State of the Market 12/28
Ive had this big whiteboard thats been involved in my trading career since day 1. Its been hanging on my wall, on the floor next to me or wherever it is at the time. I used it for trading rules, stats, and most recently, market themes. I had an idea a day or two before Christmas, to use that same style, but to expand on it through a blog post that I can also share with the world to reach out to others that may find some help from it.
Every week I have a markets watchlist that includes several ETFs Indices, all tracking various things. I write down themes that I notice for the week ahead and keep that in mind going into the trading week. It certainly helps my swing ideas when I know that solar is breaking out on the weekly, therefore I find a solar stock that looks good for a trade, I know that industry can amplify that move.
So we start with major indices.
SPY in its range again, ultimately still in that rising wedge with failed break higher out of it, and last weeks failed breakdown out of it, we now had a tight 4day Christmas week still holding above important levels. Looking good for some more upside as we are coiled above MAs and have a TL break to the upside. Christmas rally seems likely.
The same applies to the QQQs. Nice triangle, broke early on Christmas eve, rejected, looked back up to close the week out.
DIA and IWM also in the same boat. Tested lower, failed, looking higher again.
Remembering, still, we are in this rising over extended wedge. When that sell comes, which it always does, the question is how aggressive will it be, where will we find buyers again, will we reset the trend, enter range bound markets, maybe to continue upside again. Until we see that sell, me personally, I dont trust this up move completely yet and always on the look out for that gap down that doesnt get bought up any longer.
BUT also have to remember, the bulls have been buying and defending everything, so until the dont, the long is on and clear path of least resistance.
If I h ad to put a number on it, SPY losing 367 may trigger the start, followed by 364, and 362 to really maybe see that reset. QQQs will have to lose 303.
SECTORS
Tech breaking out to ATH and held nicely above.
Semis been lagging a bit, looking ready to reclaim and ready for next leg higher though given market strength. Relative to QQQs though, telling me they are a bit overdone and ready for some deeper pullins.
Energy is in a pretty important spot to hold and find strength. These stocks have been getting killed all year, if strength wants to come back into the sector, there may be some really nice beginning uptrend trades to come in next weeks.
Consumer sector in a tight spot. Will be an important signpost as to overall strength of market. If we start failing here, may also add strength to downside signals. And of course, if can reclaim and resume uptrend, market has more reasons to keep running.
Industrials doing what I want to see SPY do at same point in the future. New ATH, reset weeks long range, wait for MAs to catch up, to hopefully see strength come in and continue trend. Will also be a good sector to look for starting swings.
Basic materials looking great for more upside after test lower was bought up + tight MAs. I know Lithium stocks are big on watch right now.
Biotech and Healthcare in an interesting spot. Healthcare tight range bound while biotech continues big up move with no resets. Another on watch for both weakness and or resumed strength.
Real estate sector in a tough spot. Will also be an important spot to hold and see more upside.
Bonds and interest rates are in a very important spot and may be a big trigger for downside in market. Bonds go up, stocks go down is the rule of thumb. Bid base out at bottom, finding good S at prev S and TLs catching up while MAs coil under. If we see breakouts here, could be bad for market and we see that reset.
Probably the most important chart for next while..
Is bonds relative to SPY. Obviously whole year market has been on a tear while bonds started the same, but havent done a thing since. We are starting to see that shift though. Each down move is slower, longer and less weak/aggressive each time. Question is, what happens when we break this pattern in stocks? Will be a big thing to pay attention to.
There is more to see to this as well.
Cant get much tighter than that.
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KWEB China internet stocks, also in the same boat. Crucial spot to hold.
The dollar is at a nice bottom spot. Fakeout lower, seeing some coiling higher. Im honestly not entirely sure what the dollar means to stocks. Google is telling me higher dollar means higher stocks and lower to lower, but clearly that is not the theme this year. Will be interesting to see what can happen from here and what it will mean for stocks.
Clearly rising wedge, retest of TL and ATH, failing and dropped hard to close xmas eve. Given how FANG has not been moving for months, im surprised to even see that retest of ATH here.
Retail sector is breaking out relative to semis, starting to out perform. More proof semis may be overdone and ready for more downside.
So what have we seen?
Banks/financial strong. Continuation in bank names.
Consumer stocks/Industrials on watch for weakness/resumed strength.
Tech at ATH, looking like more.
Semiconductors looking for resumed strength or breakdown. Relative weakness starting to show.
Basic materials looking ready for good upside resumption. Lithium on watch.
Biotech/Healthcare in odd spot. Can see both ways, edge looks like downside.
Bonds maybe revering downtrend starting uptrend. Very important cues to pay attention to in Bonds/SPY/QQQ.
Emerging markets have a shot at seeing some big strength moves.
Market is VERY TIGHT. Everyone is long stocks. Who else is left to buy once we see it turn.
We got signs both ways. I cant see this situation of rising/falling wedges in Major indices/bonds/currencies ending with anything but an explosive move out of them.
The long is on until it isnt anymore so I will continue looking for the long side trades, but downside trades can start to appear as well. As some of these names have had monstrous moves without seeing any significant profit taking/pullbacks/reversion to means.
It wouldn't surprise me to see this market go parabolic either.
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Finished charting/finding stocks to trade. Ive got a list of about 300stocks organized into there industries. We are definitely seeing weakness out there. Lots of failed breakouts, big sell days, weak breakouts.
It is a low vol environment for the moment so the sells were are seeing can be a bit exaggerated with the low liq out there. We will have to see how we recover this week from some of these.
As for others, there are still some decent upside breakouts out there. I can tell you that the past week I have been swing trading, I have had some really good breakout entries explode, only to sell off all day and close back underneath the breakout point. Not a thing you want to see in a single trade let alone several breakouts trades across several industries. Starting to tell me this market is getting sold, not bought as aggro as it once was.
So what is the bottom line going into next week?
Market is tight, we are on high alert for failure on any more upside moves to possible take opposite side trades. SPY QQQ will ultimately decide action for sectors/industries as well. Doesnt matter too much if financials are breaking out higher, if market is going to dump on us as we get a big vol spike.
ALTHOUGH, if we continue this uptrend, we are tight at the moment and can also see a continued move higher, if that is the case..
-Financials
-Lithium
-Solar
-Tech
All look great for upside moves still
-Industrials
-Basic Materials
-Consumers
Look to get strength and continue upside
-Semiconductors
-Energy
-Healthcare/Biotech
-China/Emerging Markets
On the chopping block. At very important locations, can see good recovery/continuation if we hold these areas and move higher.
SPY 367 will be trigger for me to start looking for that fast big sell. QQQs at 308.
On other end SPY 370 for more upside and QQQ 310.
Always ready for both sides, never staying attached to one idea. Trade what you see, not what you want to see.
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