Make Sure You Look Under The Hood

Random Thoughts

Not much has changed. Once again, the Ps (S&P 500) still seem to be masking what’s going on beneath the surface. They ended higher, pushing further into overhead supply. This action has them less than 1 ½% away from all-time highs.

Unfortunately, when you look under the hood, things still questionable. Before we get to that, let’s look at the other indices.

The Quack (Nasdaq) continued to bounce but with less vigor, gaining less than ¼% for the day. So far, it only appears to be pulling back from its recent slide.

The Rusty (IWM) had a decent day but so far, it too only appears to be pulling back.

So again, the Quack and Rusty are more indicative of what’s really going on internally.

Most of tech remains in a serious downtrend. Draw your arrows on Biotech, Drugs, Internet, and Software. So far, these areas only appear to be pulling back.

The Financials remain in a serious slide too. So far, they also only appear to be pulling back. Subsectors here such as the Brokerages look poised to make a new leg lower from a Bowtie down (email me if you need the pattern or check education later this week for an upload).

Conglomerates, Banks, Manufacturing, Retail, Consumer Non-Durables, and others remain below multiple peaks.

Other areas such as Leisure appear to have joined in the fray.

Yet again, about the only thing that remains in bona fide uptrends are the defensive issues such as Food, Tobacco, Energies, and Utilities.

The REITS have been doing well too. I’m not sure you can build a bull market on those areas alone.

So what do we do? As I often preach, getting the direction of the overall market right is more difficult than getting the direction right in individual issues. Therefore, on the long side focus on those aforementioned mostly defensive issues that have been trending higher. On the short side, those areas that have recently rolled over such as the Financials could provide opportunities. Also, tech in general, but especially Biotech and Software looks poised to resume their downtrends. I’d prefer to avoid the short side altogether but (again) as short to intermediate-term (and hopefully much longer!) traders, we have to play the hand that’s dealt. As usual, wait for entries. As I preach, that in and of itself might keep you out of new trouble. And, of course, stops will help to mitigate damage once triggered/on existing positions. Based on the questionable market conditions, continue to be really really selective. Unless you think you have the mother-of-all setups, then pass. It’s okay to sit on the sidelines and let everyone else fight it out.

Happy Easter to those who celebrate!

Best of luck with your trading on Monday!

Dave