Here's What We See From The Monthly Candlesticks

This is easily the most valuable exercise I do each month. It takes me half an hour, just 12 times a year. It's the best 6 hours I'll spend in 2018. It helps eliminate the noise by forcing us to only look once a month. It brings us home, to the primary trend. It's easy to get lost in the daily rhetoric. This part of the process helps us completely ignore that garbage and focus on what matters.

Here's what we got this month:

We'll start with the Dow Jones Industrial Average as it tries to make a move above 27,000. There's been trouble just below that from the extension target of the 2007-2009 decline. This retest of former highs comes at a time where the Dow Jones Transportation Average is already in the process of clearing. First, here's is the Industrial Average:

Now here is the Transportation Average. Remember, that when they both make new highs, it is confirming that they are indeed, still in bull market uptrends. It's when one is making new highs and the other is diverging in a different direction that we want to be more cautious. This last happened in Q1 & Q2 of 2015 as the DJIA continued higher but the DJTA had already peaked 6 months earlier. Here's the Dow Transportation Average making new all-time highs this month:

The idea is that if the Dow Industrials make new highs and follow what the Transports did the past 2 months, then all systems go. The bear case here would be for Transports to fall back below 11,000 without the Dow Jones Industrials making new highs. That sort of divergence would be something that would catch my attention as a warning. But let's keep in mind, that this has not happened yet. To the contrary, we're just starting to see new highs across Indexes all over the United States stock market.

The Nasdaq Composite had a heck of a month and has now completely cleared that 7600 level that it had been struggling with since earlier this year. This has been the leader of the pack, of course, so its outperformance here should come as no surprise. The next target is 11,600, which is much higher from current levels:

In small-cap land, the Russell2000 just cleared that 168-169 level that it had been pushing up against the past 2 months. This gives us a next target up above 185 in $IWM. If we're above 169, being long here makes a lot of sense:

My best friend throughout this whole correction earlier this year has been the Mid-cap400. There has not been a single better indicator than $MDY holding this 325 level. I've mentioned this price so much over the last year and it's been for good reason. This index has almost single highhandedly kept us erring on the bullish side of the stock market. We are making new highs, which confirms our bullish outlook and the upside target is still 100 points higher:

If we look at the really small guys, the Micro-caps, we are also going out at new all-time monthly closing highs. We still have a target above 125 here:

All in all, not much has changed other than confirmations of trends we felt were already in place. One thing I will say is that the risk management levels have been incredibly well-defined. Identifying those key levels is a major part of our process. We have our price points, like 11,000 in the Dow Jones Transportation Average, 7600 in the Nasdaq Composite and 325 in mid-caps. If we're above those levels, we have to be long.