This was the pullback in August I mentioned as an accumulation period started to rally, then a pullback of 4.6%, similar to the current situation in which the market has pulled back 3.8%. choppy markets like this are meat grinders and always difficult to trade. Last night after the close, I scrolled back and looked at 3C in all of the timeframes on the August pullback and compared them to the current pullback, the only hart that didn't have enough history to look at was the 1 min chart. In all cases, the charts now look even better then the charts from the August pullback which was deeper and went on to finish it's rally. This is 1 reason, but I also need current evidence and the charts below provide that.
This Tuesday when I saw the negative divergence and warned there would be a pullback, I also took 25% of my profits off the table in hopes that I would be able to add them back at a lower cost basis. I said back then that we have to watch for the short term charts to show positive activity in to the pullback and then I would add the positions back. Longer term charts will take longer and may not show the same positive activity because once Smart Money has moved prices past their average accumulation price, which usually happens quickly, they start to distribute shares, so the longer term charts will deteriorate as the trend up continues as they are selling in to demand. Therefore, the short term charts become important, more so then usual.
Here's the DIA showing several positives
The IWM with the Tuesday negative divergence that started the pullback and since then the chart has responded favorably, even putting in a leading positive divergence.
The QQQ with the Tuesday divergence/pullback and a good relative positive divergence in to the pullback.
And the SPY showing the same. So this is why I am not making any changes to the model portfolio at this time.
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