Running Out of Breadth

Like a less talented, smaller, slower team, the market is just hanging around, scrapping and clawing to stay in the game.  Teams like this are dangerous, it’s anyone’s game in the waning minutes.  A big push up above 1120 with volume on the $SPX and I wouldn’t be surprised to see another round of buying into the end of the year bringing us to my ultimate target of somewhere between 1220 and 1260.  But the market just doesn’t feel right to me here.  We’re still in the up trend channel, towards the top of the range again now, but showing more and more momentum divergences as we go.  As enough time goes by those divergences can be worked off, remember the market can correct over price or time.

The $USDX is approaching my first major level of 74.31.  Maybe that is where we see a larger bounce that sells the equity market off, maybe not.  You have to continue playing the the downtrend channel here until the 5o day moving average is broken and holds on a retest from the top side.  Don’t go trying to be a hero by picking the bottom and getting short, you’re more likely to get your face ripped off.

Equity market leaders are falling off the wagon though and breadth is decreasing.  Fewer and fewer stocks in my universe of almost 1500 issues look healthy every day.  To cap it off, the small cap index $IWM is not confirming new highs along with the large cap $SPY.  Why are investors moving out of riskier, more leveraged smaller cap names?  These companies are more directly exposed to the US economy, a sign that investors may be getting a little apprehensive about throwing in their lot with a recovery they don’t really believe in.  Large cap names like $WMT and $MCD have taken off recently signaling that investors are rotating into safer less leveraged names.

That said……you must continue to trade the market you see and not the one you believe should exist.  If we break through to the upside here, it could signal a capitulation in the US Dollar in which case all hell will break loose to the upside in commodities.  If we get a bounce in the dollar, my bogey on the $SPX to get short is 1020, below there and my spartan sword is out.  I’m also watching for a break in the MACD on this chart for a break to the upside.

I’ve been deadly silent in my trading book lately, barring a major break look for this to continue.  I’m hugging my $GLD position like a teddy bear and still love the action in $NFLX.  Other than that, I’m sitting on my hands until further notice.

I took off a little more exposure in the momentum book today selling some energy related shares of $DRQ and $OXY.  My cash position is now north of 22%.

I’ll be blogging a little bit from Bogotá this week, other than that, hasta luego!

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see the Disclaimer page for a full disclaimer.


blog comments powered by Disqus