This new high from the DJI was telegraphed by the DJT all time closing high on December 29, 2014. The December DJT high told us to expect a higher high from the DJI and to ignore the cries from the naysayers about an impending 10% correction.
The avid market watcher knows there is a message accompanies every new high and every new low. The message accompanied with the latest DJI new high is "be prepared for possible retracement". The context of this message is lack of breadth not a lack of Dow Theory confirmation. The Dow Theory non-confirmation message was sent on March 2, 2015 when the DJI made its last new closing high.
Last week's record high was attained with only four sectors made new 52 week high or all time high. This illustrates how narrow the participation was on pushing the market to a new record high.
Here are the four sectors that made new high as represented by their respective ETF:
KBE, KRE, XLK, XLV
(click on the chart to enlarge)
Until improvement from the breadth indicators and more sectors participate in newer high, any new record high from the market should be met with skepticism, such as the new high made by the SPX on May 21, 2015. In this period of transition, it is safer to be ‘out wishing you are in’ than ‘in wishing you are out’. If the market decides to regain its strength and resume its upward trend, then there will be ample of opportunities to reposition on the long side. However, if the market retraces, one could be trapped by the sudden and violent moves.
Always exercise caution and trade defensively. Remember cash is a position and capital preservation is priority one!
