The Stock Market: The Good, The Bad, And The Ugly Update

Random Thoughts

As I told my peeps last night, if you just looked at the Ps you’d think, well, it looks like the market has chopped sideways a bit. This action is normal and can be even healthy for a market. When you dig a little deeper, things are quite as well as they appear on the surface.

Let’s look at the scoreboard first.

The Ps ended up nearly ½%. This action keeps them right in the middle of the range and just a stone’s throw away from all-time highs–nothing to worry about here.

The Quack is a little bit more concerning but not too ominous. It started strong but lost most of its gains. For the day it ended up just under ¼%. The Bowtie moving averages have begun to turn down here and the index remains below its shorter-term trading range. Net net, it is down around 2% over the last month. It’s lost some momentum but it’s not the end of the world. It is interesting that it is now sitting right on top of its 50-day moving average. There’s nothing magical about “da fidy” but it can give you a point of reference and keep you on the right side of the market.

With the Ps hanging in there, there must be some good.

Well, Energies hit new multi-month highs.

Chemicals remain in an uptrend and are hanging in there.

Financials, though mostly sideways as of late, remain just shy of new highs. Ditto for Transports.

Utilities closed at all-time highs.

The Semis remain in an uptrend and are just shy of all-time highs.

So what’s the bad?

Well, many areas that had their “V” shaped recoveries earlier this year never broke out to new highs. This action gives them a double top appearance. Areas such as (but not limited to) Manufacturing, Retail, Banking, Durables & Non-Durable are examples here.

Gold which has been rallying off what appears to be the mother-of-all bottoms (see column archives) has lost steam. It is now at an inflection point.

Silver looks even worse.

Now for the ugly:

I remain concerned by the fact that prior leaders such as Drugs and especially Biotech have rolled over.

Internet is another example of a prior leader that appears to be falling from grace.

Hopefully, more and more sectors do not join in the fray.

Once again, the indices, especially the Ps are masking what’s really going on.

Unless the market begins to take off in earnest, the game plan remains essentially the same. First, don’t panic. Do not make any drastic moves. When things start looking questionable the first thing to do is to apply a bit of a portfolio triage by mitigating any further bleeding. Let stops take your out of any losing trades. Second, let trailing stops keep you in any positions just in case the market turns or somehow they defy gravity if it doesn’t. As I preach, longer-term following the plan is the way to go. My methodology—and trend following in general for that matter-requires the occasional outlier to work. If you bail at the first signs of adversity, you’ll never catch that often crucial homerun. Let the market make decisions for you. If the market prunes your portfolio then so be it. Guess what? The market isn’t going anywhere and there will be plenty of opportunities down the road. As far as current opportunities, do start watching the “fallen heroes” for possible shorting opportunities. With the overall market hanging in there, I wouldn’t get too aggressive just yet. On the long side, just make sure you really really like a setup while the market finds its way. And, if you do, make sure you wait for entries. That, in and of itself, can often keep you out of new trouble.

No columns on Thursday and Friday. I’ll be off saving lives, building buildings, repairing automatic transmissions, or doing other great things.

Futures are strong pre-market.

Best of luck with your trading today!

Dave