technical setup right now. It may continue to go parabolic, but until it consolidates, I'm not going to worry about not having a bigger position.
My focus now is to watch the price action and wait for the right setups. I see no benefit to engaging in a debate about whether this is a bounce or a bottom. We will find out soon enough, and I'll be ready to react as conditions develop.