We've been discussing how after the first couple of weeks in an advancing intermediate trend, shorter term cycles will begin to pull harder on the market causing deeper profit taking reactions. At first, most of these moves bounce off the 5 day moving average, but as volatility grows and the move matures, you will see moves down to the 10, 14, and eventually 21 day moving averages.
We're not there yet.
Yesterday, the Dow, NASDAQ, and SPX all moved below their 5 DMA just after the opening bell, but after a mostly sideways day, each slowly drifted higher to finish at or slightly above that average.
Interestingly, the number of new highs fell quickly on the session, finishing at 144:5 over new lows. It shows how twitchy traders are getting right now at these new highs. They are ready to take profits off the leaders at the first sign of weakness - and in fact contribute to much of that weakness as they do.
The Dow has shown by its series of "lower highs" on both its momentum and short term cycles that the likelihood of some deeper pullbacks has been growing. But as we discussed yesterday, we remain bullish on the intermediate trend, and still have medium term cycles rising - and any short term pullbacks for now should remain short lived.
For all those reasons, continue to keep long position stops layered under the 5,10,14,21 DMA's for safety.