A wild end to a wild week in the market. Each of the major indexes closed at or near their weekly lows. The NASDAQ closed below the 10wk line. And to top things off, the distribution day count on the S&P 500 has climbed to 9. The last time the distribution day count was this high was back in Oct-Nov while the market corrected about -10%. IF this turns into a similar correction, that would put us near the December lows around 3600.
My thoughts on this… In a word “PERSPECTIVE”
During today’s DEEP DIVE we highlighted that the monthly trends were still up. The weekly trends are moving sideways. And its only the daily timeframes that have begun downtrends. Yes, many of the stocks that lead on the way up got smashed last week. Many traders on social media have pointed to TSLA as the ‘bell weather for leading stocks’. I don’t disagree with them in that TSLA has been a major leader and is a major component of the S&P 500. If it underperforms, it could help drag the index down.
All that said, when scanning the Universe List (our pre-screened list of the top stocks in the market) about 1/3 of them were still only 10% away from 52 week highs! That alone has me leaning more on the side of this turning into more of a choppy sideways market vs a nasty bear. BUT, like I always say, we always want to take EVERYTHING into perspective and never get too caught up in the minutae.
This leads us to the NEW HIGHS vs NEW LOWS. So far, aside from a major dry up in new highs on Friday (only 47 new highs on the Nasdaq and 35 on the NYSE) new highs were still in the triple digits all week. That’s with the market getting hit on Tuesday and Thursday. Furthermore, the stocks in our portfolios are serious bellweathers too. So far, my positions have held up fairly well. At or near breakeven or up slightly in the case of FFWM.
Given the wild price action and the potential for further downside, last week I opted to put on 2 hedge trades. SQQQ (ETF that is the inverse of the QQQ) and SDS (ETF that is the inverse of the SPY). I opted to hedge in case the has further downside, I’m in a better position to hold my current swing trades and allow their plans to play out. Should the market rip higher, if my positions are infact true leaders, they should rip higher as well and I’ll exit my hedges.
Checkout the charts of the indexes below for a closer look at the action.
MONTHLY CHARTS (indexes) Overcall Direction = Up: https://www.tradingview.com/x/kjFjlXlG/?aff_id=15325&offer_id=10
WEEKLY CHARTS (indexes) Overcall Direction = Sideways: https://www.tradingview.com/x/ERBbKRgu/?aff_id=15325&offer_id=10
DAILY CHARTS (indexes) Overcall Direction = Down: https://www.tradingview.com/x/bLnGsuLj/?aff_id=15325&offer_id=10
(on the lower right is the image of stocks hitting new highs vs new lows on the NASDAQ & NYSE)
Deep Dive Video