I’m Baaaack/Rotate Like The Market

Random Thoughts

I spent the last 4 days in Austin, Texas attending and participating in the American Association Of Professional Technical Analysts annual conference. It was an awesome weekend. Austin has good food, good music, and plenty to drink. What’s someone from New Orleans (or thereabouts) not to like?

The conference was great! I picked up many of gems. It also helped to confirm and validate what I do. And, as usual, it’s great to hang out with the gang. It is great to be back though. My liver needs a rest. I also missed all of my monitors and of course, you guys!

Anyway, let’s get back to the markets.

When we left off the Ps were hanging in there—consolidating in a small range–like all was good in the world. And, since I’ve been away, they have continued to do just that.

The Quack is more indicative of what’s really going on. It has broken down from its short-term sideways range and has now pulled back slightly. It is on the cusp of forming a Bowtie down from multi-year highs. Friday’s bounce sets up a “micro” or “Pioneer” First Thrust Down. Like the American Pioneers, you’re either going to get the gold or arrows in your back when trading these early signals.

Keep in mind that ALL major tops will have some sort of transitional pattern such as a Bowtie or a First Thrust but obviously not all transitional patterns will turn into the mother-of-all tops. So, it pays to pay attention.

Now, to the sectors.

When you dig a little deeper you will see a couple of things. First, things aren’t so hot under the hood in spite of the Ps plodding along. And, second, there appears to be a major sector rotation in the works.

The not so good is that Biotech has broken down out of a First Thrust to close at multi-year lows. It looks like this could only be the beginning. Drugs overall are also looking dubious.

Banks, Retail, Manufacturing, and other areas recently mentioned that stalled at or near their prior highs from their “V” shaped recovery still remain below their prior peaks. So far, these areas have taken on a double top appearance.

Gold and Silver have turned back down. They might not be done just yet but it appears that the bottom here has turned back into a process vs. an event.

Leisure appears to have rolled over. I think the Resorts & Casinos look poised to make a new leg lower here.

I can go on and on about the internal weakness but I don’t want to bore you (I know, too late).

Anyway, there is some good out there.

Energy is banging out new highs. Ditto for Utilities and the Foods.

When you see all the weakness combined with strength in these areas, you have to wonder if there is a major sector shift in the works. It seems that this market is becoming very defensive.

So, what do we do? Don’t worry about making any big picture decisions. We are in this business to make money and not look like heroes. I’ll leave the top picking and end of the world prognostication to others. DO pay attention that what’s happening. Rotate with the market (write that down). Let the market take you out of any existing longs that are breaking down. Continue looking for a shorting opportunity in those aforementioned weaker areas. Start looking for buy side opportunities in the aforementioned stronger areas. This market is becoming defensive and so should we. Take things on a setup by setup basis. And, as usual, wait for entries. Stops help to mitigate damage on existing positions and waiting for entries can help to keep you out of new trouble.

Futures are firm pre-market.

Best of luck with your trading today!

Dave