The Water Is Still Fine, Come On In!

Random Thoughts

Back on Friday, the Ps (S&P 500) started strong, sold off fairly hard, but then recovered to close flat on the day. This action keeps them just below overhead supply, circa 1960. So far, they still look like they have the potential to resume their recent rollover. And, so far, the recent Bowtie down from all-time highs remains intact.

You know the routine though, take things one day at a time. Ideally, I’d like to see the market go on to make new highs and not look back. Unfortunately, it still looks somewhat dubious. My concern has been that the Ps would rally just enough to trick everyone into believing that everything was okay, and then, roll back over—the recently mentioned “come on in, the water’s fine” thing.

For those keeping score, Friday’s action forms an outside day down. Speaking of outside days down, like the Ps, the Rusty (IWM) also formed an outside day down—it gapped higher but soon reversed to sell off hard. It too recovered to close off its worst levels but still ended in the minus column nonetheless.

The Quack (Nasdaq) gapped to near 14 years highs, sold off, but then erased most of those intraday losses to finish up ¼% on the day. Although it is hovering near new highs, I wouldn’t get too excited until it proves itself by breaking out decisively and following through.

For the most part, the sector action still looks questionable. Like the Ps and Rusty, most still look poised to resume their rollover from a transitional pattern or downtrend from a pullback like the Ps and Rusty respectively.

These include but not limited to major sectors such as the Financials, Defense, Semis, Manufacturing, Telecom, Utilities, Foods, and Banks.

There is some improvement out there such as the Drugs, especially Biotech but not enough to get excited about just yet.

So what do we do? I think the short side remains the obvious side for now. However, with the market generally going up, you want to stay out of its way. Therefore, wait for entries and in fact, use liberal ones (give the stocks room to fake out). I’d avoid the long side for now. If more sectors begin to improve and the indices can keep making higher highs then I might reconsider. One last point, this isn’t a market where the trend is clearly defined. Yes, it still looks like it has the potential to roll back over but so far it hasn’t. With that said, avoid getting too aggressive.

Best of luck with your trading today!

Dave