Here we go again...

Appears we just completed another buy the dip cycle with today's rather unexpected huge move to the upside. I have found it frustrating (although I have caught on recently) trying to call these dips because each one begins to appear to be a breakout (or breakdown) but then is sold (or bought) immediately and we fall right back into the trading zone. Each time the market breaks out everyone gets a little too bullish or bearish (in my case) and feels as if this it IT. Well so far for the past 2 months it hasn't been IT.

Now with the Industrials at new highs one has to try to determine the next upside target and play this game again. I feel as if its way too late to go long because the risk/reward ratio just isn't there, but I'm certainly not ready to go short yet either. There are a number of things to mention such as the dollar retesting lows, gold perhaps topping, and divergences in the indexes, but I think the most important things to watch is the 50% retracement in the DOW which is within 110 points, and the 61.8% retracement in the Nasdaq 100 which is quickly approaching once again. These should serve as heavy resistance up ahead.

One thing that is pretty evident in this past few rallies is that the rally typically exhausts after a big 1-day breakout move to the upside.Notice in 2 of the past 3 breakouts of the blue line, we had one large full bodied candle to the upside right before we started to top out and then head lower. This is something to keep in mind and is one reason why I would not be going long right here. Chances are you might get 50-100 Dow points if you time it right, but it won't be very easy gain to capture.

The only thing different this time is we had the highest upside breadth in the market since July. That day we had 28:1 Up/Down volume ratio. Today we saw 18:1. Could it really be possible for this entire 2 months to be considered consolidation before we move another 1000 points in the S&P? Too many things lined up (for example my cycle chart) for October 21 not to be the high and it would be rather disappointing if the market continued higher, but I guess thats just how the cookie crumbles.