A Tale Of Two Markets, And That Scares The Dickens Out Of Me

Random Thoughts

On Monday, the Ps (S&P 500) were off to the races. They had a big up day and closed at all-time highs. I’m guessing there was a lot of celebration.

On Tuesday, the Ps shrugged their shoulders.

As I have been preaching, when analyzing markets you can’t take things at face value. Yes, Monday was a positive development but follow through is key and you still have to dig a little deeper to see what really might be going on.

The Quack (Nasdaq) lost 1/3%. It remains in a choppy downtrend but has traded mostly sideways as of late.

The Rusty (IWM) turned right back down, losing nearly 1%. It remains in a downtrend. And, once again, it remains more indicative of what’s going on beneath the surface.

It remains a tale of two markets and that scares the dickens out of me. You have the Ps hovering at all-time highs while most stocks remain in downtrends.

So what do we do? As I preach ad nauseam, follow through is key. Overall, things have been very choppy as of late. Usually, this is a sign to stay mostly out and let things unfold. Most of the stocks that have been trending are Defensive related such as the Energies, Utilities, and Foods. I’d avoid getting too aggressive here since the trends might be mature ones. And, it’s the only game in town. Said alternatively, I’d like all stocks to be rising so that the rising tide would help to lift my boat too. Also, as mentioned lately, there have been quite a few debacle de jours here. Therefore, make sure you wait for entries. On the short side, not to talk out of both sides of my mouth, but the aggressive traders might want to keep an eye out for transitional setups (early trend) in these same issues. Look for setups here and in any other previous high flyers that have recently begun to roll over. Again, it could be a case of the bigger they are, the harder they fall. For the most part, again, let things unfold. Take things on a setup-by-setup basis and avoid any big picture predictions. As mentioned recently, trend following should be easy. And right now, it is not.

Futures are soft pre-market.

Best of luck with your trading today,

Dave