When looking at this market, the allegory of the blind men and the elephant comes to mind. It all depends on where you “look.”
If you wanted to make a bullish case, you could point out that the major indices remain well above their 200-day moving averages and not too far away from all-time highs. Interest rates have stabilized (for now) and are actually lower than they were nearly 2-months ago. Biotech and Drugs overall have recently broken out to new highs. Financials, though weak on Thursday, are just off of new highs. Ditto for the Foods, Insurance, Health Services, and Leisure. Internet—although it’s mostly Google and Facebook and not much else (which I suppose can be fodder for the bears)–is just off of new highs.
As a market technician, I don’t worry about the news. It’s not the news that you know that matters, it’s the unforeseen events that tend to rock the markets. And, since you can’t see ‘em coming, you can’t worry about ‘em. Anyway, with that said, you could argue that the market has climbed the wall of worry. You should never say “I told you so” in this business. Admittedly though, I do feel the temptation to point out my recent Market Slips On Greece, Seriously? LOL column but I won’t.
For the bears, you could point out that the Chemicals are breaking down to new lows. Ditto for Conglomerates. You could also point out the fact that the Semis gave up most of their gains on Thursday, they are well below their 200-day moving average, and they still look poised to make a new leg lower. You could also point out similar bearish patterns in the Transports, Automotive, Manufacturing, Wholesale, and Real Estate. You could also point out areas such as Energies and Metals & Mining (especially Gold and Silver) that are breaking down to multi-year lows and remain in solid downtrends. You could also point out the fact that Utilities are sitting right at multi-year lows.
You could then go on to point out that many other sectors like Durables and Diversified Services are sideways at best-like the overall market basis the Ps.
A Snake, A Rope, A Tree….
To further complicate matters, if you drill down to some of the sub-sectors, you’ll see that even though the overall sector may be at or new highs, some of the areas within are looking a little dubious. Health Care Plans within Health Service, Department Stores within Retail, I can go on and on but I don’t want to bore you. Too late? So, depending on where you look, you end up with a snake, a spear, a wall, a rope, a fan, or a tree.
Speaking Of Allegories
In yesterday’s Dave Landry’s The Week In Charts I discussed various methodologies and more importantly how you must understand that the sun doesn’t shine on the same dog’s ass every day. Different conditions are more conducive to certain methods. I pointed out that you can’t get caught up in permanent market hypothesis, thinking that conditions will always be this way. You have to see the whole elephant. You do this through experience and if you don’t have time to wait for that you have to carefully study historical markets. Of course, look for when your potential methodology worked very well but more importantly, seek out periods where it would have failed miserably because sooner-or-later, it will.
I went on to discuss that in spite of all the methods for trading that appear to be out there, it all boils down to just a few approaches. I pointed out the pitfalls of each of these and how your best bet is taking a hybrid approach. Though far from perfect and not “my way or highway,” (see Wednesday’s column) I made the case for why I think my approach is your best way for trading the markets. Check out the show and let me know what you think. See below.
So What Do We Do?
I think it’s safe to say that things are getting mixed. And, admittedly, I found myself getting a little nervous when my bear case above seemed to be taking up quite a bit of space. When conditions are dicey, the best thing to do is to err on the side of the longer-term trend. This is not to say throw caution to the wind. Pay attention to developing conditions. Be skeptical and super selective. Make sure you pick the best and leave the rest. And, if you’re not really super excited about a setup, then pass. Now would be a good time to brush up on your stock selection. I should probably do an intensive course on this. Wait! I did! On sale now. Click here.
Best of luck with your trading today!
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