As I preach, you have to take things one day at a time. And, each day brings a new clue.
As bonds go down, rates go up. Back on Friday, bonds began to accelerate lower. So rates are rising. As I have been saying, absolute rates don’t matter. It’s the delta (change) in rates that’s concerning.
Friday’s delta in rates caused Real Estate to implode. This action is concerning since it has been in a solid uptrend and just recently hit 5 year plus highs. When a sell off occurs from new highs like this, the most amount of people are trapped on the wrong side of the market. This is the reasoning being my trend transitional (emerging trend) patterns–to capitalize on the predicament of those on the wrong side of the market.
So what does this mean? Well, its one bad day for Real Estate. We’ll have to see if it follows through to the downside or if it was just one big kneejerk. And, if it does follow through, we’ll have to see if other sectors join in the fray. Obviously, other interest rate sensitive areas will likely be the first to head lower.
Let’s get back to the overall market.
The Ps (S&P 500) were a bit of a disappointment. They looked poised to challenge all-time highs but turned back down instead, giving back all of Thursday’s gains to end over ½% lower. This action keeps them stuck right at their July peak. As I’ve been preaching, I’d like to see them clear this peak decisively and not look back for a while–that’s what I have been hoping. Well, hope in one hand and, well, you get the picture.
The Quack (Nasdaq) lost just over ½%. It’s shorter-term breakout and longer-term uptend remain intact. However, lately it remains stuck in a sideways range.
The Energies got hit especially hard, losing nearly 1 ¾% for the day. This is concerning since they were just at new highs not too long ago—the aforementioned wrong side of the market thing. So far, they appear to be putting in a major top. We will likely see transitional trend sell signals here soon.
Although they weren’t hit quite as hard, ditto for Chemicals.
Gold continued to make new lows–this in spite of rising rates, world plagues, war, and the Nick Cannon & Mariah Carey breakup. It just goes to show you that you can’t confuse the issue with facts (www.donotconfusetheissuewithfacts.com). I do think that we’ll see the mother-of-all-bottoms here someday. “Someday” being the key word in that sentence. Until that happens, I will wait patiently.
As you would expect with a soft overall market, most other areas were weak. However, so far, most sectors, like the overall market, still remain in uptrends.
So what do we do? I think the rising rate thing is a “shot across the bow.” If just a few interest rate sensitive areas begin to sink, then so be it. This might even provide us with some opportunities on the short side. However, if other areas begin to get torpedoed, then there will be an obvious cause for concern. For now, and as usual, take things one day at a time. Honor your stops on existing longs and make sure you really really like a new setup before going after it. Then, make sure you wait for an entry. If the market fails to follow through to the upside then you’ll avoid a potential losing trade.
Best of luck with your trading today!
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